Deals

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

No need to call the cavalry. Goldman Sachs and a band of Canadian pensioners have swooped in at the last minute to help SVG Capital, one of Britain's biggest investors in private equity funds, see off a hostile U.S. takeover bid.

Part of the investment bank's asset management division is teaming up with Canada Pension Plan Investment Board to concoct a proposal to buy SVG's investment portfolio. That gives SVG CEO Lynn Fordham a real alternative to put to shareholders mulling a 1.02 billion-pound ($1.3 billion) cash offer from Boston-based HarbourVest. Before Thursday, all she had was a flimsy deal for some of SVG's assets.

Bid Premium
SVG shares jumped when HarbourVest first made its $1.3 billion offer for the private equity firm
Source: Bloomberg

Goldman/CPPIB's idea is to buy SVG's holdings (basically stakes in private equity funds like Cinven and Permira) for 748 million pounds. If you add SVG's existing cash, deduct costs, and make some adjustments for recent investment gains, that comes to 1.06 billion pounds for shareholders, or 680 pence a share. HarbourVest is offering 650 pence a share for the whole company.

If the Goldman plan becomes a firm deal, SVG says it will return 1.02 billion pounds (652 pence a share) in cash in three stages between November and March. That leaves an implicit 44 million-pound (or 28 pence) final payout at the end of the process. HarbourVest's offer is lower -- but it's likely to be paid out sooner.

Over the Line
Goldman's proposal promises SVG shareholders more cash -- just
Source: Bloomberg

It's possible the Goldman-led proposal falls apart. And even if it comes through, it's conceivable that the final distribution of proceeds by SVG gets eaten up by unexpected costs.

Still, the proposed deal looks clean and very credible. The 5 percent upside it contains is high enough to be more appealing than HarbourVest's offer. In addition, it keeps the auction alive, maintaining the slim possibility of another counteroffer.

When HarbourVest made its move last month, it had the firm support of SVG's top shareholder, Coller Investment Management, and the initial backing of three other major investors.

That put SVG on the spot to find another buyer or liquidate its portfolio. Despite having to conduct a fire-sale in just three weeks, SVG has teased out a good price from Goldman and CPPIB. The deal would be a slender 6.8 percent discount to the portfolio's last reported value.

That suggests it's getting increasingly hard for people in the secondaries market -- the business of buying stakes in private equity funds -- to find bargains.

As for HarbourVest, it seems to have slightly misjudged the level of its take-it-or-leave-it bid. This has left room for a counter-bidder to come in even in the short timetable permitted by U.K. takeover supervisors.

The rest of the private equity industry will be grateful for what HarbourVest has kicked off -- the auction for SVG will surely increase prices in the secondaries market. But HarbourVest must be asking if it really put its best price forward.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net