Ropes & Gray has broken Kirkland & Ellis’s stronghold on the secondaries market amid a continued shift toward sponsor-initiated deals.
The Boston-headquartered law firm advised on $146 billion-worth of secondaries transactions in the year to end-October across recapitalisations, preferred equity deals, single-asset recapitalisations, spin-outs and classic secondaries deals, according to the Secondaries Investor Law Firm Survey 2023.
This is the second year since the survey’s inception that Kirkland & Ellis has not topped the list by deal volume. Kirkland still advised on at least $136.4 billion of transactions – the second-highest amount – and 89 percent more than the third-highest-ranking firm.
Kirkland topped the list last year, while Ropes & Gray advised on the highest volume in the 2021 survey.
It is important to note that Kirkland’s figure relates to calendar year 2022 while Ropes & Gray’s relates to the survey reporting period of 1 November 2021 to 31 October 2022.
This year, 19 firms participated in the seven-question survey. Respondents self-reported approximately $753.7 billion of transaction volume, compared with almost $600 billion in the 2022 survey when 17 firms participated and a jump from 2021 when 13 firms reported around $275 billion in deal work.
The survey does not paint a picture of the size of the secondaries market, as multiple law firms may work on various sides of a given secondaries deal and will each report their total deal volume attributed to the same deal. It does, however, shed light on the amount of work that law firms are advising on and the growth of the service providers who advise on secondaries processes.
Deal volume is defined as purchase price plus unfunded commitments. The survey also includes lawyers acting for GPs whose funds were sold on the secondaries market.
All firms’ data below relates to the November-October reporting period, with the exception of Kirkland & Ellis.
Akin Gump Strauss Hauer & Feld advised on 62 transactions worth $15 billion. By number, LP fund transactions accounted for the bulk of deals at 38, with GP-led deals at 18. The majority of its continuation funds – $4.6 billion-worth – involved multiple assets, while single-asset CVs accounted for $1.3 billion.
According to Akin, there was a rise of non-traditional secondaries buyers last year, with sovereign wealth funds and other such investors showing a keen interest in establishing a “more direct presence” in the market by leading on transactions or forging strategic partnerships with established secondaries buyers.
“As we move into 2023, this trend of diverse and active participation shows no signs of abating, and the secondary market continues to thrive with innovation and opportunity,” Akin noted.
Davis Polk‘s approximately 70 deals over $20 billion transactions mainly advised on GP-led deals during the period, which accounted for 82 percent of its transactions. LP-led processes made up the remainder. It advised on 24 NAV loan deals, 15 single-asset GP-leds and eight preferred equity transactions.
Commenting on last year’s market, the firm said it saw a sharp increase in the number of deals that used structured elements such as deferrals and earnouts. This year, it expects deal volume to pick up in the second half of the year, including for single-asset GP-leds.
“As the broader fundraising market continues to be tight, we also expect GPs to continue seeking staples and other liquidity solutions to free up capital for their investors,” Davis Polk noted. “Macro conditions and increased supply will likely continue to permit secondary buyers to be more selective about the deals that they pursue.”
Debevoise & Plimpton advised on the fourth-highest number of transactions at 270, across $50.7 billion-worth of deals. The firm, which advised KKR on its continuation fund process for consumer website operator Internet Brands last year, advised on 25 single-asset deals. By volume, most of its transactions were GP-leds, accounting for 89 percent of deals.
Dechert also mainly advised on GP-led deals during the period, which accounted for 80 percent of its work by volume. The remainder were LP-led deals. Of its $9.8 billion deals across 23 transactions, it was fairly evenly split between multi-asset and single-asset transactions by volume.
The firm expects 2023 will be a year of change for private credit secondaries opportunities.
“2023 will likely be notable for the number of private credit secondaries funds launched, not only by core private credit secondaries GPs, but also by non-core diversified credit GPs, resulting in a healthy amount of dry powder earmarked for credit secondaries opportunities,” Dechert said. Credit accounted for 15 percent of its deals by strategy during the period, with buyout at 70 percent and growth equity at 15 percent.
DLA Piper advised on the highest number of single-asset deals by number at 69. Of its $24 billion in transactions across 322 deals, 57 percent were LP portfolios and 43 percent were GP-leds. It also advised on $2 billion-worth of NAV financings and $400 million of preferred equity deals.
DLA Piper, which mainly worked on private equity and venture capital deals at 90 percent of its volume and 10 percent on real estate, saw an increase in smaller GP-led processes worth less than $200 million last year as LPs has become “more comfortable” with these processes, it said.
“We expect to see greater efficiency in these transactions with the development of more tools and products leveraging technology,” the firm said.
Gibson Dunn & Crutcher advised on $20.1 billion across 41 transactions, marking a 38 percent increase from last year’s survey. The majority of this by both value and number of transactions was in GP-leds, at 86 percent and 52 percent. Notably, just over half of its deals by volume were single-asset GP-leds, of which it advised on 14.
The majority of Gibson Dunn’s work by asset class was private equity at 88 percent, followed by 8 percent for real assets and 4 percent for venture capital.
Some buyers held back on acquiring LP portfolios last year as they were “wary of values during volatile equity markets”, including for tech companies, the law firm noted.
Goodwin predominantly advised on GP-led deals last year, with 91 percent of its total $10.4 billion focusing on such deals. Of its 48 deals, nine of these were NAV facilities worth more than $2 billion in total. Two of the 13 GP-leds it worked on were single-asset in focus worth a total $700 million.
Kirkland & Ellis advised on 240 deals during calendar year 2022. Of its traditional LP portfolio trades and conventional GP-led secondaries transactions, which totalled $73.6 billion, 83 percent of these were the latter by value.
In addition to its 85 GP-leds, which accounted for more than $60.1 billion, the law firm also advised on three tender offer processes worth $1.2 billion in total. Most of Kirkland’s work focused on private equity with the remainder in credit, infrastructure and real estate.
The firm advised on the second-highest number of single-asset deals at 41 worth $33.7 billion in total. It also advised on 15 preferred equity secondaries investments for a total of $4.2 billion and at least 31 NAV facilities worth $9.3 billion in total.
Latham & Watkins advised on $27.9 billion across 29 deals. As with most firms, Latham’s volume mainly focused on GP-leds which accounted for 77 percent, with the remainder on LP fund stakes. The firm’s transaction volume includes deals handled by Latham attorneys prior to joining the firm.
By asset class, most of its deals focused on private equity and buyouts at 76 percent, with credit and real estate each accounting for 10 percent and infrastructure at 3 percent. Latham advised on nine single-asset deals worth almost $10 billion.
Macfarlanes also mainly advised on GP-led deals during the period. Of its roughly $12 billion across 42 transactions, 75 percent were sponsor-initiated with the remainder being LP fund stakes; almost all its volume focused on private equity.
The firm “continued to see continuation funds cement themselves as a mainstream and credible alternative to a traditional exit for GPs, particularly in the mid-market” last year, said partner Alex Green. He added the market could see continuation fund processes on continuation funds this year as earlier vintage CVs near the end of their fund terms and need to deliver liquidity to investors.
Macfarlanes advised on 11 single-asset deals worth around $5.5 billion and six preferred equity deals worth roughly $1 billion in total.
Morgan, Lewis & Bockius went against the grain by advising on more LP-led transactions than GP-leds, with a 65 percent versus 35 percent split by dollar value. Of its $50.5 billion across 187 transactions, 35 of these were single-asset continuation fund processes. The firm also had a larger focus on real assets than other law firms in the survey, with half of its transactions focusing on infrastructure and real estate, split evenly. Private equity accounted for the bulk of the remainder at 45 percent, with venture accounting for 5 percent.
Paul Hastings advised on $20 billion across 27 deals. The firm was also skewed toward GP-leds, with 89 percent of its transactions focusing on this deal type and the remainder going to LP fund stakes sales. It advised on 10 single-asset deals deals worth $7.8 billion in total.
The firm has seen a reduction in GP economics in the form of lower management fees and fewer examples of super carry being charged, it said. “We’ve also seen more instances of sponsors’ flagship funds investing in CV transactions and also an increase in the use of W&I insurance in [continuation vehicle] deals,” Paul Hastings noted.
Paul, Weiss advised on the fourth-highest number of single-asset deals at 22, worth an aggregate $32 billion. The firm’s total deal value was $40 billion across 27 transactions, and it GP-led versus LP sale split was 87.5 percent to 12.5 percent.
Most of Paul Weiss’s asset class exposure was to private equity, with credit accounting for 15 percent of its deals by dollar value.
Proskauer Rose provided counsel on the highest number of transactions of all the law firms in this year’s survey, at 510. These deals were worth a total $72 billion and were split across GP-leds and LP sales on a 65 percent to 35 percent basis, by dollar value.
The firm advised on 20 single-asset deals worth $8 billion in total, as well as 12 preferred equity deals worth $1 billion in total and 20 NAV loans of $2 billion in aggregate.
Ropes & Gray‘s $146 billion in advised volume was spread across 450 transactions – the second-highest number by deal count after Proskauer. It noted a “surge in secondaries representations” its team advised on during the period, including transactions with Kohlberg & Company on its first continuation fund and CCMP Capital on its first-ever GP-led.
The firm did not provide breakdowns of its activity during the period, except that by asset class it worked on private equity, credit, real estate, venture capital and infrastructure transactions, among others.
Sidley Austin, which hired partner Nicholas Cassin from Kirkland in February, advised on approximately $4.8 billion of deals, noting that not all of this was its clients’ portions. The firm worked on 13 deals that closed during the period, comprising six LP sales and seven GP-led processes. Most of this – $3.9 billion – was for GP-led deals.
It advised on $125 million-worth of single-asset deals and $202 million in NAV loans.
Simpson Thacher & Bartlett also had a heavy slant toward GP-led deals, with most of its transactions focusing on this type, and 44 percent to LP fund stake sales. Its $71 billion of deals were spread across 69 transactions and mainly focused on private equity, with “smaller slices” of real estate, infrastructure and natural resources such as oil and gas
The firm worked on nine single-asset matters worth $8.2 billion, and 15 preferred equity/NAV financing deals totalling more than $10.7 billion.
“Coming off record levels of activity in 2021, last year we saw secondaries transactions volume decline in parallel to deal activity more broadly,” said Lauren King, partner and co-head of the firm’s fund transactions practice. “The secondaries market as a whole has been impacted by macroeconomic factors that have led to uncertainty around asset valuations and a denominator effect-related right-sizing of portfolios by institutional investors.”
King added the firm has already seen a number of transactions that had been put on hold last year become active again this year, in addition to new GP-led launches this year.
Travers Smith‘s $15.6 billion in deals were spread across 32 transactions, with 60 percent going towards GP-leds and the remainder to LP portfolios. It advised on four single-asset transactions worth $9.1 billion in total, as well as nine NAV financings worth $2.5 billion. It did not advise on preferred equity deals during the period.
Winston & Strawn advised on the highest proportion of LP portfolio sales during the period at 83 percent of its deals, versus 17 percent for GP-leds. Its $7.5 billion was spread across 104 deals, including three single-asset deals worth $1.5 billion in total. It did not advise on preferred equity or NAV financings.
“It was very encouraging to see how busy the secondaries market remained, despite some notable headwinds across private equity and the economy in general,” the firm noted. “It is also exciting to see many new entrants into the space emerge, as well as the seemingly constant evolution of new transaction structures and features. There are always new issues to analyse and troubleshoot, which really keeps the work fresh.”
– This report has been updated to show Ropes & Gray topped the list by deal volume for the first time in 2021.
– This report was updated on 6 June to specify that Kirkland & Ellis advised on $73.6 billion of traditional LP portfolio sales and conventional GP-leds. Its $136.4 billion figure includes a wide range of transactions that generally fall under the heading of secondaries, according to a spokesperson for the firm.