Lexington leads $1b stapled secondary for TPG Asia

TPG is the largest financial sponsor globally to use the secondary market in this way. The transaction is also by some distance the biggest tender-plus-staple completed in Asia. It underlines a broader trend whereby managers are using fund restructurings for strategic purposes – taking advantage of different pools of capital with different risk-reward and timelines to offer a liquidity option to LPs – rather than as a means of survival.

TPG launched a competitive process over the summer after learning that some LPs were either seeking liquidity or wanted to rebalance their exposure between funds. Fund VII was already in the market with a target of $4.5 billion. The private equity firm has so far raised $4.4 billion and set a hard cap of $5 billion, according to sources familiar with the situation. It has also made 12 investments from the vehicle.

Lexington has four minority partners in the deal, including Partners Group. The percentage split between the secondary and primary components has not been disclosed. However, previous deals of this nature globally – including a transaction last year involving Lexington and BC Partners (owner of Acuris, AVCJ's parent company) – have seen the incoming investors offer $0.50 in new capital for every $1 sold in the secondary piece. AVCJ understands the TPG deal is roughly in line with these norms.

The pricing is said to have been close to the net asset value of the blended portfolios. Most LPs in the two funds chose not to tender their stakes.

TPG has been active in Asia since 1994, deploying $10.4 billion in 84 investments across 13 countries. It closed Fund V at $4.25 billion in 2008, although some LPs were subsequently released from their commitments on finding themselves overexposed to private equity on a relative basis after the global financial crisis tore into public equities valuations. The corpus ended up at $3.8 billion. The private equity firm raised $3.3 billion for Fund VI, reaching a final close in 2014.

According to disclosures from Canada Pension Plan Investment Board, as of March 2018, Fund V was 95% drawn and the distributions to paid-in (DPI) and total value to paid-in (TVPI) multiples were 0.97x and 1.4x. Fund VI was 89% drawn and the DPI and TVPI were 0.25x and 1.18x.

The TPG transaction is the second-largest secondary transaction of any kind in Asia. Lexington is also responsible for the first-placed entry: Last year, it teamed up with Goldman Sachs to acquire a $1.2 billion strip from Warburg Pincus’ 11th global fund, comprising a minority stake in every Asian investment in the vehicle. Warburg Pincus continues to manage the investments. The GP wanted to right-size the portfolio and lock-in some gains for LPs from the strongly-performing Asian investments.

“As the first major liquidity offering process in Asia, this sizable transaction marks an important milestone for Lexington and the Asian secondary market in terms of providing innovative liquidity solutions,” Wilson Warren, president of Lexington, said of the TPG deal. “The potential for GP-led transactions in today’s secondary market is significant. Not only do these transactions provide compelling liquidity opportunities for limited partners, they also allow sponsors to reshape their investor base and position their firms for future growth.”

Lazard is said to have served as sole financial advisor to TPG on the transaction. Kirkland & Ellis was legal counsel to TPG while Simpson Thacher provided legal advice to Lexington.

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• Topics
• Secondaries
• Secondaries
• GPs
• LPs
• Asia
• TPG Capital
• Lexington Partners
• Partners Group
• Secondaries