GP-leds

A GP-led transaction arises when the manager of a private equity fund considers that one of its highest-performing portfolio companies still offers significant value creation potential beyond the original fund’s investment horizon, while the fund’s investors may wish the asset to be sold in order to realise their investment.

A GP-led transaction provides a solution to this situation.

A high-performing asset still offers significant value creation potential beyond the original fund's investment horizon
Rather than selling the company to an external buyer, the sponsor creates a newly established investment vehicle — the “continuation fund” — which acquires the company from the existing fund. This enables the sponsor to retain ownership of the asset for several more years.
Existing LPs in the original fund generally have two options:
  • realise their investment by selling their stake and receiving immediate liquidity (exit);
  • roll over part or all of their exposure into the continuation vehicle allowing them to maintain their exposure in the company.
To finance the transaction, the sponsor runs a competitive process to establish a market price. In most cases, a selected group of secondary investors — specialist private equity funds — provide the capital needed to acquire the assets from the investors wishing to realise their investment.
In simple terms, in a GP-led transaction the same private equity sponsor retains control of the company and continues to manage it, while the investors and the fund structure change.
GP-led transactions offer several key advantages:
  • existing investors can obtain liquidity without the company being sold to an external buyer at a sub-optimal time;
  • investors who so wish can maintain their exposure to the company;
  • the sponsor can fully execute its long-term value creation strategy over an extended holding period;
  • the process includes independent valuations, fairness opinions and investor approval.
In summary, a GP-led transaction is one in which a private equity sponsor transfers a portfolio company from an existing fund into a newly established vehicle managed by the same sponsor, allowing some investors to realise their investment while others roll over their exposure for a longer period.
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