MACs Are Back? HarbourVest Walks Away From Deal

HarbourVest Partners has backed out of a signed agreement to acquire a large LP stake on the secondary market, peHUB has learned. The Boston-based firm is using a material adverse change (MAC) clause as one of its causes of action, having originally agreed to the transaction prior to the past month’s market volatility.

Sources say that the crisis created deep discounts in the secondary market, and that HarbourVest was no longer willing to pay the pre-crisis price it had agreed to. The deal was all but done, waiting on only GP approval to close, when HarbourVest pulled the plug. The firm declined to comment.
One source said the MAC was one of several reasons for HarbourVest to back out, including “other contingencies that would not be satisfied.” The source declined to specify, except to say that leverage accessibility was not a concern.

To be sure, HarbourVest isn’t the first or last firm to back out of a secondary deal struck before the market meltdown. Most other situations I’ve heard about, however, were LOIs rather than signed contracts. Which begs the question: Will we see a lawsuit?

It’s certainly possible, but HarbourVest will likely walk away unscathed. The seller so far has chosen not to sue because of time constraints, a source said. It needs to sell the assets as quickly as possible and simply doesn’t have the luxury of lengthy litigation. Were the situation different, sources are split on whether or not HarbourVest would lose. One dissenter said: ““HarbourVest was perceived to be more locked into the deal than they really were. It was understood that the world looked a lot different than it did 30 days ago.”

It’s not completely uncommon for MACs to be included in secondary transaction agreements, but it’s certainly not the industry standard. From my understanding, they can only be invoked to cover something like a particular investment going drastically south, or an undisclosed loss. My guess is that existing ones may become increasingly visible in the days ahead, especially with secondary market valuations dropping. In the past 90 days, for example, they’ve fallen from a single digit discount to the mid-teens and higher, and we’re seeing a lag in the bid/ask spread.

It’s also important to note that this should not be interpreted to mean that HarbourVest has frozen itself out of the secondaries business. Quite the contrary—aside from reneging on the contract in question, the firm is “very active” in the market, and will likely close a new deal on Friday, a source said.

And about that contract in question, I haven’t yet been able to pin down the exact assets that HarbourVest had originally agreed to buy. One source said it was a portfolio of funds. Another said it was multiple sellers unloading stakes in a single fund, which would mean many LPs decided to dump their holdings in one fund, and HarbourVest had agreed to snap them all up. Either way, it’s not in HarbourVest’s portfolio, nor will it be.