Hellman & Friedman closed a large process to move three assets out of an older fund and into a continuation vehicle, in a deal that included a cross-fund investment from the firm’s most recent pool.
Hellman & Friedman’s process, along with others like Clearlake Capital’s single-asset secondary deal to move Ivanti out of an older fund, is a sign that the most high-profile GPs are comfortable using the secondary market to preserve ownership of older assets.
Other similarly high-profile GPs with deals in the market include Summit Partners, Audax Capital Group and Thomas H. Lee Partners.
The largest asset in the Hellman & Friedman deal was Verisure, an alarm and security services company the firm acquired in 2011. Verisure’s enterprise value rose to more than $17 billion as a result of the transaction, according to a person with knowledge of the deal. That valuation makes the secondary one of the largest buyouts in Europe in 2020, the person said.
Fund VII limited partners had the option to cash out of their interests in the assets, or roll their stakes into the continuation pool with no change to their original economics. They could also choose partially cash out and partially roll with the GP, the person said.
Hellman & Friedman will retain ownership of 60 percent of the company’s equity, alongside existing co-investors and Verisure’s management team.
The GP-led secondary deal was split three ways: Hellman & Friedman Fund IX, the continuation pool — which raised more than $1 billion for the deal — and rolling LPs. Investors in the continuation pool included Goldman Sachs, Blackstone Group, HarbourVest Partners and Lexington Partners, Buyouts previously reported.
Since the firm’s original investment, Verisure has grown to around 20,000 employees. The company has more than 3.6 million customers in 16 countries across Europe and Latin America.
Hellman & Friedman closed Fund VII on $8.8 billion in 2009. The fund was generating a 23 percent internal rate of return and a 2.7x multiple as of March 30, 2020, according to performance information from the California Public Employees’ Retirement System. Hellman closed Fund IX on $16 billion in 2018.
GPs using newer funds to participate in secondaries processes for older funds is relatively rare and comes with some controversy. While secondaries investors generally like to see GPs participate in their own secondaries deals, cross-fund transactions can be a tougher sale to limited partners in older funds. LP concerns focus on the potential for pricing conflict – the newer fund wants to buy at the cheapest price possible, while LPs in the older funds want to sell for as much as possible.
“If the GP is putting money from the newest fund … it sends the following signal: ‘We’re expecting this to generate an attractive enough return that we’re putting the new fund in it,’” a secondaries market professional previously told Buyouts.
But existing LPs could have concerns, as has been the case with cross-fund deals in the past. “If you think it’s the right time to sell these, then go sell them,” said another secondaries professional.
Hellman & Friedman used a similar strategy in a past deal. In 2018 the firm ran a single-asset secondary on its tech-company Kronos Inc. In that deal, investors, including Hellman’s Fund VIII and Blackstone Group, lined up to buy out LP stakes in the company, which was held in Hellman’s sixth fund. The Kronos deal required approval from the limited partner committees of both Hellman funds, and included two fairness opinions.