GP-led deals are time- and resource-intensive processes. “There are multiple stakeholders, including the sponsor, existing fund LPs, other equity holders, lenders, advisers and new investors,” says Christiaan van der Kam, head of secondaries at Schroders Capital. “GP-leds are also full sales of a business, so they can line up with a typical M&A timeline.”
“The complete timeline, from the ideation phase with a sponsor to full closing, could take up to nine months or longer,” van der Kam adds. “The earliest stages involve socialising the GP-led with its core investors and LPAC, then selecting financial and legal advisers for transaction preparation, which can take one to two months. Marketing and selecting key buyers takes a further three to four months. Syndication, legals, and closing take the same period again. Other factors that affect the timeline are transaction size, competing transactions, economic cycles and regulatory considerations.”
HarbourVest managing director Valérie Handal, meanwhile, points to the deep due diligence of underlying assets involved in a GP-led secondaries deal, as well as due diligence of the GP by prospective secondaries buyers.
“Negotiation of terms of the sale and those of the new continuation vehicle between the secondary buyers and the GP, including acquisition price and terms, GP economics and governance matters, is also time consuming,” she says. “Furthermore, time must be allowed for discussion of the proposed transaction between the GP and the LPAC of the existing fund, frequently comprising the requirement for LPAC approval. There is also an election period, which gives LPs sufficient time to decide whether to sell their interests or roll into the continuation vehicle, followed by transfer of the assets and associated documentation.”
Finally, Handal explains, some transactions may require regulatory or other approvals: “As a result, GP-led secondary transactions typically take several months to complete.”
GPs that cite coordination of different stakeholders as a key challenge in GP-led transactions
Source: Capstone Partners
Indeed, there can be significant variations in the time it takes to execute on a GP-led depending on the number of moving parts. “The time taken will depend on a number of factors including the number of assets being rolled into the continuation fund, the number of lead buyers or syndicates and the complexity of the transaction,” says Sophie Smith, a counsel at Cleary Gottlieb.
Smith adds that her approximate estimate of five to seven months from engaging the adviser to completing the election process and closing has been extended in recent months, in part due to mismatches between buyer and seller pricing expectations and difficulties in underwriting single assets.