Private Equity Secondaries Frenzy Spurs Law Firm Competition

Some Big Law firms have found success in an emerging corner of private equity, bolstering their bona fides in the all-important asset class while riding out a downturn in traditional dealmaking.

Private equity sponsors use the secondaries market to offload assets to other private equity players or even sell ownership stakes in their own firms. The once-backwater was expected to top $140 billion in transactions last year, according to data from investment bank Jefferies. It’s an alternative route to cashing in bets and provides returns for investors at a time when exit sales and initial public offerings have stalled.

The deals are “here to stay as the primary vehicles for private equity liquidity,” Freshfields partner Ethan Klingsberg predicted earlier this month. Law firms are jostling for position in the tight-knit secondaries space, even as many expect a return to private equity dealmaking.

Virtually all of the firms that have carved out secondaries market businesses have strong traditional private equity M&A practices. The top three private equity deals firms last year—Kirkland & Ellis, Latham & Watkins, and Simpson Thacher & Bartlett—are leading players in the secondaries market.

Read more: Bloomberg Law’s mergers and acquisitions league tables

The demand has firms concerned about a talent gap, causing them to rethink training and hiring. Headhunter calls are routine, lawyers in the space say, echoing hiring surges seen in private credit and the blank-check mania of 2021.

“It’s going to be hard for new entrants to come into this space. That’s just the reality,” said Timothy Clark, a longtime lawyer in the secondaries market who joined Freshfields in 2023 from Goodwin Procter. “But the long-term trajectory is growth. So, if you have the confidence to build it and to grow as a law firm, you’ll do better.”

‘Nobody Dabbles’

Secondaries markets first arose over a decade ago, but they’ve only recently gone mainstream.

For law firms, the work isn’t as much about helping clients buy and sell companies as it is finding creative ways to capitalize the private equity industry itself.

To do that, investors, known as limited partners, have begun selling slices of their investments in funds managed by private equity firms. Private equity owners, or general partners, now sell stakes in their own businesses to other investors. And portfolio companies are increasingly being offloaded to other private equity vehicles, often referred to as continuation funds.

Clark said the rise of these deals evokes a decades-old Seinfeld episode in which the longtime bachelor comedian becomes engaged to a woman because she shares his similar characteristics.

“Private equity found the perfect buyer for their assets, and it’s themselves,” he said.

Only a handful of law firms actively compete for the work. A 2024 survey of law firm’s deal activity in secondaries markets last year included 20 law firms, with deal counts ranging from more than 400 to as few as five.

Kirkland & Ellis, Big Law’s top M&A dealmaker last year, is a major player. Others include Ropes & Gray, DLA Piper, Gibson Dunn & Crutcher, Debevoise & Plimpton, and Davis Polk & Wardwell.

Private equity firm Abry Partners turned to Kirkland lawyers in August as it closed a $1.6 billion continuation fund for one of its private credit funds. Coller Capital, a major secondaries fund advised by Debevoise, led the funding. The deal allowed original investors to cash out and new investors to seed Abry’s growing private credit strategy.

Kirkland began investing in “general partner stakes” sales, when private equity funds sell portions of their own business to other investors, in the late 2010s. The firm’s secondaries team has about 60 full-time lawyers and is currently working on about $50 billion worth of active GP-led transactions alone, according to Sean Hill, a partner who joined from Proskauer Rose in 2017.

Few lawyers would expect to make partner by specializing in the field when he first started working on secondaries transactions around 2001, Hill said.

“Now, there are a lot of partners and associates who specialize in this area, and the regular funds partners don’t do secondaries part-time anymore,” Hill said. “It is so distinct and the skills are so unique that nobody dabbles. You need real specialists who understand the market.”

Kirkland is “actively hiring” at all levels for the business, he said.

Building the Talent

Blackstone Inc.’s former global head of GP stake sales, Mustafa Siddiqui, this month launched a new firm to invest in private equity secondaries.

The venture, SQ Capital, estimates that a 65% decrease in private equity exits since 2021 has left a backlog of roughly 28,000 unsold portfolio companies, with 40% of those having been held by private equity funds for more than four years.

The unsold businesses are fuel for secondaries investments, but they also reflect a possible bottleneck. There may not be enough capital and professional talent to execute all the possible deals, lawyers said.

“There is a talent gap that all of us are struggling to solve,” said Isabel Dische, chair of the alternative asset opportunities group at Ropes & Gray.

The deals require a blend of experience in both private equity dealmaking and fundraising—practices law firms have often treated as separate tracks for associate development.

“We need to pay a lot of attention to make sure we structure ourselves as a firm in a way to provide more and more opportunities for associates to get trained in both areas,” said Lindsey Goldstein, also a Ropes & Gray partner.

DLA Piper, which represents a large number of institutional investors in the private equity market, last week added former Morrison Foerster partner Nick Sheets in Palo Alto.

The firm is building its roster of lawyers to “delight” clients in a quickly evolving market, said David Parrish, global co-chair of DLA Piper’s investment funds practice.

“Is it harder to break into the practice today? Yes. Is it impossible? No,” Parrish said. “We should all understand that none of us have a lock on amazing.”