2017 Financial Sponsor Secondary Market Observations

Transcription

1 L AZARD' S P R I VATE C API T A L SEC O NDA R Y A D V I S O R Y G R O U P 2017 Financial Sponsor Secondary Market Observations Lazard has prepared the information herein based upon publicly available information, research and internal estimates and is for general informational purposes only. The information is not intended to be, and should not be construed as, financial, legal or other advice, and Lazard shall have no duties or obligations to you in respect of the information.

2 The Financial Sponsor Secondary Market Came of Age in can be viewed as a watershed year for this portion of the secondary market, as the market developed from one dominated by restructurings to one dominated by liquidity events executed on behalf of financial sponsors, many with significant global brands March 2017 August 2017 October 2017 As reported in the Wall Street Journal, our client Investindustrial executed a Build Up Fund transaction in which the assets from Fund IV (the significant majority of which were represented by an investment in one company, PortAventura in Spain) were transferred into a new fund. Limited partners in the existing fund were given the option to sell their interests to secondary buyers (underwritten by AlpInvest Partners) or roll their interests into the new fund. The new and rolling investors committed capital to fund a growth strategy at PortAventura. As reported in the Wall Street Journal, BC Partners executed a tender offer transaction in which each limited partner in BC Partners Fund VI was offered the right to sell its LP interest to Lexington Partners, who won an auction to determine the price offered. In conjunction with the tender offer, Lexington Partners made a stapled primary capital commitment to BC Partners Fund X. As reported in the Wall Street Journal, our client Warburg Pincus executed an innovative transaction involving the sale of a $1.2 billion strip of interests in a portfolio of Asian companies. The investment was led by Lexington Partners and the Vintage Funds managed by Goldman Sachs Asset Management. ` Financial sponsor secondary transactions (or sponsored secondaries ) are transactions that are initiated by or substantially involve a financial sponsor who is seeking a liquidity or capital-raising solution through what would traditionally be thought of as the private secondaries market. 2

3 Market Doubles in Size to Approximately $16 Billion Lazard estimates that sponsored secondary transaction volume increased from approximately $7 billion in 2016 to approximately $16 billion in Approximately 50 transactions initiated by financial sponsors were closed in the secondary market, which is also a record by a substantial margin Sponsored Secondary Market Volume Estimates ( ) Volume ($ bn) $16 2.3x $16 $12 $8 $9 $5 $9 $6 $7 $7 $4 $4 $4 $3 $ Year Max Survey Result Survey Consensus Estimate Min Survey Result Source: Lazard Internal Estimates Note: Lazard surveyed investors regarding the size of the market in 2014, 2015 and The estimates provided reflect the low end, high end and consensus estimate of the survey results. We attribute much of the wide variation to definitional differences as investors may include, or exclude, certain types of transactions from these calculations. 3

4 The Year of the Big Sponsor Secondary ($ in millions, unless otherwise indicated) Investors and advisors have long waited for successful, large market financial sponsors to make use of the capital and transaction structures available through the secondary markets. We estimate that over 60 financial sponsor transactions came to market in 2017 Sponsor Secondary Transactions In The Market (Segmented by Geography and Size) # of Transactions Large-cap market Unknown <$100 $100 - $250 $250 - $500 $500 - $1,000 >$1,000 Asia Europe Latin America United States Source: Lazard Internal Estimates 1 Includes transactions that closed, were in the process of closing as of December 31, 2017 and were reported to have failed in

5 Sponsored Secondary Market Pricing Continues to Be Strong Sponsored secondaries tend to price close to the reported net asset value ( NAV ) of the fund/interest. Over the past two years, observed pricing 1 has increased from approximately 93% of NAV to over 100% of NAV. This year was the first year in which a premium to NAV was broadly observed across the market, reflecting the quality of financial sponsors executing transactions and the strength of secondary markets Average Sponsor Secondary Transaction Pricing ( ) and Pricing Drivers % of NAV Enhanced Due +100% Diligence 120% 93% When financial sponsors are actively involved in a secondary process, the information available to investors is typically robust. This allows investors to underwrite comprehensively each company or asset in the portfolio in a detailed way, reducing uncertainty in financial forecasts and reducing risk premia that may be built into models for funds where the same investor may have less information. 80% 40% Selection Bias Financial sponsor secondaries do not tend to succeed at large discounts to the reported NAV, unless a situation is especially troubled. Thus, the transactions that attract a financial advisor will tend to be high quality in general, and the transactions that attract substantial buyer interest will also tend to be high quality. In the LP portfolio market, there has historically been greater willingness to accept discounts to exit illiquid, often old or underperforming, investments. 0% Revised Business Plan The rationale for financial sponsors to initiate a secondary transaction may be to enable them to continue managing companies held in older vintage funds and raise capital to finance the continued growth of the companies. Where applicable, investors will factor the benefit of additional time and follow-on capital into their price. Source: Lazard Internal Estimates 1 Pricing refers to the weighted average price paid (relative to the reported NAV) by secondary investors in transactions managed by Lazard or for which Lazard had information it believed to be accurate regarding the purchase price relative to the reported NAV in the applicable calendar year. 5

6 A Diversified Group of Secondary Investors Participated in 2017 Transactions ($ in millions, unless otherwise indicated) Lazard estimates that 14 investors accounted for approximately 90% of the transacted volume in 2017 Total # of Transactions Estimated Capital Invested Firm A Firm B Firm C Firm D Firm E Firm F Firm G Firm H Firm I Firm J Firm K Firm L Firm M Firm N Estimated Capital Investment Size ($M) <$50 $50 - $100 $100 - $250 $250 - $500 $500 - $1,000 >$1,000 7 >$1,000 6 $500-$1,000 4 >$1,000 4 >$1,000 4 $250-$500 3 >$1,000 3 >$1,000 2 >$1,000 2 >$1,000 2 $500-$1,000 2 $250-$500 2 $250-$500 1 $50-$100 1 $100-$250 Vintage Funds 6 Source: Publicly Available Information, Private Equity International, Lazard Internal Estimates Note: Includes transactions that closed or were in the process of closing as of December 31, 2017.

7 Highlights by Region (Number of transactions closed and dollar values by region are Lazard Internal Estimates) Based on the transactions we tracked in 2017, Lazard estimates that Europe accounted for the majority of transaction volume in 2017 Estimated Sponsored Secondary Volume by Region as a Percentage of Aggregate 2017 Volume* Over 20 transactions were executed in 2017 but none were larger than $1 billion Latin America completed a landmark deal Pipeline for 2018 is strong 62% Infrastructure transactions accounted for a material share of transaction volume in the region Four deals greater than $1 billion USD closed or were in the process of closing as of December 31, transactions closed $3.8 billion in volume 23% 20 transactions closed $10.0 billion in volume First-known-of-its-kind transaction structure, the strip sale, was successfully executed in Asia by Warburg Pincus Record year in the region Financial sponsors are seeing the advantages of accessing the secondary market 15% 6 transactions closed $2.5 billion in volume Source: Lazard Internal Estimates * Only includes transactions that closed before December 31,

8 2017 FINANICAL SPONSOR SECONDARY MARKET OBSERVATIONS Looking Ahead 1 Sponsor secondaries market could approach, if not exceed, $20 billion in transacted volume in An unprecedented number of large financial sponsors could access the secondary market for liquidity and capital raising solutions, transactions that involve over $1 billion in NAV may increase significantly 3 Multiple large transactions that involve direct liquidity solutions for portfolio company interests should be completed in Sponsor secondaries in Asia could substantially increase and the US will likely overtake Europe as the largest region in the market 5 More limited partners will likely enter the market as potential lead investors creating increased competition for secondary investment firms. The success of investors like APG, CPP and GIC in 2017 could entice peers to add capabilities in order to participate more fully in the sponsor secondary market 8

9 Lazard Private Capital Advisory is a trusted advisor committed to long-term relationships with clients by providing thoughtful and innovative private capital solutions through a globally integrated platform. We are a global leader in raising capital, executing secondary transactions and providing capital solutions for private investment funds. Our group has built one of the broadest institutional investor coverage networks in the industry and has cultivated relationships with over 1,500 investing institutions globally. FOR OPPORTUNITIES OR FURTHER INFORMATION PLEASE CONTACT Holcombe Green III Managing Director and Global Head of Secondary Advisory holcombe.green@lazard.com EUROPE AMERICAS ASIA Johanna Lottmann Ryan Binette Nicholas Miles johanna.lottmann@lazard.com ryan.binette@lazard.com nicholas.miles@lazard.com Nicolas Vagner Alexander Mejia Dominik Woessner nicolas.vagner@lazard.com alexander.mejia@lazard.com dominik.woessner@lazard.com Abhijit Mitra abhijit.mitra@lazard.com CHICAGO LONDON LOS ANGELES NEW YORK PARIS SINGAPORE 300 North LaSalle St Chicago, IL United States Stratton St London W1J 8LL United Kingdom Avenue of the Stars Suite 1800 Los Angeles, CA United States Rockefeller Plaza New York, NY United States , Boulevard Haussmann Paris Cedex 08 Paris Raffles Place #25-01 Tower 1 One Raffles Place Singapore For a full copy of the report please secondary.advisory@lazard.com 9