If you went to a yard sale where many of the items were only sold in bundles and required complex legal and financial agreements to buy, you might get a sense of what the secondary private equity market looks like. You’d also be at an expensive yard sale. The latest illustration of the state of the secondary market came two weeks as Coller Capital and Dresdner Bank announced a $90 million secondary deal. The deal is expected to close by the end of the year.
The 22-company private equity portfolio comes from Dresdner Bank’s Institutional Restructuring Unit (IRU), an entity the German bank established last year to reduce its “non-strategic loan and private equity exposures.” So far, the group has reduced these assets from $44 billion to $17 billion, as of the end of June. Most of the companies in the portfolio are based in North America. About half of Coller Capital’s secondary deals are for North American assets.
The deal is a management spinout. Two Dresdner investment professionals will continue to manage the assets independently as general partners, as Coller Capital serves as a limited partner. Coller’s 2001 deal for Lucent Technologies’ New Ventures Group was similar, with New Ventures Partners spinning out to manage the portfolio independently.
The management spinout is Coller Capital’s eighth such transaction recently and Dresdner’s first
Spinout deals such as this transaction, along with a separate one announced last month involving Goldman Sachs and Societe Generale, are becoming more commonplace as sellers demand higher valuations for assets being sold to competing secondary buyers.
Dresdner bundled the assets, not allowing secondary buyers to cherry-pick the companies. A spokesperson for the bank would not disclose the names of the companies in the portfolio, but most of them are based in the United States and span a range of sectors, including business services, health care and telecommunications.
Coller Capital is investing from its $2.6 billion Collar International Partners IV, which is now more than half invested. Earlier this year, the firm struck a deal with financial advisor Abbey National that allowed Abbey to unload almost all of its private equity holdings.
Abbey’s commitments in the portfolio were about $1.33 billion. Coller Capital paid between $554 million and $646 million for the assets.