Private equity firms sell assets to themselves at a record rate
So-called continuation vehicles set to account for a fifth of sales by the sector in 2025
Private equity firms sold companies to themselves at a record rate this year, making use of a controversial tactic to hold on to assets as managers struggled to find buyers or list their investments.
Roughly a fifth of all PE sales this year involved groups raising money from new investors to acquire businesses from their older funds, up from 12-13 per cent the previous year, said Sunaina Sinha Haldea, global head of private capital advisory at Raymond James.
Such transactions sell assets already owned by a PE group to so-called continuation vehicles — newer funds also managed by the firm. The tactic enables PE firms to return cash to investors in older funds, but has prompted concerns about potential conflicts of interest.
“This year is set to break all records,” added Sinha Haldea, predicting that the final figures for 2025 would show $107bn in such sales, up from $70bn last year.
Skip Fahrholz, who oversees such transactions in Europe at investment bank Jefferies, concurred that the global total for the year for sales involving continuation vehicles would be close to $100bn.
The use of the structure has boomed in recent years as buyout firms have struggled to secure the valuations they want from external buyers or public markets, choosing instead to hold on to investments in hope of fetching more in the future.
In a deal valuing the company at €15bn, European private equity house PAI Partners sold part of its stake in Froneri, an ice cream group that includes brands such as Häagen-Dazs in the US, to a continuation vehicle for the second time.
Vista Equity Partners, New Mountain Capital and Inflexion also used multibillion-dollar continuation funds to sell down some of their largest investments.
Sinha Haldea said such transactions had become “a popular and effective win-win-win liquidity solution in a stressed exit environment, where exit values are still recovering from 2024 lows”.
The structure is attractive to buyout firms because such deals generate extra management fees and potentially lucrative future performance fees from companies in ageing funds.
Per Franzén, chief executive of Sweden’s EQT, which has yet to use a continuation vehicle, said recently that he wanted to begin such deals to generate extra fees on some of the firm’s holdings.
But some backers of PE funds such as pension funds are concerned that in such transactions the same buyout firm is on both the sell and buy sides of a deal.
Some investors fear firms could underplay the value of the assets being transferred, to the detriment of the original fund backers being offered an exit.
PE managers say they offer their original backers the chance to roll their stakes into the new fund and that new investors help set the price at which assets are transferred.
But investors used to backing funds on the strength of their managers rather than analysing assets may lack the skill set or capacity to evaluate individual companies.
Sovereign wealth fund Abu Dhabi Investment Council recently sued US private equity firm Energy & Minerals Group for what it claimed was an attempt to short-change investors on the sale of its stake in a company to a continuation vehicle.
The Abu Dhabi fund alleged EMG had undervalued Ascent Resources when planning to sell the gas driller to itself in a deal that would have increased the buyout firm’s ownership and restarted its ability to earn fees on the group.
EMG ended up halting the deal. Multiple investment groups have since offered to buy Ascent.
Continuation deals used to be seen as an option of last resort for more troubled companies that could not be sold. But the vehicles have also recently been used as a way to keep hold of strongly performing companies.
Investors in private equity funds still favour traditional asset sales.
Consultancy Bain & Co, considered an authority in the industry, recently found that almost two-thirds of investors in private equity funds would prefer companies to exit holdings conventionally through sales or initial public offerings.