Wellspring to close nearly $1bn multi-asset deal with Neuberger, Lexington

Continuation fund will hold Wellspring portfolio companies SupplyOne, Cadence and Pentec Health, and includes $125m of unfunded capital for growth.

Neuberger Berman and Lexington Partners are closing a secondaries process that will move three assets out of an older Wellspring Capital fund and into a continuation pool, giving the GP more time and capital for the businesses, sources told affiliate title Buyouts.

The deal is among a handful of processes GPs are using to deliver liquidity back to LPs in older funds at a time when exits are slow and distribution activity is weak. Multi-asset continuation fund deals (as opposed to continuation fund deals focused on one asset) surged last year, representing 47 percent of the $45 billion in total GP-led activity, according to Campbell Lutyens’ full-year secondaries volume report.

Pricing on GP-led deals fell last year compared with 2022, with about 68 percent of such deals pricing at a 10 percent or higher discount, compared to 79 percent the prior year, Campbell Lutyens’ survey found.

Wellspring Capital is expected to raise $975 million in the deal, with $125 million of unfunded capital for growth, including add-ons, at the three companies. The deal is expected to close on Wednesday.

The companies involved are SupplyOne, which makes packaging supplies, equipment, safety products and janitorial supplies; Cadence, which distributes lubricants and other related products; and Pentec Health, which provides patient-specific, sterile medications. Wellspring held the three companies in its sixth fund, which closed on $1.45 billion in 2018.

Neuberger and Lexington are joined by a syndicate of smaller investors comprising Hamilton Lane, AltamarCAM Partners, some Fund VI LPs and a commitment from the Wellspring general partner.

Fund VI LPs have the option to cash out of their interests in the companies or roll into the continuation fund. The deal includes what is known as a “status quo” option for existing LPs, meaning they can roll on with the same terms they had in Fund VI, with the only difference being the extended hold period of the continuation fund. Generally such funds have three-to-five year terms.

Campbell Lutyens is secondaries adviser on the deal, which launched late last summer.

Wellspring and its predecessor entities were formed in 1995 by Greg Feldman and Martin Davis. The firm is owned and led by managing partners Alexander Carles, John Morningstar, Matthew Harrison and Naishadh Lalwani.

Wellspring has been back in the market with its seventh fund, according to a Form ADV filed in April.

GP-led deals that find their way to close in today’s market are generally those involving high-quality, “treasure” assets, which generally means pricing will be strong. A GP is not likely to transact if pricing is not high enough, sources have told Buyouts.

However, buyers, flush with capital from recent fundraisings and a strong desire among many GPs to generate liquidity in the absence of exits, have more power to sway pricing.

“An imbalance between supply and demand provided buyers with leverage to negotiate steeper discounts than in the past,” Campbell Lutyens’ survey said. “Additionally, with limited exit routes due to closed M&A and capital markets, LPs were more flexible in the level of discount they were willing to accept.”