Earlier this week HarbourVest, through its latest secondaries fund, made an unsolicited bid for SVG Capital of a little over £1 billion ($1.3 billion; €1.2 billion). In doing so, it has put the listed firm – a tempting target for secondaries buyers – “in play”.
If HarbourVest were to win the bid, it would be a significant transaction for its ninth secondaries fund, Dover Street IX. The fund has raised $4.1 billion and is still collecting commitments. The SVG deal would allow it to deploy £1 billion and pick up exposure to funds managed by in-demand Cinven and CD&R, as well as Permira, CCMP, AEA, IK, L Catterton and FFL.
Its plan – if it were to successfully delist the company – would be to realise the assets over time, as it is doing with Absolute Private Equity and Conversus Capital, two listed funds of funds which it took private in 2011 and 2012 respectively.
Letters of intent from Legal and General, Old Mutual and Aviva, which represent a significant portion of SVG's shareholders, suggest a deal will go ahead, but whether it goes ahead with HarbourVest as the buyer is very much in the balance.
SVG urged its shareholders to wait until it released interim results, which it did so ahead of schedule today, before making any decisions. The results, as expected, showed a significant uplift to NAV of 12 percent (half of which was down to favourable currency movements). This has given shareholders and any potential competing bidders something to think about. The HarbourVest bid, at 650 pence, now represents a discount of around 12 percent to NAV, rather than the 2.4 percent discount on the previous valuation.
With plenty of secondaries 'dry powder' awaiting deployment – around $30 billion has been raised in the last 12 months – transactions of this size would be worth the attention of a number of bulge bracket buyers. In its announcement this morning, SVG noted “approaches from a number of credible parties” which could potentially compete with HarbourVest.
Meanwhile, the deal will mean a stellar return for Coller Capital's fifth fund. Coller acquired a 23.9 percent stake, or some 50 million shares, in a rights issue in February 2009. A sale at the price offered by HarbourVest would equate to a return of around 6.5x for the secondaries specialist.
SVG, a long-time London-listed private equity investor, has had its share of ups and downs. It started life as a listed feeder fund for funds managed by Permira and, like many listed funds, had a torrid time during the financial crisis. Under chief executive Lynn Fordham, it started to diversify by committing money to other managers and raising third-party capital.
The third-party management piece – SVG Advisors – was sold to asset manager Aberdeen, and the SVG Capital of today is a different beast; essentially a concentrated portfolio of assets comprising commitments to eight managers and five co-investments. The firm is also said to have plans to become a lead direct investor.
Will the battle for SVG spark a wave of consolidation among listed private equity portfolios?
As discussed, secondaries buyers have cash to invest and listed private equity vehicles – whether they be feeder funds or pools of permanent capital – continue to trade at stubborn discounts. “What happened in the financial crisis continues to haunt this market,” says Alan Brierley, a director at Canaccord Genuity, referring to the way listed PE share prices nose-dived during the crisis. At one point in 2009 F&C Private Equity Trust hit a 79 percent discount to NAV; Pantheon's listed trust hit an 87 percent discount.
Today the discounts are less dramatic, but still persist. HarbourVest's own listed vehicle – HVPE – was trading at 25 percent discount to NAV as of Thursday; this is fairly typical.
But while the fundamentals are in place, there may not be any targets as obvious as SVG, which has plenty of cash on its balance sheet (more than enough to cover existing commitments) and a significant shareholder (Coller) seeking liquidity. “Ultimately, it all comes down to interested, willing shareholders,” says one buyer, “but never say never”.