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Ardian, in unusual move, takes lead investor role in New Mountain fund restructuring

Existing Fund III LPs have several options in the process, including selling at a premium, rolling on a status quo basis or moving their interests with the GP with additional new capital. 

Ardian has emerged as lead investor on New Mountain’s massive continuation fund deal, sources told Buyouts

New Mountain’s GP-led deal is one of the high-profile secondaries deals to hit the market post-lockdown. Such GP-led deals, including transactions from Audax, Summit Partners and Hellman & Friedman, helped drive secondaries market volume in the second half of the year after a months-long pause in the lockdown. 

Ardian has long preferred to be a market leader in buying into traditional LP sales of fund stakes. The firm, which closed its most recent secondaries fund on $19 billion last year, is big enough to buy entire portfolios on its own, while offering co-investment to its limited partners. 

The firm will do GP-led deals, but only with what it sees as high-quality GPs with strong assets, according a person with knowledge of the firm. It also prefers to be the lead investor in deals, rather than take part in consortiums. Those characteristics make it the rare GP-led deal that Ardian will back.

The New Mountain process falls into that category. The firm has been working on a process to move assets out of its 2007 third fund into a continuation pool for more time to manage the assets. Evercore is working as secondaries advisor on the deal. 

New Mountain closed its third fund on about $5.1 billion. Fund III had about $4.6 billion of current gross asset value, according to its most recent Form ADV, filed in March. 

The pool was generating a 12.9 percent net internal rate of return and a 1.9x multiple as of March 31, 2020, according to performance information from California Public Employees’ Retirement System. 

The process is in its “election and consent” period, which is when existing LPs approve the deal, and then decide whether they want to cash out their interests in the pool, or roll their stakes into the continuation fund (or some combination of the two).

Depending on the level of existing LP sales, the deal could total $2 billion or more, sources said. 

The process also would allow existing Fund III investors to cash out at a premium to net asset value as of June 30, 2020, sources said. Investors also have the option to roll their interests into a continuation pool that will house the assets. They could also choose to sell some of their interests and roll the rest. 

Fund III LPs can choose to roll into the continuation pool on an essentially status quo basis, or they could choose to commit new capital to top-up their commitments, sources said. LPs who don’t choose to either sell or roll will automatically be cashed out, sources said. 

The assets involved in the deal are Information Resources, Western Dental, ABB Optical Group, Avantor and Blue Yonder. 

New Mountain was formed in 1999 by founder and CEO Steve Klinsky, a former senior executive of Forstmann Little.

New Mountain is a big, complex process, and one of the major drivers of volume in the recovering markets. Secondaries deal volume hit an estimated $60 billion last year, versus the record high of $80 billion in 2019, according to Evercore’s recent full-year secondaries volume report. 

GP-led deals like fund restructurings represented about 53 percent of total deal volume, at about $32 billion, Evercore found. Single-asset secondaries nearly tripled in volume between 2019 and 2020, making up about 43 percent of 2020 GP-led volume.