Unigestion managing director Hanspeter Bader recounts an opportunity to invest in a “co-investments secondary” as a bank looked to sell off its private equity holdings last year.
What is a “co-investment secondary”?
We made a co-investment from our current fund last year into a company that was very close to exit, a “co-investment secondary”. A bank was looking to sell a several year-old direct investment in a company, together with another GP. That bank, for capital ratio issues, had to sell off the assets within an extremely short time frame; the only buyers able to act quickly enough were the GP and the investors who were invested with that GP, of which we were one.
What was crucial to the deal?
It was an issue of acting quickly; pricing probably played less of a role than the timing, which conversely helped on the pricing of course. We had the opportunity to pick up what we believe to be an extremely solid asset as regards cash flow; they were one to one and a half years away from exit, at a very attractive discount, so we transacted.
What was the seller’s motivation?
The specific situation of the bank was that they co-invested in that company because, like often in private equity, they wanted to get some additional dealflow on the leveraged lending side, given that a lot of banks went out of leveraged lending after the global financial crash.
Many banks now have many regulatory pressures so are selling off non-core assets from their balance sheets, and this secondaries co-investment was part of this kind of deal.
Are co-investment secondaries merely a case of right place, right time?
We often do complex transactions where you need a very deep insight into the quality of each underlying company, so that helps in terms of analysis.
Because we’re a primary and secondaries investor, there have been cases recently where the GP considers us as a preferred buyer, because we already have primary relationships with the GP.
Are we likely to see more secondaries co-investments?
The more people in the market doing co-investments the more we are likely to see secondaries coinvestments. It’s still a relatively rare case, but I think it will grow, and we’re happy to execute on these – it is highly opportunistic.