1. Single-asset GP-led structures firmly established as “fourth” exit route in sponsor toolbox as the nature of “secondaries” evolves

GP-led secondaries have exceeded 10% of global sponsor-backed exit activity in 2023 and 2024 and are now comparable in capital volume to sponsor-backed IPO activity.[1]^,[2]  

This growing prominence within the GP toolbox is not incidental. We believe that single-asset GP-leds specifically are fundamental departure from the traditional concept that secondary deals need to offer a “liquidity” solution. Our experience in the last seven years indicates that GP-led structures, if done with the right rationale, are driven by the desire to keep compounding returns of star assets that are difficult to identify and originate in an increasingly competitive primary buyout market.

Our view – “secondaries by name, but not by nature” – is based on a few fundamental differences between traditional secondaries and single-asset GP-led solutions.

The traditional perception of secondaries links to a few core characteristics, namely:

(i) a main goal of generating high velocity deployment (and return) of capital with returns below those achievable by a direct buyout strategy,

(ii) highly diversified exposure (with tens to hundreds of companies acquired at a time),

(iii) buyers are generalist in their selection approach when it comes to target company sector and size,

(iv) their analysis and diligence is predominately based on limited access to company-level information.

On the other hand, we now have market longevity and historical track record for the single-asset GP-led segment that points to returns which are equal or in excess of a direct buyout strategy, single-asset GP-led managers can have highly targeted strategy lens and clear differentiation in origination and asset selection approach, and their execution capabilities are similar to direct buyout peers with investment processes and diligence requiring deep expertise and experience in direct asset underwriting. In essence, two diametrically different approaches, all falling under the same label – “secondaries”.

2. Continuation Vehicles are just a fraction of what is possible

The desire to hold compounding assets for longer – alongside partners with deep knowledge of the company and sector – has also driven the expansion of what a single-asset GP-led solution is, beyond single-asset continuation vehicles. We see the use of co-control structures and transformational M&A equity financing as natural expansions of a continuation vehicle’s core appeal to investors, i.e. the opportunity to access star assets in partnership with, and closely aligned to, the sponsors best suited to own them.

Partnerships such as recently announced co-control investments by Impilo and KKR, Oakley Capital and Eurazeo, and PSG and Rivean Capital illustrate the template of sponsors bringing in a co-control sponsor to continue successful buy-and-build stories. In each instance, the incoming co-control investor brings additional capital and capabilities to support the second phase of ownership, such as for geographic expansion beyond the home market.

Retaining a larger stake, governance rights and attribution is an attractive proposition to the existing sponsor. They may face constraints however, such as a lack of follow-on capital or fund concentration limits. Creative single-asset GP-led structures can help solve these.

3. “CV squared” emerging as additional route to liquidity

Transactions where one continuation vehicle sells an asset to a newly formed continuation vehicle are drawing significant attention. In our view, these are a natural consequence of continuation vehicles’ widespread adoption over the past five plus years. We see these transactions as a validation of the core thesis – great compounders can deliver alpha returns over multiple ownership cycles. We have seen this pattern playing out in the European landscape multiple times over the years in different disguises. Outstanding examples, such as Hg’s journey with Visma, only highlight the attractiveness of supporting star assets as they scale in their journey to multi-regional, multi-product pre-eminence.

“CV squared” transactions require a case-by-case basis diligence of the sponsor’s motivation, alignment and the go-forward value creation plan for the asset, just as a new investment would. For the existing limited partners, a continuation vehicle solution imposes the decision to sell or roll on – but we see considerable benefit in the additional liquidity provided to the market by these so-called “CV squared” structures, which only add to the exit alternatives available to investors.

4. Lead role in mid-market deals becoming ever more key

We saw single-asset GP-leds emerging as an opportunistic allocation within broader secondaries strategies without dedicated teams and capital. Buyers would initially accept syndicates with multiple competitors participating because the availability of capital on the buyside was not adequate to the demand from sponsors holding high-quality companies. Increasingly, however, we see transactions with one or two clear lead buyers who seek to secure an allocation early (even before a process has commenced) – thereby minimising the allocation available for syndication.

For allocators selecting single-asset GP-led strategies, that means that the highest-quality opportunities will only be accessible to a decreasing set of managers. When committing capital to GP-led managers, we believe allocators should therefore carefully examine origination track records and sourcing advantage going forward, as only those with the requisite strategy focus, team bandwidth and repeatable processes will be able to identify and secure these transactions.

References:

[1] Sponsor-backed exit activity source: Jefferies Global Secondary Market Review, January 2025

[2] IPO and secondaries volume source: Pitchbook, Annual PE Breakdown 2024 (published January 2025)