• Kline Hill drew approaches from 2017
• Impact expected on firm’s GP-led strategy, deal sourcing
• Could use M&A to launch new strategies like credit, infrastructure

Kline Hill, a secondaries investor based in Greenwich, Connecticut, has been entertaining inbound acquisition interest for most of its decade-long existence. The firm, known for investing in LP-led and GP-led secondaries in the lower end of the market, received its first approach as early as 2017, just two years after it launched.

“I met with a larger private equity shop for lunch, and they expressed interest in acquiring a stake in Kline Hill,” managing partner Mike Bego told Mergermarket. “Since then, 50 different groups have reached out, and we’ve had many conversations.”

On 29 April, Kline Hill announced a deal to sell a minority stake to TA Associates. That outcome diverged from the initial discussions of a majority sale, as the level of M&A interest in the sponsor intensified. Besides private equity firms, Kline Hill also drew approaches from insurance companies, diversified asset managers, and infrastructure and credit funds.

“Initially, we were not interested in selling a minority stake,” said Bego. “We had also been approached by GP stake firms, but we dismissed those proposals early on.” The primary goal of considering a sale was to strike a partnership that would bring long-term strategic value.

Discussions became more serious “a few years ago”. However, the timing wasn’t right for a sale, and the firm paused those talks in the summer of 2023.

“The conversations dragged on to the point we were about to enter a fundraising cycle with our LPs, and we believe in transparency,” explained Bego.

A process started up again in 2024, with Morgan Stanley advising. Last October, a media report said Kline Hill was drawing interest from the likes of Sixth Street, Bridgepoint, First Eagle Investment Management and Tikehau Capital, ahead of a potential sale that could value the firm at around USD 500m. At this stage, TA Associates reached out, after which talks with the Boston-based private equity firm commenced.

“We quickly got up to speed with them, and they over time became our primary focus,” said Bego. “Ultimately, those conversations led to this deal.”

Digitization, M&A

Part of TA’s appeal was that Kline Hill remains independent, and its team keeps hold of all its carried interest. At the same time, the firm will benefit from TA’s expertise and resources to let it continue its successful strategy.

“None of our strategies will change, but I think they can help us execute better,” said Bego.

As a specialist in smaller market transactions, the investment firm gets its edge from a deal sourcing apparatus that runs the rule over a huge volume of transactions. On average, it reviews over 40 deals per week, typically sourcing around 40% of these opportunities through non-intermediary routes, including from repeat sellers, direct outreach, and one-on-one conversations. The hope is that applying enhanced technological capabilities to this process will help to better assimilate and populate the data, enabling Kline Hill’s team to quickly derive insights.

Meanwhile, TA’s M&A playbook is the other major lever Kline Hill expects to pull to propel its growth, with Bego noting TA’s significant experience in merging firms.

Kline Hill’s partnership with venture capital investor Cendana Capital, known as KHC, could be one to watch. Last year, the firm closed a USD 105m fund to focus on LP-led VC secondaries. In March this year, meanwhile, KHC Partners Offshore Fund II launched fundraising efforts, with a USD 300m target, according to a Form D filing with the SEC, as previously reported.

“It’s structured as a successful joint venture, but as we explore new strategies, it may make more sense to structure things via a merger,” said Bego.

To date, Kline Hill has launched three strategies: LP-led (Core); GP-led (Solutions); and its VC-focused strategy alongside Cendana. It is now mapping out and studying ten further strategies, which include credit, infrastructure, and co-invest, among others, according to Bego. Though it may ultimately make sense to pursue only a small subset of these, those that are selected could require expertise and specialist skillsets, with M&A an option to get there alongside hiring talent.

Geographically, the partnership with TA is unlikely to alter the firm’s predominant focus on North America, with what Bego describes as “some concentration” in Europe. Besides its Greenwich headquarters, Kline Hill has an office in Zurich and a finance and accounting team in the Philippines. The proceeds of the stake sale were shared across the whole group, including the Philippines-based team.

In terms of Kline Hill’s existing offering, the biggest impact from a deal team coordination perspective is expected to come on the GP-led side, via its Solutions strategy. This is expected to be driven by the sheer scale of the opportunity and TA’s experience across sectors spanning business services, consumer, asset management, technology, and healthcare. With around 29,000 companies in buyout funds, valued at around USD 3.6trn, Bego predicts the secondary market could grow to around USD 400bn to USD 500bn per year in deal volume by 2030, underpinned by surging GP-led activity.

“The opportunity is multi-year and massive,” he said.