The transaction price is established through some combination of competitive bidding, independent valuation, and direct negotiation. A competitive process with multiple bidders provides the strongest price validation, but not every transaction lends itself to a full auction.
- Competitive bidding. The GP runs a process inviting multiple secondary buyers to bid on the asset. The bids provide market-based price discovery.
- Third-party valuation. An independent valuation firm assesses the asset and provides a valuation opinion. This can serve as a benchmark or as the basis for the transaction price.
- Negotiated deal. The GP works with a single secondary buyer (or a small group) to negotiate the price directly.
- LPAC review. The Limited Partner Advisory Committee may review the pricing methodology and provide input, depending on the fund's governing documents.
Many transactions use a combination of these approaches. The pricing methodology should be transparent and disclosed to all LPs in the transaction materials.
For more on conflicts of interest in pricing, see the Continuation Vehicle Conflicts deep dive. For background on fairness opinions, see the Fairness Opinion glossary entry.
This content is for informational purposes only and does not constitute legal, tax, or compliance advice. Consult qualified counsel for guidance specific to your situation. Capital Company is not a law firm and does not provide legal advice.