Inside RFE’s GP-Led Structured Secondary with ZRG: Structure, Investor Mix & Strategic Implications

The transaction led by Timber Bay Partners marks a growing trend of GP-led structured secondaries as private equity firms seek liquidity and capital flexibility without relinquishing control or ownership. In this instance, RFE Investment Partners orchestrated a single-asset GP-led recapitalization of ZRG Partners, supported by a combination of preferred equity from institutions including Apogem, Headlands, and Morningside, alongside a senior credit facility via Truist Bank. [1] The use of preferred equity allowed LPs to receive a return of their original cost basis, with some reinvesting in the new vehicle, while RFE maintained control of the underlying business. [1]

Structurally, this deal reflects several key design choices emblematic of modern secondaries: the alignment of LPs via the vehicle setup, control retention by the GP, usage of debt to lever returns, and preferred shares providing a quasi-debt cost of capital. The senior credit facility adds leverage and optionality for growth (including acquisitions, hiring) while the preferred equity distributions allow downside mitigation for LPs. [1]

The June 2024 refinancing/debt raise for $120 million from Main Street Capital further reinforces ZRG’s strategy of growing via M&A and expanding service offerings beyond executive search (e.g. RPO, consulting, interim work). [2][3] It complements the earlier GP-led recapitalization by providing additional liquidity and flexibility, signaling sustained capital market confidence in ZRG and RFE as sponsors.

Strategically, three implications stand out: first, GPs can increasingly offer structured secondaries to manage LP liquidity, maintain ownership, and align incentives; second, human capital services companies are attractive targets for both growth and roll-up strategies, especially those with data-driven tools; third, preferred equity and layered financing are becoming more accepted in lower middle-market PE for balancing risk and funding needs. However, open questions remain: what was the cost of that preferred equity (e.g., dividend rates, liquidation preferences), how was ZRG valued in the transaction (pre- and post-money), how much dilution did reinvestment by LPs cause, and what exit options are being preserved?