On Monday we reported that UK mid-market firm Lyceum Capital Partners had used a stapled secondaries deal to relaunch as Horizon Capital, with backing from investors including Pantheon and Idinvest Partners. The consortium acquired stakes in Lyceum’s 2013-vintage flagship and committed to a new vehicle, Horizon 2018.
Then sister publication Secondaries Investor revealed on Wednesday that Ardian was underwriting a tender offer on the 2008-vintage buyout fund managed by Bridgepoint, owner of PEI Media, in a deal in which it would simultaneously commit capital to the firm’s latest credit fund.
On Thursday, Secondaries Investor reported that LBO France, one of the country’s oldest private equity firms, had closed a transaction over the summer in which Northleaf Capital Partners acquired stakes in the firm’s 2010-vintage buyout fund and committed to its latest small-cap vehicle.
Stapled secondaries transactions appear to be de rigueur among fundraising firms. According to Hamilton Lane data released this week, 27 percent of all GP-led secondaries transactions the firm has reviewed so far this year contained stapled elements. Yet not all staples are created equal.
Transactions can take the form of “multi-region” staples, such as EQT’s deal last year in which Partners Group acquired stakes in the Nordic manager’s 2011- and 2015-vintage flagship global buyout funds and committed to its Asia-focused vehicle. They can also take the shape of “multi-asset class” staples, such as Ardian’s deal with Bridgepoint.
Secondaries Investor has even heard about “moral” staples, in which the stapled element of a transaction is an undocumented “handshake-based” agreement in which secondaries buyers pledge to commit to a GP’s future or current fundraise.
Ultimately, it’s the selling LPs who bear the brunt of a stapled deal’s potential effect on pricing. At a recent secondaries panel discussion in London, Chi Cheung, a partner at secondaries firm Glendower Capital, recounted an example in which he was asked by both the GP and its advisor not to participate in the final round of a tender offer because his firm’s bid was higher than that of a rival bidder who was offering a staple.
“When you’re backing a GP, the transaction is really a partnership,” Cheung said. “When you create a level of distrust that you might be the next investor to be screwed over, you’re going to want to walk away.”
Disclosure makes all the difference. Hardwiring a stapled component into a tender offer and then being upfront with LPs that the price they’re being offered has been potentially diluted by a simultaneous primary commitment is the only way to mitigate conflicts of interest, regardless of the type of staple being proposed.
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