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Liquidity, for a price
Whitehorse eyes fresh capital for its niche strategy
Transacted
November 26, 2023
Happy Sunday. Here’s what we’ve got today…
Two headline deals and a look at Whitehorse Liquidity Partners
The week’s deal sheet, plus the latest on 777 Partners
1. Kardashian signs firm’s first deal.
• SKKY Partners, Kim Kardashian’s consumer-focused private equity fund, signed its inaugural deal, agreeing to acquire a minority stake in premium sauce and condiments brand Truff.
• The self-proclaimed “Dom Perignon of hot sauce,” Truff was founded in 2017, leading with a direct-to-consumer strategy built on top of social media-first marketing. It’s since expanded its retail presence, landing a spot on shelves at retailers like Whole Foods, Kroger, and Target.
• Co-founded by Kardashian and former Carlyle consumer head Jay Sammons, SKKY launched in September 2022 and has yet to hold a first close of its debut fund.
2. Carlyle posts big return in McDonald’s stake sale.
• McDonald's agreed to repurchase Carlyle’s 28 percent minority stake in a group that oversees the chain’s China operations for $1.8 billion, valuing the business at $6.4 billion. Carlyle says the exit is set to return around 6.7 times its invested capital.
• McDonald’s adds Carlyle’s stake to its existing 20 percent position, with Citic’s Trustar Capital holding 52 percent. It’s a reversal of the chain’s 2017 decision to sell off around 80 percent of its China and Hong Kong operations for $1.7 billion.
• Carlyle had originally planned to sell down a portion of its stake as part of a proposed $4 billion transaction that also included a partial exit for Citic. The deal had been marketed to GIC and Mubadala, among others, before McDonald’s approached Carlyle with its offer.
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The private equity narrative for much of the past year has centered around a lack of exits in a slow market. That, in turn, has nearly halted distributions to limited partners (LPs).
Investors can’t change market conditions, but they have proved a willingness to embrace alternative liquidity solutions.
Earlier this year, we covered the emergence of net asset value (NAV) loans, or portfolio liquidity secured by a claim on the fund’s assets, that, among other uses, can help general partners fund “synthetic” distributions to their LPs without actually exiting any of their investments.
Now, an alternative approach to early limited partner liquidity is gaining momentum in the private equity secondaries market.
In 2015, Yann Robard, founder and managing partner of Whitehorse Liquidity Partners, pioneered a preferred equity financing structure that offers limited partners a way to access liquidity without having to either wait for a sponsor’s distributions or execute an outright sale of their stake.
This month, his firm announced plans to target a $6 billion new fund.
Robard’s Innovation
Robard’s method offers LPs immediate cash, equivalent to around 70 percent of a particular private equity portfolio’s NAV. In exchange, Robard and his firm receive a preferred equity tranche that grants them a right to future cash flows from the same underlying portfolio.
Whitehorse continues receiving cash flows until its initial outlay is repaid, plus an additional hurdle, providing a return on its position. Thereafter, the LP accrues its normal cash flows on the remaining 30 percent common equity tranche, though Whitehorse continues to participate with a small amount of additional upside. Typically, Whitehorse’s arrangements contemplate a 10/90 cash flow split between their preferred equity and the LP’s common after the initial hurdle is met.
Taken in aggregate, Whitehorse targets a 2 percent monthly cash distribution (as a percent of invested capital) to its investors, according to marketing materials from its latest flagship fund.
The firm typically buys stakes ranging in size from $100 million to more than $750 million. Each investment can comprise dozens or even hundreds of underlying private equity stakes across secondary, primary, or co-investment interests.
Alongside limited partner preferred equity deals, Whitehorse can also leverage the same strategy to buy private equity portfolios outright. With this approach, after purchasing the portfolio, the firm structures a similar preferred tranche and then sells off the remaining common equity to a third party, often packaging various stakes into a larger collection of similar assets.
Does the Risk Match the Returns?
The built-in minimum return mechanics should mean that Whitehorse takes on substantially less risk than a traditional secondary fund, though at the expense of more limited upside.
That said, with upfront capital provided based on current NAV, future downward revisions in fund marks or worse-than-expected exits could quickly eat through the LP’s 30 percent common equity tranche, putting Whitehorse’s principal at risk. This type of scenario would then leave Whitehorse exposed to much the same downside as LPs and their fund managers.
That’s exactly what happened in Whitehorse’s first two funds, which reported internal rates of return of 5.4 percent and 7.8 percent, respectively, as of June. Sources familiar with the matter cited a handful of early deals in which common equity tranches were wiped out, and Whitehorse’s preferred equity tranches sustained heavy losses.
Back-to-back bottom-quartile returns so early in the firm’s life would likely have tanked its prospects for any future capital commitments. Luckily for Robard and Whitehorse, the firm had already raised a series of additional funds ($2 billion in late 2019, $4 billion in 2020) before any cracks started to show.
Whitehorse’s three most recent funds have all posted IRRs currently exceeding 16 percent, providing some assurance against earlier questions around the viability of Whitehorse’s strategy.
The Firm
The Toronto-based firm now manages nearly $15 billion, including the late summer close of a $5.3 billion Fund V. Wasting no time, the firm is set to kick off fundraising for their previously mentioned $6 billion sixth fund by year-end.
In their telling, that barely scratches the surface: Robard and team believe their solution’s addressable market is up to $135 billion (and growing).
DEALS, DEALS, DEALS
• Citadel founder Ken Griffin is in talks with Stephen Ross over the potential purchase of a stake in the Miami Dolphins, Hard Rock Stadium, and F1 Miami, at a total deal value of more than $7 billion.
• Archimed acquired and merged Symbio and Proinnovera, two contract research organizations.
• Astorg agreed to purchase a 51% stake in Sofico, a Belgium-based auto leasing software developer.
• Bregal Unternehmerkapital acquired a majority stake in Netrics, a Waterland Private Equity-owned cloud-managed service provider.
• Professional Fighters League acquired mixed martial arts rival Bellator, the second-largest MMA promotor, from Paramount (Nasdaq: PARA).
• TechnipFMC (NYSE: FTI) has agreed to sell its Measurement Solutions business to One Equity Partners for $205 million.
• The Home Depot (NYSE:HD) agreed to acquire International Designs Group, a construction resources and design platform, from Mill Point Capital.
• Petal Card, last valued by VCs at $800 million in January 2022, is now seeking a buyer, with Goldman Sachs advising on the sale process.
• Merck & Co. (NYSE: MRK) agreed to acquire Caraway Therapeutics, a biotech focused on treatments for neurodegenerative diseases, for a potential total consideration of $610 million, including milestone-related earnout payments.
• Antin Infrastructure Partners agreed to acquire Consilium Safety Group, a provider of fire, flame, and gas detection infrastructure, from Nordic Capital.
• Blackstone is close to acquiring a $17 billion commercial property loan portfolio from the FDIC that belonged to the collapsed Signature Bank.
• BT Group and Aurelius Group are in discussions over a deal to acquire MusicMagpie, a British used smartphones e-commerce vendor.
• OneLife Fitness, a health and fitness club operator, is exploring a potential sale that could value the company at around $700 million, with advisors Jefferies and North Point hired by current owners Delos Capital, HRS Management, and Josh Harris.
• Barclays (LSE: BARC) is considering a deal to acquire the banking operations of Tesco (LSE: TSCO).
• Abu Dhabi National Oil Co (ADNOC) is reportedly considering an acquisition of energy firm Wintershall Dea, backed by BASF SE (FRA: BAS), in a deal that could be worth over €10 billion ($11 billion).
• Blackstone has agreed to purchase London-based healthcare software developer Civica Group from Partners Group for around $2.5 billion.
• Permira and Blackstone offered to acquire eBay-backed online classifieds company Adevinta ASA (NO:ADE) at a $15 billion valuation.
• EBOS Group has called off its planned A$3.75 billion ($2.4 billion) acquisition of TPG Capital-backed vet chain Greencross, citing difficulties in securing financing for the deal.
• CRH Plc agreed to acquire a portfolio of Texas-based cement and ready-mixed concrete assets from Martin Marietta Materials for $2.1 billion.
• Altice France agreed to sell a 70% stake in UltraEdge, its data center business, to Morgan Stanley Infrastructure Partners, at an enterprise value of €764 million.
• Abris Capital Partners is preparing to sell Scanmed, a Polish healthcare provider, and has received early interest from American Heart of Poland.
PUBLIC OFFERINGS
• Golden Goose, the Permira-backed luxury shoe business, last week invited bankers (many of whom donned the brand’s shoes) to pitch for a role in its upcoming IPO. Initial valuation guidance came in between €3 to €4 billion, versus Permira’s €1.3 billion acquisition in 2020.
• Figure, a personal finances-focused fintech, has kicked off preparations for an IPO of its lending arm at a valuation of between $2 and $3 billion, per Bloomberg.
• Alibaba (NYSE: BABA) has scrapped its plan to spin off its cloud intelligence unit in an $11 billion IPO, citing new U.S. semiconductor export restrictions.
• Carmot Therapeutics, a biotech focused on treatments for metabolic diseases, filed for a Nasdaq IPO. Existing backers include The Column Group, RA Capital Management, Deep Track Capital, ADIA, Horizons Ventures, and Willett Advisors.
VENTURE & GROWTH
• Viva Biotech, a provider of pharma services from early-stage R&D to commercial drug delivery, raised approximately $210 million in new funding from Temasek, Highlight Capital, and True Light.
• LucidLink, a developer of a storage collaboration platform designed for remote and hybrid teams, raised $75 million in Series C funding led by Brighton Park Capital, with participation from Headline, Adobe Ventures, and Baseline Ventures.
• EACON Mining Technology, a provider of autonomous haulage solutions for the mining sector, raised $55.22 million in Series C funding led by Richen Capital, with participation from Shenyin&Wanguo Capital Management and existing investor ESTAR Capital.
• AI21 Labs, an Israeli startup focused on NLP and LLMs for businesses, raised $53.5 million in a Series C extension. The round included participation from Intel Capital, Comcast Ventures, and Ahren Innovation Capital, valuing the firm at $1.4 billion.
• Quotient Therapeutics, a somatic genomics biotech, raised $50 million in initial funding led by Flagship Pioneering.
• Alto Neuroscience, a mental health company developing treatments for depressive disorders, raised $45 million in Series C funding led by InVivium Capital, with participation from Franklin Templeton, Point72, Eli Lilly, and Alexandria Venture Investments, alongside existing investors Alpha Wave Ventures, Lightswitch Capital, Alkeon Capital, WhatIf Ventures, and Windham Venture Partners.
• Indy, developer of a business management platform for freelancers, raised $44 million (€40 million) in new funding led by BlackFin Capital Partners, with participation from La Maison and iXO.
• Matsmart-Motatos, a Swedish e-commerce platform focused on curbing food waste by selling surplus stock at reduced prices, raised €40 million in growth capital funding. The round was led by Circularity Capital, with participation from SevenVentures, among others.
• Supira Medical, a company developing a percutaneous ventricular assist device, raised $40 million in Series D funding led by Cormorant Asset Management and The Capital Partnership, with participation from 415 CAPITAL, AMED Ventures, PA MedTech VC fund, Unorthodox Ventures, and Shifamed angel investors.
• Vivodyne, a biotech focused on drug discovery and development through testing on lab-grown human organs, raised $38 million in seed funding led by Khosla Ventures, with participation from Kairos Ventures, CS Ventures, MBX Capital, and Bison Ventures.
• Edamama, a Manila-based online-to-offline parenting platform, raised $35 million in Series A+ funding led by ACTIVE Fund, with participation from existing investors Kickstart Ventures, Gentree Fund, Innoven Capital, and new investor GS Group.
FUNDRAISING
• Riverwood Capital raised $1.8 billion for its fourth growth fund.
• Kinterra Capital raised $565 million for its debut private equity fund focused on EV minerals production.
• LG Technology Ventures launched a new $309 million fund focused on AI, battery tech, and mobility.
THE READOUT
1. 777 Partners scrutiny continues.
• Semafor’s Liz Hoffman continues her investigation into the funding behind sports-focused investor 777 Partners. — The silent partner behind 777’s buying spree, Semafor
2. The 2024 private markets fundraising outlook.
• Proskauer sits down with Fraser van Rensburg of Asante Capital, a private markets placement firm, for a discussion on the current fundraising environment and what’s next for investors looking to bring in fresh capital. — Private Equity Fundraising Insights with Asante Capital, Proskauer
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