Continuation funds: liquidity, risk and real value creation

We read with interest the article by Nils Rode and the Schroders Capital team on the rise and prospective growth of continuation funds shifting the landscape in the private equity industry.

For investors, the authors quoted that "these deals offer potentially more predictable and stable returns, while also showing a faster route to liquidity” For the portfolio companies, the Continuation Vehicles could offer cost-effective ways of transformation under the same PE Fund ownership.

While we appreciate the strength of the argument on the liquidity side, we'd see the potential to transform a fledgling business with a detrimental capital structure as part of the same ownership albeit under a continuation fund structure to be limited. As such, if the asset is compounding but the fund clock is expiring, a GP-led continuation can let existing LPs crystallise a win while giving new/rolling investors runway for further value creation (e.g., more bolt-on M&A deals, deleveraging, commercial wins, etc.). However, if issues are capital-structure driven, a continuation fund doesn’t appear to be offering solutions to fix leverage; one still needs a credible deleveraging path and lender alignment.

Consider, for example, APCOA, currently Europe's largest parking manager with 1.9m+ spaces across 13 countries:

• In 2007, Investcorp sold APCOA to Eurazeo at the Enterprise Value of €885m / 7x MOIC (according to the press reports). Then, Centerbridge became owner in 2014 through a debt-for-equity restructuring of APCOA’s holding company. However, the fact that subsequent owners struggled with capital structure (not uncommon in parking/transport services given 2007-vintage leverage) indicates continuation vehicle concept would offer limited transformation potential let alone the prospects of offering stable returns for GPs and LPs. By the way, Strategic Value Partners (SVP) acquired a majority stake in APCOA in February 2024 from Centerbridge via a secondary transaction, keeping management invested.

Another example to support the argument is the case of Keta Group:

• Bought by BC Partners & PSP in 2016; after failed 2023–24 sale/refinancing efforts, senior lenders took 100% ownership in 2024, cutting around €650m debt. It shows a clear value impairment to original sponsors, and no continuation fund would help replace long holding period ownership economics with an acceptable return profile without the change in ownership and value destruction.

Investcorp’s outcome shows timing plus multiple expansion plus operational improvement proof points can produce an excellent return - even if a later owner takes the asset through a restructure. That nuance is central when assessing continuation-fund proposals today.

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If you are interested to explore how Renaissance Advisory can support your PE portfolio businesses, please, feel free to reach out for a confidential chat