We found interesting the diversity of the potential buyers. We also liked the fact that we were able to remain anonymous throughout most of the process, which in our view might prevent an adjustment in price from the counterparties based on the type of the potential seller.”
The Snapshot
What happens when a seller decides to use a platform to source buyers for their PE fund stake? A prominent Family Office with over 30 years of Private Equity decided to do just that when faced with the question of how to best sell their PE fund stake. Palico’s online secondary marketplace with its unique offering of digitizing the process of selling PE fund interests while maintaining seller anonymity, provides visibility to a wide array of over 1500+ traditional, non-traditional and unconventional buyers as well as allowing a transparent multi-bidder auction process.
60 minutes after the listing went live on Palico, it had garnered serious interest from 6 different LPs and within 24 hours, there were 10 LP firms lining up with their bids. 6 months down the line, the transaction was successfully closed.
The Stakes
The seller had invested in a world renowned buyout megafunds with an AUM of US$10+ Billion (Vintage 2015). The fund focused on buyouts, growth and venture as its core strategy with a special focus in technology, healthcare, telecommunications and media, and adopted a global outlook. The fund had reported a return of 1.16x on invested capital.
The Problem of One-sided Contest
For the Central American Family office, It was their first time on the sell-side of a secondary transaction- “We had previously bought in the secondary market, though this was our first selling experience.” The experience was not at all gratifying. The unequal and inordinate power that large institutions wield in the market have resulted in the small family offices having a lesser say in any transactions. For smaller sellers, the buyers would dictate the terms and the price. Also, traditional methods restricted the amount of visibility they could attract towards their fund stake which pushed down the chances of a good match even more.
Not surprising that Palico seemed a perfect solution to their unique dilemma- “We found interesting the diversity of the potential buyers. We also liked the fact that we were able to remain anonymous throughout most of the process, which in our view might prevent an adjustment in price from the counterparties based on the type of the potential seller.” The seller immediately understood the power of anonymizing profile and appreciated the corresponding immense discretion one has when publishing a stake for sale on Palico.
Leveraging the 1500+ LP members, conventional and others, in Palico’s network, the family office was able to immediately get in touch with a wide variety of buyers – from fund of funds to asset managers, from corporate investors to other family offices.
“In general, the quality and professionalism of the potential buyers was good. Every LP is vetted by Palico’s Compliance team before they are allowed to take part in the bidding process. The platform’s proprietary algorithm then matches the new opportunities with institutions having similar strategies and objectives.”
The Power of a Digital Marketplace
The listing on Palico resulted in an immediate alert notification sent out to a vast network of traditional and non-traditional secondary buyers. Within 60 minutes of listing, there were 6 different LP firms who were seriously interested to bid. Within 24 hours, that queue had increased to 10 LP firms willing to bid for the stake. In total, the listings attracted 17 LP requests from different LP firms with 73 messages being exchanged between the seller and the buyers. The listings attracted 81 unique visitors resulting in 131 visits to the listings page and 165 page views.
The essence of the marketplace is creating a multiple bidder process and a very transparent auction system that actually plays to the advantage of the sellers.“The price at which we sold was within an acceptable range for us.” said the seller.
The Palico marketplace is designed to streamline the entire selling process and enable new sellers to easily understand the intricacies of transacting on the secondary market with in-house product experts always available to answer questions. Here is a short snapshot of how this family office progressed through the sale in their own words: “We received emails requesting additional information about the positions. In order to filter potential buyers, we requested non-binding price ranges and based on that, we selected a shorter list to provide additional information. After having provided access to the information, we received offers from which we decided to proceed with one of them, based not only on the indication of price, but also the profile of the potential buyer. We followed up with emails and calls with the manager so that the buyer could understand better the fiscal implications, the structure, etc. Following that, they went to their IC and came back with a final adjustment to the price, which we accepted. The SPA was drafted by the buyer, which after a few discussions.”
Results
The Palico Advantage came right to the aid of the seller, announcing the listings to suitably interested LP firms globally in its member base while maintaining the anonymity of the seller thus enabling fair pricing and providing complete discretion to the seller for their listing. Interestingly, the winner was an LP who expressed their interest within 30 minutes of the listing going live. No surprise that the transaction was successfully closed within 6 months (including Christmas holiday session) with the winning bid coming from one of the world’s largest Fund of Funds, showing genuine interest in the Central American seller.
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