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Continuation Vehicle Activity Expected to Remain Strong in 2026 as M&A Backlog Grows
Continuation vehicles are expected to remain an important liquidity tool for sponsors this year as the market continues to grapple with a persistent and extensive M&A backlog, according to panelists speaking at Mcdermott, Will & Schulte’s HPE Conference in Miami earlier this week.
“The [M&A] market is experiencing a lack of conviction and pent-up demand,” one of the panelists said, adding that his firm estimates that “55% of sponsors are anticipating liquidity transactions” in 2026.
Another panelist noted that secondary transactions have become less stigmatized in recent years as private equity hold times increase.
“It [used to be] a badge of honor to say that you’ve never had a secondary [transaction], and now I think there are fewer and fewer funds that could make that claim,” he said. “Now, the badge of honor is having that trophy asset that could be a continuation vehicle.”
The panelist noted that sponsors’ strategies around secondaries have evolved over the years, with more firms now comfortable with single-asset products.
“The first generation of secondaries was [all] about diversification [and] shorter J curves, and what [the market] has evolved into now is something that’s much more comfortable with concentration in single-asset products, as opposed to full fund products,” the panelist added.
According to a recent report from advisory firm PwC, continuation vehicles have become a popular way for sponsors to retain exposure to “resilient, cash-generative” healthcare businesses with limited near-term exit options, such as contract research organizations, or CROs, and contract development and manufacturing organizations, or CDMOs.
Notable transactions include New Mountain Capital’s $3.1 billion continuation vehicle for healthcare analytics firm Real Chemistry last April, which was one of the largest single-asset continuation vehicles to date, according to a press release.
Elsewhere, third-party news outlets reported last month that Frazier Healthcare Partners is raising a continuation vehicle to maintain control of its portfolio company Accuity Delivery Systems after its agreement to sell the business to United Healthcare fell through.
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