San Francisco-based Melting Point Solutions seeks to maximise pricing for sellers by seeking bids for single items as well as whole portfolios. Raphael Haas, the firm’s chief executive, talks to Secondaries Investor about why multi-buyer sales can deliver better pricing for sellers and why non-dedicated buyers can provide outlier pricing.
Tell us about Melting Point’s approach to portfolio sales – how does this differ from other sell-side advisors?
The framework under which we implement each sale process is specifically designed to maximise proceeds to the seller and minimise the potential for conflicts of interest.
Generally, we will solicit, single stage, deadline-driven, best and final “line-item” and portfolio bids as applicable. We have experienced a greater than 90 percent conversion rate under this success-only framework – more than nine out of 10 times the seller has elected to sell at least a portion of the portfolio. While we are not a fiduciary, we run a fiduciary-driven process every time, regardless of the auction size or asset type.
What segment of the market do you operate in, in terms of size of deals?
We have managed sale processes for portfolios as large as $600 million and as small as $500,000.
You’ve previously mentioned being surprised that the secondaries market is gravitating towards single-buyer sales. Why is this?
Single-buyer portfolio sales resulting in the maximum proceeds to the seller are almost the antithesis of Melting Point’s experience to-date. Firstly, in our experience, it is extremely unusual for a single buyer to be a GP/sponsor-approved transferee for every position in a single portfolio. Secondly, the likelihood of a single buyer being the high bidder for every position in a portfolio is very low. In our experience, requesting that auction participants focus on assets that they want to purchase rather than forcing a portfolio-sale leads to not only price maximisation for the seller, but broader buyer participation and an increased likelihood of a transaction being consummated.
That being said, there is clearly anecdotal evidence that the large dedicated secondary funds are solving for these dynamics, especially for very large portfolio sales. There likely are several dynamics at play here, including:
- Increased availability of innovative financing structures allowing leveraged purchases
- Increased competition; it is a ‘seller’s market’
- GP/sponsor consent being easier to obtain as the large dedicated secondary funds become an increasingly important investor group
- A seller’s perception (warranted on not) regarding ease of execution and frictional costs
How much higher pricing can sellers achieve through multi-buyer processes? Can you give us some examples of such deals you’ve worked on (either successful or not) that illustrate the difference in pricing that could have been achieved?
As referenced above, a multi-party buyer scenario isn’t always superior, but in our experience, the vast majority of times, electing to transact with multiple counterparties outweighs the additional legal cost of negotiating multiple purchase and sale agreements. We will provide a multi-counterparty analysis of a sale process such that the seller can undertake its own cost/benefit analysis of the matrix of options. A few recent examples are highlighted below:
$320 million private equity portfolio consisting of 26 positions and including buyout funds, real asset funds and venture capital funds
- Three counterparties yielded an aggregate net price of 97.5 percent of NAV
- Two counterparties yielded an aggregate net price of 94.8 percent of NAV
- One counterparty yielded an aggregate net price of 91.5 percent of NAV
$118 million hedge fund portfolio consisting of 19 positions and including both contractual liquidity LP interests and side pockets
- Three counterparties yielded an aggregate net price of 90.3 percent of NAV
- Two counterparties yielded an aggregate net price of 88.37 percent of NAV
- One counterparty yielded an aggregate net price of 83.9 percent of NAV
What is the mix of secondaries funds and non-traditional buyers you typically reach out to in a sales process and what sorts of pricing differences do you see from both types of buyers?
There is no typical or optimal mix of traditional and non-traditional buyers in our sale processes. We always endeavour to include non-traditional buyers in a sale process. In our experience, non-dedicated secondary buyers with access to diligence materials can provide outlier pricing. Increasingly, GP/sponsors will refer existing LPs/shareholders into our sale processes. Our focus is always on maximisation of net proceeds to the seller with no other considerations at play.
Raphael Haas is the chief executive of Melting Point Solutions and is responsible for strategic direction and day-to-day operation of the firm. Prior to Melting Point he spent 14 years in M&A and private equity and was previously a director and head of the financial services M&A practice at Kidron Corporate Advisors, a boutique M&A and advisory firm.