M&A savvy arrives to help liquidity in private markets

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The world of so-called ‘secondary’ funds, which provide liquidity for investors in generally illiquid assets, such as private equity, is getting a lot more sophisticated with the entry of US-based Melting Point Solutions to the Australian market.

Melting Point, a small specialist broker which started in San Francisco in 2014, and now also has an office in New York, has appointed Allen Partners to represent its offering to Australian investors across, mainly, the potential sellers in the illiquid asset classes of private equity, real estate, venture capital, some infrastructure and some hedge funds.

Allen Partners’ Scott Riedel introduced Melting Point founder and chief executive, Raphael Haas, to the local market last week – his first visit to Australia. Allen Partners, based in Sydney, is a capital advisory and fund placement firm.

They said in an interview last week that Melting Point looked to add “non-traditional” potential buyers of illiquid holdings, to the mix of the more “traditional” secondary fund manager buyers, which was an important differentiating point with other, often big bank-backed, brokers in the market.

These buyers include family offices, foundations, sovereign wealth funds, pension funds and insurance companies. They are buyers which may have a different duration mindset to the institutional sellers, who are often looking to sell a whole portfolio of such assets following a change of strategy, fund merger requiring rebalancing, or other event.

Haas, a former M&A banker set up shop because he thought his firm could do a better job than the existing players by offering an unconflicted transparent process with the sole purpose of creating a fiduciary-driven sales process geared towards maximizing price for the seller. He also believed he could seek out non-traditional sellers, such as smaller institutions, as well as the non-traditional buyers, thereby expanding the existing market.

The process is essentially a “blind auction” whereby the seller is anonymous and there are no “first or last looks” offered to buyers. The auction will have a firm date, typically a few weeks after the start of the process when a data room has been built by his firm, and the seller can either accept or reject the highest bid. Melting Point only gets paid if the bid is accepted. There are no retainer-style fees. As a testament to its process, Melting Point has experienced a conversion rate (where the seller elects to sell) of more than 90 per cent.

Haas has overseen, with his partners, about US$3.5 billion in sales for 110 discrete sellers, which include not only pension and government funds but also funds-of-funds and multi-family offices, since the first auction in December 2014. There are three other managing directors and four other staff in the two US offices. The managing directors are Jose Dios, Douglas Reid and Chick Doppelt.

Interestingly, when he first set out on the endeavour, Haas thought that a smart new technology component would be important to the venture, so he built one. But he was wrong. The discrete nature of the matchings of sellers and buyers required more of a human touch. The technology is only used in the provision of a data room for potential buyers to look at.

“We think our approach yields the best price for the seller,” he said. “A lot of what we sell is above par [net asset value]but some will also be below par… High-quality assets are more likely to sell above par.”

The bidding process can be either in a single – which Melting Point prefers – or two-stage process. The single stage is simply to ask for best and binding bids from interested parties, after a search and access to the data room, while the two-stage process will be to ask for indicative bids, prior to the development of a short list of final bidders. “Our aim is for the buyers to be on a level playing field and for the sellers not to leave any money on the table,” he said. All of the auctions to date have received multiple bids.

Melting Point charges a success fee for its service, usually about 1 per cent of the assets transacted. It is engaged by sellers on an exclusive, discrete sale-by-sale basis.

Haas said the firm continued to see “strong and robust pricing from buyers” in the current climate. “It’s been a seller’s market for some time,” he said.

– G.B.

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