HarbourVest Partners, Neuberger Berman and AlpInvest Partners are signed up as lead investors on a three-asset continuation fund deal run by Madison Dearborn that has moved quickly through its syndication process, a rarity in today’s market, sources told Buyouts.
The deal is among a slew of GP-led continuation funds working through the challenging environment. Pricing of assets and LP stakes remain points of contention between buyers and sellers, which has made it challenging for secondaries deals to reach final close.
Especially on GP-led deals, existing LPs want assets priced as strongly as possible, while new buyers are looking for some level of discount. The bid/ask spread is causing processes to stall out or in some cases get pulled, or be reconfigured to find the perfect mix of quality assets and pricing.
The leads on Madison’s deal account for around half the deal, meaning around $1 billion was in need of being syndicated out to additional investors. The syndication process on larger GP-led deals has proven to be challenging in the current environment, where potential investors are reluctant to invest either due to a lack of capital or because they are being more selective than ever.
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.”
Madison’s syndication process is nearly fully subscribed, one of the sources said. That is impressive in this market, considering syndication didn’t really begin until the lead investors signed up late last year, the source said. The firm is working with Lazard on the process.
The assets involved in the deal, all held in Madison’s seventh fund, are insurance brokers Ardonagh Group, Navacord and insurance services company Amynta Group, sources said. A Madison spokesperson declined to comment.
Madison ran a single-asset secondary deal on its insurance broker asset NFP Corp in 2021.
As in most continuation fund deals, LPs in the older fund will have the option to sell their interests in the assets and/or roll or reinvest into the continuation fund. The original fund will continue to hold partial stakes in the three assets, even as it also sells them into the continuation fund, one of the sources said.
The inventory starting to flow into the market, including those processes that have gone live and those that remain in exploratory phase, is expected to drive volumes beyond the around $103 billion estimated for 2022. PJT Park Hill recently said in its fourth quarter secondaries market update that volume could hit $150 billion this year.
Other continuation fund deals in the market, or expected to go live soon, include Alpine Investors single-asset process for Apex Service Partners that could total $2 billion; and EQT, which is exploring a continuation fund deal for its asset Waystar, Buyouts previously reported.