What is a direct secondary transaction?
Shareholdings in private and even small-cap public companies are typically highly illiquid, leaving investors and shareholders with little option other than to hope for an eventual sale of the business.
Further a shareholder who is seeking liquidity will generally find it difficult to justify investing the additional capital required to support a company’s ambitious growth plans.
A direct secondary transaction is the acquisition of shares or other securities, (for example shareholder loans), in a private or small cap public company from historical investors and shareholders. This type of transaction is also described as “replacement capital”.
Direct secondary transactions are a subset of a wider “secondaries market”, which has become a large and growing part of the private equity ecosystem. The largest part of the secondaries market relates to the sale and purchase of private equity fund interests (limited partnership fund commitments). Azini Capital’s backer, Lexington Partners, is a leading player in this space with $28 billion of committed capital.