With closes hard to come by, Madison Dearborn completes largest GP-led so far this year

Madison Dearborn held a final close on the largest GP-led secondaries deal of the year so far, moving three insurance-related assets into a continuation pool for more time and capital to grow the businesses.

The deal has been one of the marquee GP-led secondaries on the market this year, along with a handful of others that have driven inventory and kept the market busy. The challenge has been actually reaching final close on large processes, in part because of the difficulty of syndicating out large deals to smaller investors.

In Madison Dearborn’s process, HarbourVest Partners, Neuberger Berman and AlpInvest Partners were lead buyers. The three accounted for about half of the total size, which came in at about $2.2 billion, sources told Buyouts. That makes the Madison Dearborn multi-asset deal the largest continuation fund deal this year, sources said.

A single-asset deal in the market now, EQT’s process for Waystar, could total $3 billion or more though it will face syndication challenges because of its size.

Syndication moved quickly on Madison Dearborn’s process, starting at around the beginning of the year. The deal was oversubscribed and some investors had to be cut back from their preferred allocation, sources said. Lazard worked as secondaries adviser on Madison Dearborn’s process. The firm worked with Lazard on a single-asset secondaries deal on its insurance broker asset NFP Corp in 2021.

The three assets in the process, all held in the firm’s seventh fund, are insurance brokers Ardonagh Group, Navacord and insurance services company Amynta Group. The assets were good targets for a secondary because the firm sees further growth ahead for the companies, one of the sources said.

“The insurance brokerage space is a resilient space, it’s not typically super cyclical,” according to a source with knowledge of the deal.

The assets were in high demand because of characteristics of “very high cash flow, high margin businesses, where there’s considerable M&A to do going forward, which is a good PE thesis. So all that, where [there is] success in the market tends to be around economic resiliency, high free cash flow, high gross margin, steady growth businesses. And this [process] was that in spades.”

An interesting aspect of Madison Dearborn’s deal is that Fund VII still retains about half its stake in the three companies, while the other half was moved into the continuation fund. That structure is unique and not usually a part of GP-led deals. It allowed the fund to keep a piece of the upside on the companies, while also delivering liquidity back to Fund VII LPs who wanted it, sources said. The majority of Fund VII LPs chose to cash out in the process, one of the sources said.

The inventory starting to flow into the market, including those processes that have gone live and those that remain in exploratory phase, is expected to drive volumes beyond the around $103 billion estimated for 2022. PJT Park Hill recently said in its fourth quarter secondaries market update that volume could hit $150 billion this year.

Other continuation fund deals in the market, or expected to go live soon, include Alpine Investors single-asset process for Apex Service Partners that could total $2 billion; and EQT, which is exploring a continuation fund deal for its asset Waystar, Buyouts previously reported.