One of the potentially largest GP-led secondaries deals in the market, run by New Mountain Capital, has come to an end after the largest asset in the process was picked off in a regular M&A transaction.
The situation is an example of the risks that hang over large, complex GP-led transactions. With assets live in the market, outside buyers occasionally swoop in and make better offers, upending months of work building consensus on the secondaries transaction.
New Mountain and the lead investor on the deal, Ardian, mutually agreed to end the process, which was set to move five assets out of its 2007 fund and into a continuation pool, sources told Buyouts.
The two agreed to end the deal after Panasonic decided to acquire the largest asset in the deal, supply chain software provider Blue Yonder. Panasonic said Friday it agreed to acquire the company in a $7.1 billion deal from New Mountain and its other backer, Blackstone Group. The deal, which values Blue Yonder at $8.5 billion, is expected to close in the second half of the year.
Both parties felt ending the deal was the “right thing to do by LPs” because “buying Blue Yonder and selling later at a higher valuation didn’t seem right,” according to sources. New Mountain had already paused the secondaries deal after receiving expressions of interest from Panasonic for Blue Yonder, one of the sources said.
It is possible New Mountain tries to structure a smaller secondaries deal with the remaining four assets, but that will require further negotiations, one of the sources said. Remaining assets are Information Resources; Western Dental; ABB Optical Group; and Avantor.
The secondaries deal, facilitated by Evercore acting as secondaries advisor, was getting close to completion, having entered its election period. This is the time that existing LPs approve the deal, and decide whether they want to sell their stakes or roll their interests into the continuation fund created to hold the assets.
Fund III LPs would have had the option to sell their stakes in the five assets at a premium to net asset value as of June 30, 2020, or roll their interests into the continuation pool on an essentially status quo basis. They could have also chosen to pledge new capital to top-up their commitments, Buyouts previously reported. LPs who didn’t choose to sell or roll would automatically be cashed out.
Fund III, which closed on $5.1 billion in 2007, has been a strong performer. It was generating a 13.8 percent net IRR and a 2.1x multiple as of September 30, 2020, according to performance information from the California Public Employees’ Retirement System.
While rare, assets on occasion get picked off from secondaries deals by external buyers, and some investments even go public. This was the case with Leonard Green’s recent $2.5 billion GP-led transaction, in which two out of the four assets in the deal went public, but stayed in the process.
“That’s one of the reasons you want – for all parties – to move as quickly as possible… the passage of time is one of the biggest threats to getting a deal done,” said a buyer in the secondaries market. “Things change, even things independent of the company, like changes in the market, or specific developments that are more company-specific, any and all of that can put a deal at risk.”