Forbidden fruit?
There used to be a time when a private equity fund buying the portfolio company of another private equity fund was a serious faux pas. Nowadays, GPs have become less shy about buying from peers, who in many cases might be selling good but un-exited assets from maturing funds. Indeed, recycling assets has become a mainstay of private equity deal flow in the mature markets of the West.
In the last few years, the Asian community has become more active. According to AVCJ Research, 43 PE-to-PE deals have been logged so far this year, already exceeding the 40 transactions completed in 2012 as a whole. In terms of deal value, however, 2013 still trails 2012 by just under $5 billion to more than $8 billion. The main reason for the disparity is three $1 billion-plus transactions: Genpact, Akindo Sushiro and Industrial and Commercial Bank of China.
By contrast, 2011 volumes were substantially lower, although deals like MYOB and Skylark mean the full-year transaction value is comparable to 2013 year-to-date.
For obvious reasons, LPs are wary of sponsor-to-sponsor deals, but arguments can be made in favor of such sales. In particular, the current exit environment - a weak IPO market and strategic investors holding on to their cash reserves, which has slowed trade sales - makes it easier to justify secondary buyouts, especially if there is further value to be extracted from the asset.
Looking at the deals that have been completed, larger firms with big industry teams such as Bain Capital have been active on this front. These firms might make the case that they are uniquely positioned to take assets held by smaller GPs to the next level, potentially exiting at even better valuations.
The trend of extracting further value from existing private equity assets by GPs is here to stay with funds like NewQuest Capital Partners, the secondaries division of Ant Capital and a number of distressed asset players, specializing in acquiring the assets of private equity funds. Secondary funds, sovereign wealth funds and other large LPs are also looking to get into the direct investment game.
While there have been a number of Asian examples of private equity successfully exiting pre-owned assets, most of them have been purchased at distressed prices. The verdict for sponsor-to-sponsor deals remains to be seen.
More on Secondaries
Latest News
Asian GPs slow implementation of ESG policies - survey
Asia-based private equity firms are assigning more dedicated resources to environment, social, and governance (ESG) programmes, but policy changes have slowed in the past 12 months, in part due to concerns raised internally and by LPs, according to a...
Singapore fintech start-up LXA gets $10m seed round
New Enterprise Associates (NEA) has led a USD 10m seed round for Singapore’s LXA, a financial technology start-up launched by a former Asia senior executive at The Blackstone Group.
India's InCred announces $60m round, claims unicorn status
Indian non-bank lender InCred Financial Services said it has received INR 5bn (USD 60m) at a valuation of at least USD 1bn from unnamed investors including “a global private equity fund.”
Insight leads $50m round for Australia's Roller
Insight Partners has led a USD 50m round for Australia’s Roller, a venue management software provider specializing in family fun parks.