Following on our recent observations about what institutional investors should know about the Middle East conflict for institutional investors, and the open question of whether declines in public markets would trigger secondary sales, we’ve now rounded out the first quarter and already are starting to see some institutions initiate new secondary sales processes (totaling north of $20 billion by a back of the envelope tally). While many of these are unrelated to macroeconomic events (and have in several cases been under consideration for many, many months), a few have been more directly correlated to denominator effect concerns. How relevant the denominator effect proves as a driver of secondary market volume, and whether this is just the start of a larger trend, will clearly depend on how institutional investors weather the current market uncertainties.
Together with the continued expansion of interest in selling, some trends on deal terms continue to evolve. For example, we have noted before the heightened use of purchase price deferrals and earnouts in secondary transactions, and that trend seems to be continuing with deal processes that are just kicking off. Interestingly, in recent months we also have seen a number of secondary buyers impose deal-specific speedbumps in addition to deferrals, limiting how much capital they can be asked to fund before a future date. All of these deferral features allow sellers to achieve higher reference date pricing on terms acceptable to a buyer, but also enable buyers to navigate capital deployment pacing and portfolio composition concerns. It will be interesting to see whether a continued wealth of sell-side opportunities further drives these trends.
