Stub Secondaries?

The proposed Harman buyout has prompted lots of nattering about “stub equity” and other such incentives designed to prompt shareholder approval of public-to-private buyouts.

One possible ramification I haven’t seen mentioned yet, however, is that such deals could help spur further growth of the direct secondaries market. After all, I don’t quite see mutual funds sticking with a private investment for three-to-seven years. It might happen in specific situations, but certainly not in all (and likely not even in the majority).

Those wanting to unload will likely have just two main options for liquidity: Existing private equity sponsors or direct secondary buyers (let’s leave the hedgies out of this for a moment, because it complicates my theory). And since the existing sponsors probably have plenty of portfolio company exposure already…