Continuation deals gain steam as New Mountain sells Real Chemistry to itself: WSJ

New Mountain Capital has reportedly executed one of the largest single-asset continuation fund deals to date, underscoring the growing prominence of these vehicles as a core strategy within private equity. This significant transaction highlights a broader trend where continuation funds, often holding high-performing companies, now account for 13% of global PE activity.

Analysis

The execution of one of the largest single-asset continuation fund deals by New Mountain Capital highlights a significant strategic evolution within the private equity landscape. This move underscores a broader industry trend where such vehicles, typically housing top-performing assets, now constitute 13% of global private equity activity, shifting from a niche tool to a centerpiece strategy. The use of a continuation fund allows the firm to extend its hold over a prized asset, providing liquidity to existing investors while aiming for further value appreciation—a strategy indicative of strong confidence in the underlying company's long-term prospects. For its publicly traded affiliate, New Mountain Finance Corporation (NMFC), this transaction by the parent manager signals advanced capabilities in deal structuring and asset management, which can indirectly benefit the BDC through shared expertise and platform strength, reinforcing the moderately positive sentiment surrounding the news.

Key Decisions for Investors

• Investors should recognize the growing prominence of continuation funds, now 13% of the PE market, as a fundamental shift in private equity exit strategies that can extend value creation cycles for top-tier assets.
• New Mountain Capital's leadership in this complex transaction type can be interpreted as a positive reflection on the management's capabilities, which is a relevant due diligence point for investors in its public vehicle, NMFC.
• Given the single-asset concentration, it is prudent to monitor the ultimate performance of these large continuation vehicles, as their success will be a key driver of future returns and sentiment for PE managers utilizing this strategy.