Is the Providence stapled deal ‘North America’s BC Partners’? Is it the brand-name deal which shows that GP-led processes are signals of smart fund management, rather than cries of distress? Some think so.
Secondaries Investor revealed on Monday that Canada Pension Plan Investment Board is the lead backer of a stapled tender offer on Providence Equity Partners’ $5 billion, 2011-vintage fund. The pension, with other buyers, is offering limited partners a 3 percent premium to NAV for their stakes. They are pledging also a commitment to Fund VIII, which is in market seeking $5 billion.
Despite the size of the US secondaries market, it has long lagged Europe in terms of the size and complexity of its GP-led deals, and the calibre of manager willing to do them. The US market accounted for 66 percent of all secondaries deals in 2017 but only 40 percent of GP-led, according to data from Greenhill.
In March we suggested a few reasons, including the European GPs’ greater need to crystallise carry, the watchful glare of the Securities and Exchange Commission and the booming US public equities market, which boosted portfolio company valuations and gave US GPs more exit options than their European counterparts.
It’s not clear what, if anything, has changed to bring a decent brand like Providence to market, but it’s certainly not underperformance. Fund VII has achieved an internal rate of return of 24.2 percent and net multiple of 1.7x as of end-March 2018, according to performance data published by Employees’ Retirement System of Rhode Island.
“In terms of a really brand-name GP – good track record in the fund – this is really the first of its kind [for North America],” a buyer source told Secondaries Investor. “I hope this is an enabler for future transactions like this where GPs don’t have a bad stigma of fund recaps or restructurings.”
A common refrain before BC Partners ran a successful process on its ninth fund last year was that it would take one big deal to prise open the GP-led market in Europe. EQT and Nordic Capital have followed suit, suggesting this was true.
The Providence deal (if it closes, of course) could have the same impact.
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