Lexington leads $1.2b Warburg Pincus Asia secondary deal

Capital has also been allocated for follow-on funding for certain companies. The deal – first reported by The Wall Street Journal and subsequently confirmed to AVCJ by sources familiar with the situation – is expected to be the largest-ever secondary transaction in Asia. It is scheduled to close later this month.

The two investors will get exposure to 29 businesses across the region, ranging from ZTO Express, a Chinese logistics company that raised $1.4 billion in a US IPO last October, to Capital First, an Indian non-banking financial company. China and India account for 66% and 30% of the Asian portfolio, respectively, while the rest is Southeast Asia.

A minority stake in each asset will be spun off into a new vehicle controlled by Lexington and Goldman, with Warburg Pincus continuing to manage the investments. Warburg Pincus Private Equity XI closed in 2013 at $11.2 billion. As of March, it had delivered a multiple of 1.4x and a net IRR of 13.6%, according to performance data disclosed by Washington State Investment Board.

One of the motivations for the deal was the strong performance of the Asian portfolio companies, which left Warburg Pincus wanting to right-size a fund that has become overweight on the region. It is also part of a broader global trend of GP-led secondary transactions driven by strategic thinking rather than survival. These deals have typically been associated with private equity firms that are in difficulty, but a trickle of high-quality managers are now using them as a means of providing liquidity solutions to LPs.

Lexington completed a similar – but much smaller – transaction in Asia last year, teaming up with Madison India Capital to acquire positions in about a dozen companies from Sequoia Capital India. Unlike the Warburg Pincus secondary deal, it was not a pro rata strip and the investors had some choice over the assets involved.

Selling a strip off the portfolio is one of several options. Lexington also recently took out a string of LP positions in an existing BC Partners fund through a tender offer and made a stapled commitment to the private equity firm’s latest vehicle. This approach – which allows LPs who weren’t planning to re-up the chance to cash out while offering secondary investors the chance to come in – has since been adopted by EQT Partners in support of its latest Asian fund.

Warburg Pincus remains an active investor in Asia. Last December, the firm closed its first dedicated China fund – which will invest alongside the latest $13.4 billion global flagship vehicle in China deals – at $2 billion after about six months in the market.

Lexington is currently deploying its eighth global secondaries fund, which closed at the hard cap of $10.1 billion in 2015. The firm has invested around $2 billion in Asian secondary deals since opening a Hong Kong office in 2010.

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• Topics
• Greater China
• South Asia
• Secondaries
• China
• India
• Warburg Pincus Asia
• Lexington Partners
• Secondaries