How to Sell Syndication Shares at a Discount?

Question

Hey Folks,

Does anyone know the process of selling syndication shares? I realize it can get complicated so I was wondering if anyone has successfully accomplished that task.

Thanks!

-Andy R

Brett Deas · Answer

Most times the docs will say that GP's or sponsors get the first right of refusal for any share selling. Then often times it goes out to the other LP's before you can try and sell your ownership to an outside party. This is the way I do my deals and how I see most other people do it as well, so I would check your deal documents first.

Chris Seveney · Answer

@Andres Rodriguez

Typically the syndication will not allow it and you need their permission especially if it’s a reg d, as if not they only have your paperwork so buyer will never get the money returned

If it’s pre approved by sponsor - depending on how the deal is going expect to take a significant haircut of 20-30%

I would first ask sponsor if you have a hardship and can get a return of capital

Brandon Wong · Answer

This came up recently and I agree with the others on this. For sure read the operating agreement but its typically first right for GPs, then LPs, then 3rd party.

If you elect to sell 3rd party you might have them sign an NDA before sharing financials with them as well as the current business plan so they can determine their offer based on their projected yield.

The discount will depend on how many buyers you present it to and how well the deal is doing.

I have a colleague out of CA who has expressed interest in purchasing shares on one of our deals so I know there is a secondary market for shares of private equity.

A buyer may want to review operating documents, know about the management team, investor reporting structure, and asset performance, etc... Have an attorney put something in writing and help you handle the exchange. I would sell to someone sophisticated and avoid giving them any sort of valuation and let them come to their own conclusion.

Hope this helps!

Andres Rodriguez · Answer

Thank you Brandon, Brett, and Chris!

I knew the general stipulations but it is super helpful to get more color.

I invested in a few of the more well known syndication shops and I don't really have anything negative to say. I am trying to get a start up off the ground and simply want to be more liquid so that's the motivation.

My plan is to check in with the GPs first and see if there is any interest in purchasing at a discount or if I forgo any accrued distributions.

-AR

How to Sell Syndication Shares at a Discount?

How to Sell Syndication Shares at a Discount?

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