EQT explores continuation fund deal for asset Waystar

EQT is exploring a process that would give it more time and capital to grow its portfolio company Waystar, which it’s held since 2019, sources told Buyouts.

The process, which is not yet in the market, is among a new crop of GP-led secondaries that are hitting the market this year, emerging from a slowdown in activity in the second half of 2022. Such deals, including those run by GPs and LP portfolio sales, are expected to be challenged by continued pricing discrepancies and pickier buyers contending with their own fundraising challenges, potentially limiting the amount of capital they have for deals. 

The inventory starting to flow into the market, including those processes that have gone live and those that remain in exploratory phase, are expected to drive volumes beyond the around $103 billion in total volume estimated for 2022. PJT Park Hill recently said in its fourth quarter secondaries market update that volume could hit $150 billion this year.

No one from EQT responded to a comment request. The firm is working with Evercore on the potential deal, sources said. The deal could ultimately be valued at $2 billion, they said. 

EQT acquired a majority stake in Waystar in 2019 alongside CPPIB from Bain Capital, with Bain retaining a minority stake. The deal valued Waystar at $2.7 billion, according to a statement at the time. Waystar provides software to manage the healthcare revenue cycle, including payment processes and streamlining workflows. 

EQT invested from its Fund VIII, which closed on €10.8 billion in 2018. While nothing has been finalized, the single-asset process would likely allow limited partners in Fund VIII to cash out of their interests in the company, or roll or reinvest into the continuation fund created to hold the company. 

In general, continuation funds come with their own set of terms and fees, giving the sponsor more time to grow the company.

Because of the size of the deal, it will likely require formation of an investor syndicate behind the lead investor or investors. Generally, no one buyer is able to take on that big of a deal because of concentration limits in funds, which prevent a firm from spending too much of a fund’s capital on one asset.

Syndication, though, is harder than ever, sources have told Buyouts. Cobbling together an investor group in today’s market can be a tough chore as many buyers are being ultra selective in their deal targets considering that fundraising has become challenging.

At the end of 2022, the market had 15 $1 billion-plus GP-led deals still in syndication, PJT Park Hill said in its fourth-quarter update. “More deals are incorporating large non-traditional secondary investors and structures to reduce syndication amounts. There is growing demand for transactions under $500 million,” according to the update.

“We’ve seen deals where multiple leads were established and then there’s real difficulty syndicating the rest,” a secondaries buyer told Buyouts late last year. “The appetite has just not been there in this market.”

Another large GP-led deal in the market is being run by Alpine Investors, which is looking for more time and capital for its asset Apex Service Partners. The deal could be as large as $2 billion, Buyouts previously reported.