Sun Capital is running a process to extend its hold over infrastructure support company Cotton Holdings, which it acquired in 2020, sources told affiliate title Buyouts.
Sun is among a group of sponsors looking to extend holds over certain assets while at the same time delivering liquidity back to limited partners in older funds. GP-led secondaries deals like single-asset continuation funds represented about 40 percent of estimated total market volume of around $43 billion in the first half, according to Lazard’s first-half volume report.
“The GP-led secondary market maintained a substantial share of total volume (~40 percent), as GPs view the secondary market as a legitimate alternative to traditional liquidity options,” according to Lazard’s report.
Sun Capital is working with Jefferies on the process, sources said. The firm is looking to raise up to around $500 million in the deal, they said. A Sun Capital spokesperson declined to comment.
As is usual in such deals, LPs in Fund VII, which holds Cotton, have the option to cash out of their interests in the asset, or roll or reinvest into the continuation fund. It’s not clear if LPs will get the chance to roll on a status quo basis, or if they will only have the option to re-invest on the new terms of the continuation fund.
Sun Capital acquired Cotton in early 2020 through its seventh fund, which closed on $2.3 billion in 2019, according to a press release at the time. The company provides infrastructure support for public and private entities in the US and internationally.
Sun is no stranger to secondaries deals. The firm earlier this year worked on a tender offer process that allowed LPs in Funds VI and VII to sell out of their interests in the funds, that would also provide a shot of fresh capital into the firm’s Fund VIII, which is in the market now.
Sources have said the market contains robust “pent up” demand among GPs to run processes on choice assets. But activity remains somewhat muted due to a continuing gap between seller and buyer pricing expectations. This is the same dynamic that is keeping the regular M&A market slow.
Still, activity has remained steady in the mid-market, with a handful of processes finding their way to close. One such deal that has gotten a lot of attention is being run by Aterian Investment Management, which wants to move its asset Vander-Bend Manufacturing into a continuation fund, Buyouts recently reported.
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