A couple of weeks back, a comment in sister publication Private Equity International‘s Side Letter (a subscriber-only daily email) got secondaries tongues wagging. It was about single-asset restructurings, which, as Secondaries Investor reported, are increasingly being used in situations where one asset in a portfolio requires extra time and not all limited partners want to wait it out. These deals shot up in popularity last year, with firms such as PAI Partners and TDR Capital getting in on the act, and more, larger deals anticipated in 2019.
“For my part, I find this completely absurd,” said Olav Ostin, managing partner of venture capital directs specialist TempoCap, on a panel at IPEM in Cannes. “If you can’t sell the asset, there’s a problem with it.”
Though the refreshing frankness of Ostin’s comments makes them stand out, he’s not the only sceptic. Speaking on the same panel, Greenhill managing director Bernhard Engelien questioned how a secondaries fund might be willing to pay more for a single asset than a buyout fund – “somewhere something is mispriced,” he concluded.
Christophe Simon, managing partner at Idinvest Partners, raised the issue of intent. Why is the GP pushing for a single-asset restructuring? Does it have a plan for the asset or is it purely trying to generate carry? For Simon, this has proved a barrier to moving forward on some deals.
Even if a single-asset deal looks great, it isn’t necessarily worth the effort, said Simon. “If you’re trying to build a secondaries fund exposed to say 100 companies, so 1 percent per company, you can still only invest 1 percent in that [single-asset] deal. That’s a lot of work for putting very little money to work.”
All acknowledged the oft-mentioned issue of concentration risk. In the event of a downturn, you don’t want to find yourself holding large chunks of a failing company.
Let’s not be too sceptical, though. While single-asset deals might not work for firms that prize diversification above all, sizing them up should be well within the wheelhouse of anyone with directs experience. And regardless of a GP’s motivation, surely the more exit options the better?
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