Fundraising: Stapled secondaries

Stapled deals, in which investors purchase stakes in a general partner’s existing fund at the same time as committing to the GP’s current fund, have gained much attention as a way for managers to fast-track fundraising.

Several successful high-profile stapled deals have been reported recently: in March this year AlpInvest Partners emerged as the lead buyer of a consortium in a $1.2 billion stapled deal on Lee Equity Partners’ first fund.

Others, such as Spanish firm N+1’s attempts to close a stapled deal last year have attracted attention for different reasons. The deal ultimately fell through in August with not enough existing limited partners wanting to sell their stakes at the price offered.

Stapled deals and restructurings are resource-intensive, time-consuming, expensive and ultimately risky. If they succeed, they can cut short fundraising by months and/or allow more time for assets to be realised. If they fail, it can be costly for the GP who may be left with a lack of commitments to a new fund, as well as bills from the lawyers and intermediaries who tried to get the deal off the ground. Such deals are on the rise, with a third of respondents to a January survey by Setter Capital stating that they felt general partners had sought a materially higher number of staples in 2015, than compared with a year earlier.

Staples have also attracted regulatory scrutiny: The US Securities and Exchange Commission indicated last June that it would explore whether such transactions are fair to LPs, or require them to choose among bad options.

“GPs need to be careful not to rely on this solely for their fundraising strategy – that’s the lesson here,” Sunaina Sinha, a partner at placement agent and advisory firm Cebile Capital says.