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TH Lee fund revamp stalls amid price wrangling

  • Pricing discrepancy at heart of delay
  • Deal had been approaching election period
  • One of the largest fund restructurings in market

One of the largest GP-led fund restructurings in the market has apparently stalled, five sources told Buyouts in recent interviews.

Thomas H. Lee Partners’ restructuring of its sixth fund, an $8.1 billion fund raised in 2006, is delayed and the parties may be renegotiating pricing, sources said.

The buyers leading the deal are Coller Capital, Neuberger Berman and GIC, Buyouts reported.

Lazard is secondary adviser on the deal.

Spokespeople for each party declined comment. Sources, mostly buyers in the secondary market, requested anonymity to be able to talk.

In fund restructurings it’s tough to determine what exactly “delayed” means. These types of deals can take six months or more to complete.

One secondary adviser said he worked on a deal for two years before completion. A delay does not mean a deal is dead, especially with GP-led processes.

For TH Lee, the Fund VI revamp has been in the works since last year. Secondaries Investor reported in February 2018 that the GP was in preliminary talks with the Fund VI limited-partner advisory committee on a potential secondary process.

The process was approaching its election period earlier this year, meaning existing investors in the pool were deciding whether to sell their interests in the fund or roll their stakes with the GP into a continuation vehicle that would house Fund VI assets, sources said.

The continuation vehicle would give TH Lee five more years to manage out the assets. Pricing was set at near par value as of September, sources said.

The deal involved assets valued at about $800 million to $900 million, Buyouts reported. Fund VI had a total of about $3 billion of remaining net asset value, sources previously told Buyouts.

The delay hinges on the recent declining performance of one of the assets in the deal, Univision Communications, which TH Lee acquired in 2006 as part of a group of investors for $13.7 billion.

For the fourth quarter, Univision Communications reported total revenue decreased 8.9 percent to $688.5 million from $755.5 million in the year-earlier period.

The company decided to sell its English-language digital assets in 2018 as part of a strategic review, the earnings report said.

For all of 2018, revenue fell 7.6 percent to $2.7 billion from $2.9 billion in 2017. Income from continuing operations was $149.7 million, down 78 percent from $672.5 million in 2017.

One issue is that either the buyers were not locked in to a price by signing a purchase and sales agreement, or they considered a material adverse event to have been triggered that would allow them to retrade the deal, sources said.

Generally, before a fund restructuring goes to LPs to decide if they want to sell out or stick with the GP, the buyers will have signed a PSA, which locks them into a price.

There are exceptions to this, and sometimes even if a PSA is not executed, a buyer might agree in principle to terms on a deal.

Without the security of a PSA, buyers could decide the pricing outlook has changed and pull back to the negotiating table, sources said.

Fund VI was generating a 7.1 percent net internal rate of return and a 1.4x multiple as of June 30, 2018, California Public Employees’ Retirement System performance data shows.

The firm closed its most recent pool, Fund VIII, on $3.59 billion this year. The firm is led by Co-Presidents Anthony DiNovi and Scott Sperling and Head of Private Equity Todd Abbrecht.

Action Item: Check out Univision’s earnings report here: https://bit.ly/2GBPfln