Secondary Deals: Is the whole always greater than the sum of the parts?

Secondary portfolios are trending towards majority or single buyer sales, but sellers may be missing out on optimizing pricing

Billion dollar transactions are becoming more commonplace in the secondary market, with sellers shopping around record-breaking portfolios as of late. Secondary funds are raising record amounts of capital, just note the surge of mega-funds in the sector, that will need to be deployed in the years to come. With the secondary market continuing to grow, there will surely be increased appetite to pick-up large portfolios being shopped around by mainstays in the advising industry such as Greenhill, or Campbell Lutyens. In cases where the sale is prompted by distress or regulation, selling lines in bulk can be a necessary outcome. However, when these pressures aren’t present are sellers maximizing value via large portfolio sales? Is the whole always greater than the sum of the parts?

How multi-buyer sales can promote higher pricing

For LPs looking to sell multiple lines pursuing a multi-buyer process has the potential to unlock higher pricing on a line-by-line basis. Indeed, one must factor the added legal expense and administration that come with navigating several buyers, but the trade-offs can be substantial and shouldn’t be overlooked since spreads can become significant.

Consider that selling individual lines to multiple individual buyers allows for a competitive bidding process at each fund stake. In doing so, sellers can attract buyers who have a specialization in the fund stake allowing greater appreciation and understanding of the value of the fund stake, which could have a significant impact on price.

To the contrary, selling to a single-buyer provides a situation where it is doubtful that they will be the highest bidder for every stake in a portfolio. Should the spread across sufficient lines be enough, then there is a strong case to be made that portfolio sales may not always be the best way to go. Naturally, the context, as well as the make-up of the portfolio, will need to be taken into account but the notion and the analysis on the two approaches should be done given the amount of value that sellers could be leaving on the table.

Casting a wider net to bring in buyers of all types

As the competition in the secondary market continues to grow so does the variety of buyers interested in throwing their hat in the ring. While dedicated secondary funds may be responsible for the majority of purchases in the market, non-traditional secondary buyers present another option for sellers looking to find higher pricing for their fund stakes. Non-traditional buyers have become more sophisticated attaining the due diligence know-how and material to price portfolios. They have also been known to provide higher than average pricing for fund stakes, displaying a concerted willingness to compete in the secondary market.

Providing a marketplace to sellers looking to access a mix of buyer types

Palico gives sellers access to a marketplace focused on maximizing price and proceeds by opening the sale of secondary stakes to a global community of both traditional and non-traditional secondary buyers. Palico’s marketplace is home to an active base of secondary buyers that range in size and type. It is a platform that provides sellers the speed and ability to find relevant buyers with the use of dedicated alerts and machine matching algorithm. Sellers on the marketplace create their own bidding process with interested buyers and typically receive 5-15 requests within 24 hours of posting.

Palico’s digital marketplace streamlines secondary and fundraising trading, in an ever-expanding range of PE strategies.

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