The mix of an ever-competitive deal environment, a glut of liquidity and a fair bit of market uncertainty create the need for limited partners and general partners alike to consider thoughtful solutions to meet investment objectives. A number of prominent and well-respected private equity funds, instead of pursuing third-party exits, have turned to single-asset deals, backed by the secondary markets to extract additional value.
Though they can be challenging to execute, GPs and LPs should consider utilizing single-asset secondary deals when developing their exit strategies. With a significant accumulation of capital in private equity, and alternatives more broadly, it's possible to realize the full potential of every asset in a fund, especially as historically niche markets such as secondaries now offer a sophisticated alternative to traditional exits.
Single-asset deals occur through complex direct transactions where one company, currently in an existing fund of the general partner, is transferred to a follow-on fund or special purpose vehicle. There are a variety of reasons for this: The asset involved is generally promising but nearing the end of its time horizon, it needs a capital infusion and isn't yet ready to sell at its full potential value, or more time is needed to implement strategic changes. In other instances, a single-asset deal helps avoid a forced exit, when there are particular industry or economic headwinds. These transactions are intended to be value enhancing for GPs and LPs and they allow those invested to exit, maintain or increase their exposure.
Secondary buyers are able to conduct deeper due diligence around single-asset opportunities, helping the buyers build greater conviction than what may be possible in a more diversified portfolio of interests. The terms of these transactions can be flexible to ensure a fair deal to sellers, while also creating alignment with GPs to maximize future value.