In mid-September HarbourVest made an unsolicited bid for SVG Capital of a little over £1 billion ($1.3 billion; €1.2 billion). In doing so, it put the listed firm – a tempting target for secondaries buyers – 'in play'.
If HarbourVest were to win the bid – which was unknown as we went to press – it would be a significant transaction for its ninth secondaries fund, Dover Street IX. The fund has raised $4.1 billion and is still collecting commitments. The SVG deal would allow it to deploy £1 billion and pick up exposure to funds managed by in-demand Cinven and CD&R, as well as Permira, CCMP, AEA, IK, L Catterton and FFL.
SVG hit back by releasing interim results ahead of schedule, which showed a significant uplift to NAV of 12 percent (half of which was down to favourable currency movements). This gave shareholders and any potential competing bidders something to think about. The HarbourVest bid, at 650 pence, represented a discount of around 12 percent to NAV, rather than the 2.4 percent discount on the previous valuation.
With plenty of secondaries 'dry powder' awaiting deployment – around $30 billion has been raised in the last 12 months – transactions of this size would be worth the attention of a number of bulge bracket buyers. SVG noted “approaches from a number of credible parties” which could potentially compete with HarbourVest.
Meanwhile, the deal would mean a stellar return for Coller Capital's fifth fund. Coller acquired a 23.9 percent stake, or some 50 million shares, in a rights issue in February 2009. A sale at the price offered by HarbourVest would equate to a return of around 6.5x for the secondaries specialist.
SVG, a long-time London-listed private equity investor, has had its share of ups and downs. It started life as a listed feeder fund for funds managed by Permira and, like many listed funds, had a torrid time during the financial crisis. Under chief executive Lynn Fordham, it started to diversify by committing money to other managers and raising third-party capital.
The third-party management piece – SVG Advisors – was sold to asset manager Aberdeen, and the SVG Capital of today is a different beast; essentially a concentrated portfolio of assets comprising commitments to eight managers and five co-investments. The firm is also said to have plans to become a lead direct investor.
Will the battle for SVG spark a wave of consolidation among listed private equity portfolios?
As discussed, secondaries buyers have cash to invest and listed private equity vehicles – whether they be feeder funds or pools of permanent capital – continue to trade at stubborn discounts. “What happened in the financial crisis continues to haunt this market,” says Alan Brierley, a director at Canaccord Genuity, referring to the way listed PE share prices nose-dived during the crisis. At one point in 2009 F&C Private Equity Trust hit a 79 percent discount to NAV; Pantheon's listed trust hit an 87 percent discount.
Today the discounts are less dramatic, but still persist. HarbourVest's own listed vehicle – HVPE – was trading at 25 percent discount to NAV at the time of the SVG bid in September; this is fairly typical.
But while the fundamentals are in place, there may not be any targets as obvious as SVG, which has plenty of cash on its balance sheet (more than enough to cover existing commitments) and a significant shareholder (Coller) seeking liquidity. “Ultimately, it all comes down to interested, willing shareholders,” says one secondaries buyer, “but never say never.”