Ardian‘s president has said that continuation vehicles will be an important part of both the investment firm’s strategy and the secondaries market at large.
“I believe continuation funds will become an important part of our direct investment activities,” Dominique Senequier wrote in her foreword to the Paris-headquartered firm’s 2020 activity report, published in the summer. “We are already examining potential opportunities to extend our partnerships with some of our portfolio companies in this way,” she added.
“Where we believe portfolio companies have excellent growth prospects beyond our accustomed holding period, where we have a strong partnership with the management team and our interests are fully aligned with our LPs, we will offer them the opportunity to maintain their interest in the company through a continuation vehicle.”
It is unclear how many continuation fund processes – if any – Ardian has already run on its own private equity portfolio companies and a spokesperson for Ardian was not able to provide these details.
On the buyside, Ardian is understood to be leading a transaction for New Mountain Capital following the revival of a deal to lift assets out of its 2007-vintage fund. That deal had previously been put on hold after a prime asset, Blue Yonder, was snatched up by a strategic purchaser. The firm also co-led growth equity General Atlantic’s continuation vehicle last month, the fifth-largest of all time.
While the firm has turned its attention to private equity special purpose vehicles, Ardian has been active in infrastructure continuation vehicles, as Secondaries Investor has reported.
A great management relationship, including demonstrative success, is crucial when undertaking continuation funds, market sources told Secondaries Investor.
“Any of the deals we’re doing, these deals are happening because there’s a great relationship between management and the portfolio company and the sponsor. They want to continue that, but they’ve already had a really great run,” the head of GP-led secondaries at a global advisory firm told Secondaries Investor.
Continuation fund deals have grown to become the dominant form of GP-led processes, accounting for 85 percent of volumes in the first half of this year, according to data from Jefferies. Single and multi-asset continuation vehicles accounted for 51 percent of the entire secondaries market volume in the first half of 2021, the bank noted.
Further, GP-leds price at a premium to net asset value nearly one-third of the time, with 94 percent pricing at a 5 percent discount or better.
If pricing of GP-leds remains strong, more GPs will be encouraged to undertake them as they will be perceived as a viable way to exit, said Gerald Cooper, head of secondaries North America for Campbell Lutyens, earlier this month.
Senequier added in her note that holding onto assets for longer will become a staple of private markets.
“Different versions of this model are emerging around the world but the direction of travel is clear: longer holding periods for private equity investments are an important feature of the market of the future,” she wrote.