Summit Partners runs ‘in-demand’ secondary to move assets out of older funds

Summit Partners is running a broad process to move several assets out of older funds and into a continuation pool for more time to manage the investments, three sources told Buyouts.

Summit is among several high-profile private equity firms using the secondaries market to sort out older funds in what has become an increasingly in-demand side of the market. Other blue-chip GPs running secondaries processes include Hellman & Friedman, Audax Capital Group and New Mountain Capital.

The fund restructuring process is now with limited partners in each of the targeted funds, who will vote to either sell their stakes in the assets or roll their interests into the continuation vehicle. This point in the process is called the election period.

The deal could have a total value of $1.5 billion to $2 billion or more, depending on how many LPs choose to sell, sources said. It includes around 23 investments from multiple funds, according to an LP who has seen the deal.

Evercore, the clear leader in GP-led secondaries this year, is working as secondaries advisor on the deal. Secondaries Investor reported in September that Summit was considering running a board secondaries on multiple funds.

The process is expected to attract a wide array of secondaries buyers because of the quality of the GP and the assets, as well as good pricing, sources told Buyouts.

One buyer expected to participate in the deal is Lexington Partners, sources said. Lexington is interesting as a buyer because the firm has, traditionally, rarely participated in GP-led deals, sticking mostly to traditional LP sales. The firm will work with high-quality GPs it knows well, sources said.

“The buy-side loves it; it’s got a lot of demand,” said a secondaries market professional who is not participating in the deal.

“This is a big deal, so it’s going to be at least three or four buyers,” said a buyer on the market familiar with the Summit deal. “The market can’t absorb all of this, these aren’t deals getting done by one or two groups.”

The deal is similar to a process run by Insight Partners, which ran through last year and closed in January. In that deal, Insight moved more than 30 assets out of seven older funds and into a continuation pool. Total deal value came in around $1.5 billion, Buyouts previously reported. Lazard worked as secondaries advisor on the Insight Partners deal, with HarbourVest Partners and Coller Capital as lead buyers.

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 Summit Partners. The expectation is that deal volume will be down compared with the past few years, but will still clock in at a relatively robust pace.