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Financial Sponsor Secondary Market Year-End Review 2017

Key observations from Lazard’s inaugural review of a rapidly evolving market 

Innovative deal structures, record volume, premium pricing and expansion of the buyer universe

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Secondary transactions initiated by financial sponsors have become a substantial and high-profile part of the overall private equity secondary market. 2017 was a watershed year for activity, as the market developed from one dominated by “restructurings” to one dominated by “liquidity events” for sponsors, many with significant global brands

  • The volume of transactions more than doubled, from approximately $7 billion in 2016 to approximately $16 billion in 2017.  Approximately 50 transactions initiated by financial sponsors were successfully closed.

  • Financial sponsor secondary transactions tend to price close to the reported net asset value (“NAV”).  This year was the first year in our experience in which a premium to NAV was achieved across the market, reflecting the quality of financial sponsors pursuing transactions and the strength of secondary markets. 

  • We estimate that fourteen investors in the secondary market accounted for approximately 90% of transacted volume in 2017.  Additionally, we observed the expansion of the buyer universe, with increasing activity by traditional limited partners playing a lead or syndicate role in many successful transactions.

  • Europe accounted for the majority of global transaction volume in 2017, with infrastructure transactions accounting for a material share of activity

With approximately $8.5 billion of volume coming to market in the first quarter of 2018 (and absent a significant public market correction and/or economic dislocation), we expect financial sponsor secondaries to have another record year, with potentially $20 billion of transaction volume.

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