Morning PE community!
It’s been fascinating to watch the travails of several banks trying to offload debt from a financing package backing Vista Equity’s and Elliott Management’s buyout of Citrix. The banks led by Bank of America, Credit Suisse and Goldman Sachs are struggling to shop a portion of the debt from their balance sheets to investors, forced to offer it at increasingly steep discounts.
“The lacklustre investor interest reflected the fragile state of US credit markets, the lifeblood of the buyout industry. Companies with low debt ratings have encountered difficulty raising funds as the global economy slows and central banks raise interest rates to combat inflation, in turn increasing borrowing costs.”
Lux: Fulcrum Capital invested in VODA Backyard Leisure Group, a Canadian company comprising three businesses: pool industry distributor Aquiform Distributors; Club Piscine, a franchisor and distributor of pools, garden furniture, barbeques, spas and fitness equipment; and Pool Supplies Canada, an online retail platform for pool and spa supplies.
VODA is the third platform investment from Fulcrum’s sixth fund.
Closing: Despite what you might hear in the streets, the private equity secondaries market is open for business and poised for a busy second half.
The name of the game right now is execution – can deals brought to the market make it to close? That’s the challenge, both on the LP and GP-led sides of the business. This was a major takeaway from the recent secondaries event organized by Kline Hill Partners this week.
Well over 100 attendees, all from the tight secondaries community, gathered to chat about the state of the market amid rising rates, inflation, geopolitical tensions and broader economic uncertainty.
For GP-leds, appetite remains for high-quality, treasure companies that form the core of single-asset continuation fund deals. Less certain are prospects for multi-asset continuation fund transactions, which as the name indicates involve multiple assets, sometimes from different funds, all moving into a continuation vehicle.
Multi-asset deals are generally bigger, more unwieldy and force buyers to accept not only the best assets, but also more mediocre investments that get lumped in. Advisors like the multi-asset structure because it can mean bigger fees; buyers remain skeptical of such deals and the idea of being forced to swallow the gristle along with the fine cuts.
There is an expectation of more multi-asset deals hitting the market, though buyers, as Verdun Perry, head of Blackstone’s Strategic Partners, told me recently, would be happy building a diverse portfolio of high-quality single-asset deals.
LP portfolio sales, which came back and then faded out again as the markets turned earlier this year, are expected to be a major part of volume in the second half. Yet, such deals could prove hard to close. LP sales have had a more volatile year, much like the public markets. That’s because LP portfolios are harder to price, considering the variety of underlying assets in big portfolios. Pricing expectations are helping to gum up the works when it comes to executing an LP portfolio sale.
To transcend pricing obstacles, deals are including more incentives to closing like payment deferrals – market players have described unusually long deferral periods of 18 months – and preferred equity structures. Buyers use such incentives to buy portfolios without seeking too much of a discount.
More on this later today.
That’s it for me! Have a great rest of your day. Hit me up with tips n’ gossip, thoughts, feedback, whatever at email@example.com or find me on LinkedIn.