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Private Equity

Partial exits on GPs’ radar in quest for liquidity

A handful of partial exits have come to market as PE managers seek to return capital to LPs while continuing to maximize value at their portfolio companies.

Partial exits are emerging as another tool PE managers can use to deal with today’s challenging exit environment, as they work to generate liquidity and return capital to their investors.

The structure of a partial exit may vary, but the objective remains the same: balance the responsibility of distributing capital to investors while still maximizing portfolio company valuations.

Kevin Desai, private equity lead and deputy deals leader at PwC US, noted that partial exits are driven by some of the same factors as another popular exit mechanism.

“A partial exit is somewhat similar to a trend we saw with continuation vehicles. As GPs take their portfolio companies through a value creation journey, the purchase price offered by buyers might not provide full value or credit for the value creation that remains in flight, as the realization of the initiatives remains uncertain,” said Desai.

Among recent examples of partial exits were Francisco Partners and Leonard Green & Partners joining forces this month to facilitate the next stage of growth for RedSail Technologies, a provider of pharmacy software. Francisco Partners, which created the company in 2020 by acquiring and combining two pharmacy technology companies, is rolling over its equity, while Leonard Green is making a new growth investment.

Also in June, in the oil & gas sector EnCap Investments sold a unit of its portfolio company Ameredev II to Matador Resources in a strategic buyout valued at $1.9 billion. The acquisition will allow Matador to continue its quest to expand its drilling properties within the Delaware Basin, while EnCap realizes a healthy return on its initial $400 million investment.

And in May, Bain Capital took educational technology provider PowerSchool private for $5.6 billion as the K-12 software provider sought to develop its generative AI capabilities. Vista Equity Partners and Onex still owned 75% of the company prior to the announcement and opted to roll an undisclosed minority amount into the new private company.

“These are all half measures reflecting a half-strength market,” says Tim Clarke, PitchBook’s lead private equity analyst. “Vista and Onex were trapped in the public stock and now they are rolling over a good-sized chunk with Bain taking the majority.”

These partial exits are not necessarily a negative sign, just a sign of the times, PitchBook analysts say.

Featured image by Chris Jongkind/Getty Images

  • Janelle Bradley
    Janelle Bradley is a New York-based private equity reporter covering leveraged buyouts for PitchBook News. Previously, she covered private credit at With Intelligence (formerly Pageant Media). Janelle is a graduate of the City University of New York Brooklyn College.
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