Secondary volume eclipsed $70 bln in 2018: surveys

  • Volume weighted more toward traditional LP portfolios
  • GP-led deals continue to take more of the market
  • 2019 deal pipelines look strong

The secondaries market went bonkers last year, and the frenetic activity doesn’t look to be slowing anytime soon.

Two secondaries advisers have released deal volume estimates so far. Evercore estimated secondary volume in 2018 at $72 billion, up a third from $54 billion in 2017, according to its year-end survey of more than 60 secondary investors.

Setter Capital, another secondary intermediary, estimated secondary volume in 2018 at $79.7 billion, up 1.2 percent from 2017. PE secondaries hit $43.8 billion in 2018, up 26 percent from $34.8 billion in 2017, Setter said, based on its survey of 99 secondary-market buyers.

Traditional LP portfolio sales represented the lion’s share of deals, 68 percent of total activity volume. GP liquidity solutions were about 28 percent of total volume, an increase of 24 percent from 2017, Evercore said. The balance of activity was in other types of direct secondaries.

“GPs seem to be increasingly utilizing the secondary market as an alternate route to M&A or an IPO,” Evercore said in its report.

Last year’s big GP-led processes included Providence Equity, which enabled LPs in its seventh fund to cash out of their interests to a buyer group led by Canada Pension Plan Investment Board, and including HarbourVest Partners and StepStone Group.

The Providence process also included a shot of fresh capital into the firm’s eighth fund, targeting $5 billion with a $6 billion cap.

New Enterprise Associates completed a spinout of about 26 portfolio companies, transferring them to a new firm managed by former NEA General Partner Ravi Viswanathan. The deal was valued at about $1 billion.

GP-led deals often hinge on whether existing investors in older funds actually choose to sell their interests in the pools. If not enough existing LPs sell, buyers may walk away from the deals.

Within GP-led deals, 81 percent sold their fund stakes, while 19 percent chose to roll their interests with the manager as part of restructurings, Evercore found. For tender offers, in which LPs can simply choose to sell or not, 61 percent chose to hold their interests and 39 percent decided to sell. That 39 percent is up from 22 percent in 2017.

Single-asset deals, meanwhile, accounted for 10 percent of GP-led transactions, Evercore said. Single-asset or concentrated-asset deals are also becoming more popular.

Some of the bigger single-asset processes last year included Lime Rock Partners selling a portfolio company called CrownRock out of its fourth fund, and Madison Dearborn selling its stake in portfolio company Asurion out of its 2006 fund.

Meanwhile, two secondaries buyers told Buyouts their deal pipelines for 2019 were at more than $20 billion.

Setter said buyers expected 2019 volume to be $72.8 billion.

The big question is whether recent public-market volatility causes pricing discounts in the secondary market, which could damp sellers’ enthusiasm. As well, it’s not clear how a true downturn would affect the secondary market.

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