MAC uncertainty grips sellers in secondary market

Following HarbourVest’s decision to walk away from a signed secondary transaction last week, sellers of private equity fund interests are concerned that buy-side MAC clauses will complicate secondaries activity even further.

Seller anxiety around secondary deals has increased since HarbourVest Partners backed out of a secondary transaction last week, claiming that a material adverse change (MAC) had altered the deal.

Todd Miller, a managing director with Cogent Partners, a Dallas-based secondaries market advisor, said that since the HarbourVest news came out last week, sellers had been expressing concern that MAC clauses are going to become routine in secondary transactions.

Miller added that for the past few weeks, buyers have selectively begun asking for MAC clauses to be part of secondaries deals. 

“We’ve resisted it,” Miller said about adding change clauses to deal. If a buyer insists on having a MAC clause as part of a deal, Cogent will structure transactions with specific benchmarks that, if reached, would trigger a material adverse change.

Miller said he doesn’t think there will be a mass exodus of buyers walking from deals on the secondary market.

A source confirmed that HarbourVest backed out of a signed secondary agreement last week, invoking a MAC clause that was built into the deal. The source said that all parties were “on the same page” regarding HarbourVest nixing the transaction, and said the firm is not concerned about a lawsuit.

HarbourVest, a global fund of funds and secondaries firm based in Boston, raised $830 million from its initial public offering on Euronext Amsterdam in December 2007. The firm has invested in the secondary market for more than 20 years and has completed more than $2.8 billion in purchases of 400 secondary partnership interests.