How to value secondary PE deals?
Hello everyone. I want to know how you analyze secondary/co-investment deal opportunities? What are the steps and what's the model? How the return is estimated?
By secondaries I assume you are referring to acquiring LP stakes in already invested funds.
In this case, returns analysis is conducted by running individual models on each of the PortCo’s with the assumptions fixed on what the entry price was.
You’re then analysing what the blended IRR is anticipated to be over the life of that fund to form a view on value. Additionally, you would give consideration to the absolute dollar value expected to be received as an LP after carry and promote paid to GPs.
Given no rationale investor will divest their stake as an LP unless return expectations have lowered, you will typically be acquiring this stake at a discount.
If fund capital is only partially deployed, your expected returns on the undeployed portion will be largely based on reputation / historical returns.
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