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The Wire

Dec. 15, 2021

Why IRRs for healthcare are better than the rest, Permira leads $350m funding in Sysdig

Morning!

 

Huh? Orlando Bravo, head of Thoma Bravo, made a statement on Twitter recently that liquidity is overrated, and investors should not be so desirous of getting out “at every instant” in managers (or companies) they have backed.

 

For a private equity manager, that feels like an anachronistic mindset — one in which a GP feels insulted that an LP would dare to have the desire to get out of one of the manager’s funds. This was the prevailing attitude toward secondaries among GPs for many years, which kept secondaries as a kind of private equity black market where only the most desperate LPs would go to trade out of terrible managers.

 

That’s not the case these days. Secondaries is a thriving and growing part of private equity investing that is opening the asset class to more investors by taking away some of the risk of illiquidity. This will become especially important as and when retail investors become a more routine part of private equity investing.

 

GPs like Thoma Bravo rely on the secondaries market in a few ways, primarily as an outlet for LPs who want to trade out of a fund, usually because they need to free up allocation space to commit to the manager’s next fund. This is being driven by the frantic pace of GPs bringing funds back to market, and creating new products, forcing LPs to triage their commitment schedules.

 

More recently, GPs are using secondaries as ways to extend their holds over certain portfolio companies where they see more room for growth. These deals, called GP-led secondaries, have come to dominate the market and are changing the nature of private equity’s traditional ownership structures.

 

Private equity is evolving, especially around its illiquid nature and rigid ownership structures. Secondaries, a major driver of these changes, will continue to grow and innovate as investors and GPs make use of its various tools.

 

Healthcare: If you’re not investing in healthcare, you’re missing out on the best returns in the private equity business, writes Larry Aragon on PE Hub.

 

The median IRR for healthcare deals done from 2010 to 2021 is 27.3 percent, according to a new report from DealEdge, a private equity benchmarking service from Bain & Company and Cepres. To put that into perspective, the median IRR for all PE deals done in that same period is 21.9 percent.

 

The IRRs are for partly and fully realized outcomes of more than 33,000 private equity deals done worldwide. DealEdge obtained the data from both GPs and LPs involved in the deals.

 

After healthcare, the deal category with the next-highest IRR was technology (24.3 percent), followed by media and telecom (23.8 percent), business services (22.4 percent), financial services (21.2 percent), industrials (20.5 percent), consumer (18.5 percent) and energy and natural resources (16.4 percent).

 

Read the full story here on PE Hub.

 

That’s it for me! Hit me up with tips n’ gossip, feedback and your thoughts at cwitkowsky@buyoutsinsider.com or over on LinkedIn.

 

Read the full wire commentary on PE Hub ...

Also of note (may require subscriptions)

Thanks to this year's strong fund and direct investing, IMCO is already two-thirds of the way to reaching its goal of C$6 billion-plus of PE portfolio assets by 2025. (Buyouts)

"Punch Pubs has been bought by the private equity investor Fortress in a deal for almost 1,300 British pubs thought to be worth as much as £1bn." (Guardian)

 

"European authorities are planning to make it easier for individual investors to put their money in private equity by loosening rules around an investment structure that buyout firms see as a gateway for billions of dollars in fresh capital." (Bloomberg)

"Institutional investors including the Abu Dhabi Investment Authority have backed UK insurance broking group Ardonagh in a new round of fundraising that values the company at $7.5bn." (Financial Times)