Spinning out One Equity

It looks likely that a version of the One Equity Partners (OEP) deal that has been in the market since last year is on the cards.

High pricing last year brought a prospective $4.5 billion deal to the table, including a portfolio of $2.5 billion of LP buyout interests; although I heard market sources put it higher, at $5.5 billion, when including a staple for OEP’s next fund.

I had heard that a consortium of secondaries big-hitters including Coller Capital, HarbourVest Partners, Goldman Sachs, CPPIB and Lexington Partners were prepared to team up to tackle the gargantuan deal, but JPMorgan had pulled it off the table because it wasn’t getting the pricing it wanted.

Lexington Partners, part of the original group which wanted to undertake the $5.5bn deal, is now close to carving out JPMorgan’s private investments arm, leaving the portfolio of LP interests behind.

This is mainly because it is said Lexington is prepared to pay a 20 percent premium to NAV on the deal.

I’ve written about the issues affecting NAV before, in a recent editorial. This premium doesn’t necessarily mean Lexington has outgunned by paying over the odds. For example, the portfolio of interests might not be marked at market value, or there could have been recent unmarked distributions from the portfolio.

But this deal continues to build on the precedents for multi-billion-dollar deals made and facilitated by the mega-funds.

Several intermediaries I talked to about the significance of the deal said the more these deals get done, the more they become received practice for transacting in the secondaries market.

A conversation with Benoit Verbrugghe of Ardian revealed the firm is to invest the remainder of its Fund VI over the course of four years (it has already invested 20 percent of its $9 billion fund), and the others in the consortium are not short of dry powder. So it will be interesting to see what happens to the remainder of JPMorgan’s portfolio of third party buyout fund interests.