Lexington Partners has acquired stakes from 22 LPs in BC European Capital IX in a $1 billion deal, Private Equity International has learned.
The 22 LPs elected to sell either all or part of their interests in the 2011-vintage, €6.7 billion fund through a tender offer, according to a source with knowledge of the matter. Between 7.5 percent and 8 percent of the fund’s value changed hands as part of the deal. It is understood that a significant number of these LPs elected to retain some exposure to the fund.
Of Lexington’s $1 billion investment, around $700 million is being used to acquire stakes in Fund IX, while around $300 million is being committed to BC European Capital X, it is understood. Fund X is in market seeking €7 billion.
LPs received a letter on 5 July with an offer allowing them to sell their interest in the fund at a 14 percent premium to March net asset value. They had five weeks to respond to the letter, as previously reported by PEI.
Lexington initially undertook to purchase €1.2 billion from Fund IX as well as to commit €600 million in new capital to Fund X, according to a previous report in the Wall Street Journal.
For BC’s part the tender offer allowed them to actively manage their investor base – providing liquidity to those who wished to participate – and secure a sizeable commitment to its current fundraising exercise.
In a press release, Lexington said it has been investing in funds managed by BC Partners for more than 15 years.
“The potential for GP-led transactions in today’s secondaries market is significant,” Marshall Parke, international managing partner of Lexington, said in the statement.
“This sizeable transaction with BC Partners marks an important milestone for Lexington and the secondaries market in providing innovative liquidity solutions.”
BCEC IX had a net internal rate of return of 17 percent and a 1.5x multiple as of 31 March, the source added.
Since then the fund has completed its final selldown of shares in broadband provider Com Hem, delivering more than 2x; partially exited telecoms company Altice USA through an IPO; and partially exited media company Mergermarket, delivering an implied valuation of 3.2x.
It is understood that 17 investments remain in the portfolio.
According to PEI data, at least 60 LPs initially committed to Fund IX.
North American pension plans included the California State Teachers’ Retirement System, Canada Pension Plan Investment Board, CDPQ, Florida State Board of Administration, Los Angeles City Employees’ Retirement System, Michigan Department of Treasury, New York State Teachers’ Retirement System and San Francisco Employees’ Retirement System.
Asian investors included Korea Investment Corporation and National Pension Service of Korea.
University endowments and foundations included Columbia University, the Rochester Institute of Technology, the Grable Foundation, the University of Oklahoma Foundation and the James S McDonnell Foundation.
There were also several insurance companies and private pension plans committed to Fund IX such as Dusseldorf-based Ergo, Guardian Life Insurance Company of America, the Finnish Ilmarinen Mutual Pension Insurance Company and CNP Assurances of France.
It is unclear which investors decided to sell stakes.
Campbell Lutyens advised on the process. Simpson Thatcher & Bartlett served as legal counsel to Fund IX and Macfarlanes acted as legal advisor to Lexington.
“This innovative transaction represents an evolution of the secondaries market and highlights the strong demand for stakes in private equity funds ran by quality managers,” said Andrew Sealy, managing partner and chief executive at Campbell Lutyens.
“With the success of BC Partners’ offering, we believe other top GPs will follow suit and this type of deal will become more and more commonplace.”
In July, PEI reported that Fund X had raised €6 billion toward its target. The fund has been on the fundraising trail for about a year and a half.
Lexington Partners declined to comment beyond its press release. BC Partners declined to comment.