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New Mountain renegotiating $2bn-plus GP-led deal amid Blue Yonder deal chatter

Assets slated for a secondaries deal periodically get snapped up by outside buyers before the deals can close, a risk that increases the longer such deals linger in the market without closing.

One of the largest secondaries processes in the market, run by New Mountain Capital on its 2007 fund, is being renegotiated amid reports that one of the assets involved in the deal will be moved in a separate transaction, three sources told Buyouts.

The potential separate process for the company, called Blue Yonder, has made the status of the GP-led secondary uncertain as it would create a much smaller transaction that may not be as attractive to the buyer, sources said.

Assets slated for a secondaries deal periodically get snapped up by outside buyers before the deal can close, a risk that increases the longer such transactions linger in the market.

New Mountain has been running the process to move five assets out of its third fund and into a continuation pool since last year. The deal, which is being led by Ardian, is said to have net asset value in the range of $2 billion or more, Buyouts previously reported. Fund III closed on $5.1 billion in 2007.

Software provider Blue Yonder, which one source said represents around half of the NAV in the deal, is either about to be acquired by Japanese electronics giant Panasonic Corp in a $6.45 billion transaction, or taken public.

Reuters reported in March that Panasonic was in the final stages of negotiations to acquire Blue Yonder. Panasonic took a 20 percent stake in the company last year at an enterprise value of $5.5 billion, the company said in a statement. Panasonic at the time joined New Mountain and Blackstone Group as Blue Yonder’s majority shareholders.

However, on April 8, Blue Yonder announced it confidentially filed with the SEC for an IPO, the price and number of shares for which had not yet been determined. It’s not clear if that means there is no deal with Panasonic, or if the company is running a dual-track process. Spokespeople for New Mountain and Blue Yonder declined to comment.

Either way, the market moves have thrown the secondaries deal into uncertainty, the three sources said. The original deal was getting close to completion and was in its election period – which is when existing LPs approve the deal, and decide whether they want to sell their stakes or roll their interests into the continuation fund created to hold the assets.

With Blue Yonder out of the process, the deal would be significantly smaller than originally proposed. The reduction in size will crowd out any smaller secondaries investors that were hoping to get a piece of the deal, one of the sources said.

And ultimately, it’s not clear if Ardian will stay with the deal at a smaller size, the source said. “I think they’ll struggle to get it done,” one of the sources, a secondaries buyer, said. A spokeswoman for Ardian declined to comment.

The New Mountain deal hit the market last year with Evercore working as secondary advisor. The firm offered LPs in Fund III the chance to either cash out at a premium to net asset value as of June 30, 2020, or roll their interests into the continuation pool. They could also choose to sell some of their interests and roll the rest, Buyouts previously reported.

Fund III LPs would be able to roll their stakes into the continuation pool on an essentially status quo basis, or they could choose to commit new capital to top-up their commitments, sources said. LPs who didn’t choose to sell or roll would automatically be cashed out.

Other assets in the deal are Information Resources, Western Dental, ABB Optical Group and Avantor. Fund III has been a strong performer, generating a 13.8 percent net internal rate of return and a 2.1x multiple as of Sept. 30, 2020, according to information from California Public Employees’ Retirement System.

New Mountain was formed in 1999 by founder and CEO Steve Klinsky, a former senior executive of Forstmann Little.

Big, traditional fund restructurings like what New Mountain is running are complex and can take extended periods of time to finish – sometimes up to six months or more. Timing is a risk in such deals in part because of the potential for an external buyer to come in with a superior bid and pick off an asset – changing the calculation of the proposed transaction.

As well, valuations shift in market swings, which then impacts the attractiveness of the offer to LPs. If an asset in the secondary suddenly gains value, the price that’s pegged to a past reference date may no longer work for LPs who want to cash out.

“That’s why time kills deals!” said a secondaries buyer. “Can’t linger too long to get deals done.”