Raymond James’ (NYSE: RJF) acquisition of private equity secondary market advisor and private fund placement agent Cebile Capital, announced today, gives the investment bank a deeper suite of services for private equity clients. Jim Bunn, president of Raymond James global equities and investment banking, tells Mergers & Acquisitions about the bank’s view of secondaries and private equity M&A.

Jim Bunn, president of Raymond James global equities and investment banking

The deal is a play on secondaries, yes, but is especially so for general partner-led secondaries in the middle market where pricing is still lumpy and less commoditized. Bunn describes the GP-led side of the market as more or less greenfields. 

That makes the need for intermediaries even greater given potential oversight concerns for limited partners. Secondary deals are often beyond the scope of limited partner agreements, limiting the transparency of transactions to LPs and potentially creating conflicts of interest. Deals can peg the value of a company to a level designed to inflate performance fees upon a future exit.

“There’s the potential for a conflict in that the PE firm is on both sides of the transactions,” Bunn explains. “So it is critical that a bank or Cebile brokers the deal to reduce the potential for conflict.”

Demand for GP-led secondaries isn’t going away soon, says Bunn. The reasons are manifold: Private equity look to extend portfolio timetables because firms want to rollover equity into a buyer, and are newly subject to that buyer’s hold period; or need follow-on capital for a fully-deployed fund to hunt new opportunities; or want to provide liquidity to investors ahead of a fundraise. 

The upside for Raymond James is to combine distribution with advisory services. Raymond James gets to use its deep roster of private wealth clients as a distribution pipeline for fund placement, a space where private equity firms are already eager for direct investment, Bunn says. Comparable boutiques lack the secondary market advisory component.

“There are a lot of PE funds who want to access our retail system, more than we can accommodate,” says Bunn. “Alternative Investments has to be picky and do a lot of diligence. Working with Cebile allows us to offer those important relationships with the firm, helps to pre-qualify.”

The acquisition comes after secondary private equity fundraisings surged to $6 billion last year. But the activity levels have historically been in flux. After steady growth in aggregate funds raised from 2013 to 2016, capital raises have been choppy, according to data provided by Preqin. Only three funds launched during 2020’s presumably favorable climate for secondary investors: funds looking to offload portfolio holdings during Covid faced nearly unprecedented uncertainty from conventional buyers. Last year’s $6 billion haul approached 2018’s decade-long high of $7 billion.

And what about LP-led secondaries? Cebile Capital’s LP-led advisory practice is relatively small in comparison to the GP-led side, and competes against several established players in a market where advisory pricing has tightened. That’s probably good news for middle market limited partners. On LP to LP deals, a banker might not even be needed to agree on price and terms. 

Read more about the deal here, Raymond James Acquires Cebile Capital.