San Fran’s Gryphon runs single-asset on Vessco Water

The single-asset continuation fund process is part of a wave of such deals GPs are attempting as a way to deliver proceeds to limited partners in older funds at a time of slow exit activity.

Gryphon Investors is running a process to extend its hold over Vessco Water in a deal that could total up to $700 million, sources told affiliate title Buyouts.

The single-asset continuation fund process is part of a wave of such deals GPs are attempting as a way to deliver proceeds to limited partners in older funds at a time of slow exit activity. Single-asset deals have become the most popular form of continuation funds, representing about 41 percent of the $48 billion of total GP-led secondaries last year, according to PJT Park Hill’s first quarter secondary activity report.

San Francisco-headquartered Gryphon is working with Jefferies on the Vessco process, sources said. Lexington Partners is said to have explored the deal as an investor, though it’s not clear if the firm’s role is finalised.

The process was launched late last year, sources said. No one from Gryphon or Lexington returned recent comment requests.

Gryphon acquired Vessco in 2020 in partnership with the company’s management team from O2 Investment Partners, according to a statement at the time. The firm acquired Vessco through its sixth fund, according to a Federal Trade Commission filing. Fund VI started fundraising in 2020 and closed under target on about $1.81 billion, Buyouts research said.

Vessco provides parts and services to water and wastewater treatment utilities and industrial users, a statement said. The company is led by chief executive Brian DeWolf. Last year, Vessco rebranded from Vessco Holdings to Vessco Water, a statement said. Earlier this year, Vessco added on GA Fleet Associates and Fleet Pump, which together distribute water infrastructure services in the New York tri-state area.

Generally in such deals, existing LPs in the older fund have the option to cash out of their stakes in the asset, or roll their interests in a continuation vehicle created to house the investment. The continuation fund comes with its own set of fees and carried interest as well as governance provisions, with terms usually ranging from three to five years.

LPs have come to expect that continuation funds will include a third option – known as the status quo option – which gives them the ability to not make a decision and simply retain their interest in the investment on the same terms they had in the older fund. It’s not clear if Gryphon’s deal would give LPs the ability to keep their same terms.

Also at issue in continuation fund deals is price, which this year has been relatively strong for well-performing assets. Generally a GP won’t run a continuation fund on an asset unless they know pricing will be strong, at least in the range of 90 percent or more of net asset value.