Berkshire Partners’ tender offer process has some heavyweight buying power behind it, as the firm looks to get a boost into its latest fundraising from the secondaries transaction.
Goldman Sachs Asset Management, Partners Group and HarbourVest Partners are lined up as buyers in Berkshire’s tender offer process that will allow investors in its eighth and ninth funds to sell their interests at premium pricing, three sources told Buyouts.
The buyers are offering a 2:1 ratio of secondary-to-staple capital in the deal, sources said. For example, if the total transaction net asset value being sold was $200 million, the buyers would kick in $100 million of staple capital to Berkshire’s Fund X, which is in the market targeting up to $6.5 billion.
LPs would be able to sell their interests in Fund VIII at 109 percent of net asset value as of March 31, 2021, two of the sources said. Fund IX LPs would be able to sell at around 112 percent of reference date NAV, the two sources said.
Evercore is working as secondaries adviser on the deal, which is expected to close later this month.
Tender offers are simply an offer by the GP for LPs in an older fund to sell to a pre-selected buyer or buyer group, at a pre-determined price. Tenders often include a portion of fresh capital the buyers agree to kick in to a new fund as part of the transaction, known as a staple. Tender plus staples are often used by GPs to boost slow fundraisings.
The staple component is viewed by some buyers and agents as inherently conflicted – a GP will select a buyer offering a staple, even if the price at which they’ll buy LP stakes is lower than buyers not offering staples.
Berkshire’s process is considered non-dilutive, one of the sources said. This means the staple did not impact the pricing the buyer group agreed to pay for LP stakes, one of the sources said. Berkshire is generally considered a strong performer and a favorite among its group of long-time LPs.
The firm has experienced some LP turnover in recent years, which two of the sources believe fueled its motivation to run the secondary. “I’ll think we’ll be seeing a lot more of that,” one of the sources said about GPs “cleaning up” their LP bases.
Tender offers represented only about 10 percent of the overall volume of GP-led deal flow last year, which totaled around $32 billion in 2020, or 53 percent of overall secondaries deal activity, according to Evercore’s full-year 2020 volume report.
One of the major challenges in a tender offer is actually getting existing LPs to sell. Last year, only about 27 percent of LPs chose to take liquidity in tender offer processes, according to Evercore’s report. Low LP uptake on a tender process can derail the deal because the buyer may not see any point in transacting.