Swander Pace extends hold over Captek Softgel; Partners Group on reinvestment in USIC

Swander Pace wraps up latest continuation fund.

Hello, Dear Reader!

This is Chris. I’m just getting back into the catbird seat here after some time off. Lot’s going on for a nice, quiet August, right?

How are you approaching the higher interest rate environment? That’s a question we’ve been asking sources. The era of cheap debt appears to be over. Banks increasingly have a tough time shopping buyout debt off their books. Dealmaking is slowing, including exit activity, which means distributions are drying up. This creates challenges for LPs and future fundraising activity.

We’ve heard broad-stroke forecasts on the implications of this. PE dealmaking for the past decade has thrived off of cheap money policies of the Fed. Is it the case that the markets are now moving into a more ‘normal’ state? And if that’s the case, what does that mean for PE? Likely a consolidation, a shrinking among the ranks, as performance begins to separate the value creators from the financial alchemists, according to a few folks I’ve spoken to recently.

Let me know your thoughts at cwitkowsky@buyoutsinsider.com.

Meanwhile, here’s a continuation fund deal that found the finish line:
Swander Pace moved its portfolio company Captek Softgel out of two older funds and into a continuation pool for more time and capital to grow the investment. Morgan Stanley was lead investor on the deal, joined by Rabo Investments, which is the investment arm of Rabobank. LPs in Swander Pace’s fifth and sixth funds got the option to cash out of their stakes in the company, or roll their interests into the continuation vehicle. Lazard worked as secondary adviser on the deal.

The firm didn’t disclose financial details; the deal included some amount of fresh capital to future add-ons for the company. This is an important aspect of single-asset deals – fresh money to make future add-ons the firm has already identified but may not have available capital in the relevant funds.

Swander Pace acquired Captek in 2015 and added-on J&D Labs in 2017. Read more here on PE Hub.

Strong pace: Despite a slowdown in activity, secondaries had a record first half, reaching an estimated $59 billion of volume, according to Lazard’s first-half secondaries activity report. GP-led deals represented about 47 percent of total activity.

Reinvest: Partners Group partially exited and reinvested in United States Infrastructure Corp on a 50-50 joint ownership in the company with Kohlberg & Co. The group believes the company, which provides services to locate, identify and mark subsurface elements like pipes, has more room to grow.

“We call it an extension of ownership,” Joel Schwartz, co-head of Partners Group’s private equity services, told PE Hub reporter Obey Martin Manayiti. He said that after a five-year hold period, “we have hit the value creation thesis that we were targeting, and there is still a ton of runway to go. We received a lot of interest from outside, [from] other sponsors and other investors.”

He continued, “It’s a sale by our currently invested clients, followed by a reinvestment of some of those clients alongside the new investor.” Read more here on PE Hub.

That’s it for me! Hit me up with tips n’ gossip, feedback, thoughts and feelings on the changing market at cwitkowsky@buyoutsinsider.com or find me on LinkedIn.

Editor’s note: A source misused a turn of phrase in an earlier version of the story. The correct expression is “extension of ownership.”