Sponsor-to-sponsor deals have proliferated in recent months as buyout shops, eager to capitalize on friendlier lending markets, look to their peers as a source of both deals and exits.
Twenty-four sponsor-to-sponsor deals (also called secondary deals) were announced globally in the first quarter, representing a total of $7 billion in deal value, according to London data provider Preqin. That’s more than the total value for sponsor-to-sponsor deals in all of 2009, which saw 43 such deals representing $5.1 billion in deal value.
“Private equity is in a situation where [firms] need to deploy capital and make investments,” Steve Brady, a national managing partner in the transaction advisory services group at Grant Thornton, told Buyouts. Not only do buyout shops have a lot of dry powder left to deploy, but they also need to return money to limited partners that have been starved of distributions over the last several months.
Notable first-quarter examples of secondary deals include
U.S. buyout firms—which own thousands of companies worldwide—should continue to present a rich source of deals in the coming months, given typical holding periods of three to five years. In a random sampling by Buyouts of 35 deals struck in 2005, at least 19 of the target companies are still owned by the same sponsor or sponsor group (see accompanying chart). Extrapolation suggests that more than 400 companies from that vintage year, which saw around 730 deals altogether, remain in the hands of the original sponsor.
Indeed, two of the 35 companies randomly selected were just sold last month (
“Many [buyout shops] are looking at their portfolio and saying, ‘If we have a company that performed well in the downturn, that is an exceptional company and we could probably get a premium value for that business if we go to the market now given the scarcity of quality companies,’” said Bill Tyson, co-head of investment banking at BB&T Capital. In March, the Richmond, Va.-based investment bank advised
The exit was the first for Atlantic Street Capital, a firm founded in 2006 that’s investing from a $45 million pool of capital provided by