Happy Wednesday, Hubsters!
This is Chris, on the Wire this morning.
An exit: It’s notable to see exits in today’s environment, when exit activity (M&A activity in general) is slowing down. One source estimated distribution activity is about 60 percent lower than last year, meaning less capital flowing back to LPs, and less money available for new funds.
Wynnchurch Capital sold Foss Floors, which makes non-woven needle punch floor coverings and specialty flooring products, to Mohawk Industries. Mohawk makes floor covering products for residential and commercial applications in North America and residential applications in Europe.
No financials available, natch. Read the news brief here on PE Hub.
Marks: I’ve been talking to folks around the industry about whether GPs are likely to take the pain LPs expect them to in the second quarter. The consensus seems to be that private equity won’t broadly reflect the kind of turbulence public markets have shown over the past few months.
Second quarter marks start to publish in August and several types of professionals are waiting to see if marks start to come down. Many observers were surprised that first quarter marks remained generally “flat to up,” not reflecting the declines in the public markets.
GPs have sole discretion at setting valuation marks, based on their interpretations and forecasts of confidential financial data from portfolio companies. Firms that are about to launch new funds, or that are in the middle of fundraising, are not likely to mark down assets, sources have told me. This behavior is backed by a few studies, including this one and this study showing that institutional investors usually are not fooled by performance manipulation around fundraising by underperforming firms.
With nearly every firm back in market with some sort of product, whether flagship funds or ancillary products, the assumption is that performance marks are not going to move much. This has implications for LPs and for secondaries investors.
LPs have been waiting to see some pain in their PE portfolios, which will potentially help rebalance their holdings. As PE performance has remained strong, and public marks have declined, LPs’ PE exposure has ramped beyond policy targets. A decline in performance could perhaps organically help rebalance portfolios, rather than LPs being forced to sell their PE holdings at a discount on the secondary market.
Will be interesting to see how things shake out next month. What do you think? Hit me up at firstname.lastname@example.org.
ICYMI: Clearlake Capital explored acquiring Portfolio Advisors as a way to bolt on secondaries capabilities to its growing enterprise. A deal never materialized, likely because secondaries only represents one part of Portfolio Advisors’ business.
Brian Murphy, managing member with Portfolio Advisors, told me the firm engaged Moelis & Co after receiving several unsolicited expressions of interest.
One common theme among potential buyers was an interest in acquiring secondaries capabilities, he told me. Read the full story here on Buyouts.
We’ve heard of several other potential sales out there. Let us know if you guys have heard of anything. That’s it for me! Have a great rest of the day. Hit me up with tips n’ gossip, feedback or book recommendations at email@example.com or over on LinkedIn.