09 │ Deferred payments & leverage
Increased use of deferrals, particularly in GP-led transactions.
Percentage of purchase price deferred
- The use of deferrals saw a meaningful increase from 50% of respondents in 2022 to 63% in 2023, as secondary buyers used vendor financing as a replacement for traditional debt providers who were more conservative for much of 2023.
- A majority (60%) of transactions saw 60%+ of consideration deferred (17 percentage points up on last year).
Percentage of purchase price deferred, 2023¹
- Weighted by transaction value (purchase price plus unfunded) per respondent
Average deferral period
- At the same time, deferral lengths shortened as deferrals less than 18 months went from 49% of the total to 75% of the total. Sellers were less willing to take on long-dated deferrals of greater than 18 months due to the need for liquidity, which was slightly more pronounced in 2023 due to the sharp falloff in sponsor distributions.
Average deferral period, 2023¹
- Weighted by transaction value (purchase price plus unfunded) per respondent
Deferral use by transaction type
- GP-led deals saw a significant jump in their share of the use of deferred payments — from 6% in 2022 to 51% in 2023. Deferrals became more common in continuation fund technology as GPs found creative ways to deliver liquidity (and DPI) to their LPs at attractive prices in a market where secondary buyers proved to be cautious and conservative.
Deferral use by transaction type, 2023¹
- Weighted by transaction value (purchase price plus unfunded) per respondent
Third-party leverage was down significantly with heightened sensitivity to balance sheet risk.
Use of leverage
- Accounting for nearly 90% of transaction volumes, buyers of LP-led transactions were by far the greatest users of leverage. In contrast, buyers of GP-led deals represented 9% of transaction volumes that included the use of leverage. Traditional banks are fairly restrictive in their lending to concentrated continuation fund vehicles, often requiring guarantees from borrowers, making it a less attractive tool for many secondary buyers of GP-led deals.
Leverage use by transaction type, 2023¹
- No buyers indicated leverage being used for “All other secondary transactions”.
Percentage of buyers using leverage
- Leverage use by buyers declined in 2023, with only 11% of our survey respondents indicating that they were borrowers compared to 25% in 2022. The results reflect the combination of secondary buyers becoming more risk averse, the increased costs of financing, and banks tightening lending levels for all but their most preferred borrowers.
Percentage of buyers using leverage by number, 2023
Please contact us should you have any queries or wish to find out more about Campbell Lutyens’ secondary advisory practice. In addition click here for important information regarding the report.
