New Mountain shops ‘one of the largest GP-led deals’ to move assets out of 2007 fund

New Mountain Capital is running a large process to move assets out of its 2007 fund and into a newly-created pool that will give the GP more time to manage the investments, three sources told Buyouts. 

The deal is expected to be valued at or above $2 billion, which would make it one of the largest GP-led deals in the market this year, one of the sources said. 

The other large deal proceeding through the market is Hellman & Friedman’s process to move assets out of its seventh fund and into a continuation pool, as Buyouts recently reported. That deal could be valued at more than $10 billion, with about $2 billion of the total coming through external secondary investors. 

The two large GP-led deals are part of a shift in the secondary market away from traditional sales of fund stakes held by limited partners, to deals by GPs to manage assets held in older funds. Traditional LP stake sales have only slowly re-emerged after a generalized pause in secondaries activity during the pandemic downturn. 

GP-led deals, on the other hand, made a quick return starting in the summer. More GPs looked to secondaries as they sought ways to extend hold periods over assets as exit timelines got extended because of the collapse of M&A markets in the pandemic.

New Mountain’s deal would allow LPs in its third fund, which closed on about $5.1 billion, to either sell their stakes in the pool or roll them into the continuation pool, sources said. Fund III was generating a 12.9 percent net internal rate of return and a 1.9x multiple as of March 31, 2020, according to performance information from California Public Employees’ Retirement System.  

The deal is in the early stages and it could change, especially once it goes to the Fund III LP base to choose whether they want to sell or stick with the GP. 

Fund III had about $4.6 billion of current gross asset value, according to its most recent Form ADV, filed in March. 

“They need more time and capital for the portfolio,” said a secondary market source who has seen the deal. 

It’s not clear exactly which assets are in Fund III. New Mountain began raising its fourth fund in 2013 and closed the pool on about $4.1 billion in 2014. Current investments that fall within the timeframe of Fund III are: Information Resources (2011), US Ocean (2008), Western Dental (2012), ABB Optical Group (2012), Avantor (2010) and Blue Yonder (2010). 

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

Overall, the first half saw a significant slowdown from the same period last year for secondaries activity. Total deal volume came in around $18 billion in the first half, a drop of 57 percent from the $42 billion tallied during the same period last year, according to Greenhill Cogent’s first-half volume report.

Activity has been increasing, driven by GP-led deals like New Mountain. The expectation is that deal volume will be down compared to the past few years, but will still clock in at a relatively robust pace.