The ink is still drying on the world’s largest GP-led restructuring.
This emerging type of deal comes in many different hues, but the common thread is that the manager – in the latest case Nordic Capital – instigates a process on an ageing fund to allow investors to walk away with a distribution or remain invested in some way.
In this instance the fund in question was Nordic’s 2008-vintage flagship fund. Nine unlisted assets held in Nordic Capital VII, which had a net asset value of €2.5 billion as of 30 September, were moved into a continuation vehicle named Nordic Capital CV1. Campbell Lutyens advised on the deal and Coller Capital and Goldman Sachs Asset Management were on hand to buy the interests of the investors that wanted to cash out (at a premium of 11 percent). The pair ended up buying around €1.5 billion of NAV.
The deal, which officially closed in mid-April, is the largest such transaction to close to date and represents another step forward in the development of this corner of the private equity market.
Private Equity International caught up with managing partner Kristoffer Melinder hours after the deal closed to get the GP’s view on a GP-led.
How should we view the five-year continuation vehicle? Is it structured like a mini private equity fund?
No, it’s a vehicle with nine companies which have access to additional capital. I don’t think technically you would call it a fund, as it is not open to making new platform investments. It is open to support these businesses with capital.
How does the transaction make more capital available to the companies?
There is a primary component [to the deal]. In the old fund we didn’t have access to further drawdowns of primary capital. Once a fund’s commitment period is terminated you can’t go back and ask LPs for more money, unless it is 100 percent consent, which you don’t get.
How much more capital is available?
We are not disclosing that.
Did the transaction push the fund into carry?
We don’t disclose fund returns, but of course the premium [paid] has an impact on returns.
Would it not be simpler just to seek fund extensions to give yourself more time?
Sometimes limited partners and general partners talk about assets. We talk about companies. Companies have management teams and employees who have strategic plans. They ask us: “If we go ahead with transformative M&A, buy-and-build strategies, do you, Nordic, have the time and capital to support such a strategy?” We now have five years, and we have sufficient capital to support the growth of these businesses.
These can be divisive processes and you can’t please all the LPs all the time. Were you concerned that you would alienate some investors?
No. I think people understand that this is done in order to maximise value for all participants. It was about generating a significant additional financial gain for all investors, whether they are participating or whether they elect to sell at a very high premium.
I would say that ensuring that we got the best possible price was a central component to that, and if we hadn’t agreed good pricing, it would probably have been more difficult to get support from all the LPs in the process.
You were careful to disassociate this transaction from the raising of your latest primary fund. Are Coller or Goldman limited partners in the new fund?
US securities regulation prevents us from commenting on any fundraising efforts that are ongoing. What you have seen in the press release is that Coller has been a secondary investor in many Nordic Capital funds, as has Goldman, which I think has been helpful. We have longstanding relationships with them. Some others of these [deals] have been stapled transactions. There is no staple in this transaction.
Did LPs come to you directly with concerns about the process?
I believe that when it came to the actual decision to roll or not, some LPs felt that it was a short response time. It was a standard response time, but for a complex transaction it put a strain on LP resources to make a decision and it came at a busy time for some investors.
For us, this was one of the key learnings around it. When you do things that are very complex, you need to respect that LPs need a significant amount of time.
Kristoffer Melinder joined Nordic Capital in 1998. He has been involved in 16 different Nordic Capital platform investments across healthcare, financial services and consumer and retail sectors. Since 2016 he has been Nordic’s sole managing partner.