MidOcean Keeps Cloyes for Another Lap with $1.4B Continuation Fund

MidOcean Partners just did what more PE firms are doing when they can't — or won't — sell: they sold to themselves. The New York-based firm closed a $1.4 billion single-asset continuation vehicle for Cloyes Gear and Products, the Ohio-based automotive parts maker it's owned since 2021, effectively resetting the clock on an investment that hasn't yet delivered the exit its original fund was banking on.

The deal, announced May 4, lets MidOcean retain full ownership while offering liquidity to existing limited partners who wanted out. It's a structure that's become the industry's favorite workaround when market conditions, valuation gaps, or unfinished value-creation plans make a traditional sale unappealing. For Cloyes, it means more time to execute a growth strategy in an automotive aftermarket that's been anything but predictable since the pandemic reshuffled supply chains and EV adoption timelines.

Goldman Sachs Alternatives and Lexington Partners led the buyer group in the continuation vehicle, joined by other institutional investors MidOcean didn't name. Jefferies acted as secondaries placement agent. The structure essentially creates a new fund with a fresh lifecycle — typically another five to seven years — during which MidOcean can keep building Cloyes without the pressure of an imminent exit.

What the press release doesn't say: whether MidOcean couldn't find a buyer at the price it wanted, or simply decided the upside of holding outweighed the certainty of selling now. Probably both.

MidOcean acquired Cloyes in February 2021 from Bain Capital for an undisclosed sum, though industry sources at the time pegged the enterprise value north of $1 billion. The timing was awkward — just as the global chip shortage began throttling auto production and supply chain snarls made life miserable for anyone in the parts business. Cloyes makes timing systems, chains, and precision engine components that go into everything from passenger cars to heavy-duty trucks, which means its fortunes are tied directly to vehicle production volumes and aftermarket demand.

Since then, the automotive sector has been whipsawed by contradictory forces: pent-up demand driving record used car prices, but new vehicle production lagging; a stated industry shift toward EVs, but combustion engines still dominating the road fleet; and a parts aftermarket that's grown as consumers kept older vehicles longer, but faced margin pressure from inflation and labor costs.

For a PE-owned supplier like Cloyes, that's created a classic hold-or-sell dilemma. The company has executed on M&A and operational improvements under MidOcean's ownership — the firm has a track record of buy-and-build strategies in industrials — but the market for automotive exits has been uneven. Strategic buyers have been cautious, and multiples for auto suppliers compressed in 2024 and early 2025 as recession fears and EV transition uncertainty spooked acquirers.

Enter the continuation vehicle. Rather than accept what MidOcean likely viewed as a discounted valuation, the firm opted to extend its runway. The $1.4 billion figure represents the transaction size, not necessarily Cloyes' current enterprise value — CV deals often include debt refinancing, management rollovers, and structured equity, making the headline number larger than the equity check. Still, it signals MidOcean's confidence that more value creation is achievable, and that it can sell or IPO Cloyes at a higher multiple down the road.

Single-asset continuation vehicles were once a niche tool for extending holds on trophy assets. Now they're standard operating procedure. Lazard's 2025 secondaries market report showed continuation vehicles accounted for 38% of all GP-led secondaries volume last year, up from 22% in 2020. The logic is straightforward: if a sponsor believes an asset can compound further but its fund is nearing end-of-life, why hand it to another buyer who'll capture that upside? Better to reset the fund clock, offer LPs liquidity, and keep control.

For LPs, the calculus is mixed. Those who want liquidity get it — often at a modest discount to what the sponsor thinks the asset is worth — while those who believe in the continued hold can roll their equity into the new vehicle. For new investors entering through the CV, the bet is that the GP has genuine runway left, not just an overpriced asset it couldn't sell.

Goldman Sachs Alternatives and Lexington Partners are both major players in the secondaries and continuation vehicle space. Their participation signals institutional validation of MidOcean's thesis on Cloyes, but it doesn't eliminate the risk. If automotive markets deteriorate further — recession hits, EV adoption accelerates faster than expected and combustion parts demand craters, or Cloyes simply can't grow fast enough — the new vehicle could face the same exit challenges five years from now.

Source: Lazard Global Secondary Market Review, Jefferies Secondary Advisory Group

Cloyes isn't a household name unless you're a mechanic, but it's a significant player in the automotive aftermarket. Founded in 1909 and headquartered in Sycamore, Illinois, the company makes timing chains, gears, tensioners, and other engine components that keep combustion engines running. Its products go into OEM applications (original equipment for new vehicles) and the aftermarket (replacement parts), with the latter typically carrying higher margins and more stable demand.

The EV transition is real, but it's also slow and uneven. Even with aggressive electrification targets, the average age of vehicles on U.S. roads hit 12.5 years in 2025 — an all-time high — and the overwhelming majority of those vehicles have combustion engines. That means decades of aftermarket parts demand ahead, even as new vehicle sales shift toward EVs.

MidOcean's bet with Cloyes is that this long tail is underappreciated. As OEMs pour capital into electric platforms, they're pulling back investment in combustion engine R&D and manufacturing, which creates consolidation opportunities for aftermarket suppliers. If Cloyes can acquire smaller competitors, expand its SKU range, and deepen relationships with distributors, it can grow revenue and margins even in a declining combustion market — because its share of a shrinking pie keeps getting bigger.

That's a classic PE value-creation playbook: buy-and-build in a consolidating sector, optimize operations, then sell to a larger strategic (maybe Schaeffler, BorgWarner, or a Japanese tier-one supplier) or a larger PE firm when multiples recover. But it requires time, which is exactly what the continuation vehicle buys.

The risk is twofold. First, if EV adoption accelerates faster than expected — say, through policy mandates or breakthrough battery economics — the combustion aftermarket could shrink faster than Cloyes can consolidate it. Second, if a recession hits and consumers defer vehicle maintenance, aftermarket demand softens even for critical components like timing chains. Cloyes isn't selling discretionary upgrades; it's selling parts that prevent engine failure. That's relatively recession-resistant, but not immune.

Still, MidOcean clearly believes the next five years offer more upside than downside. The firm didn't detail specific growth targets or acquisition plans in the announcement, but continuation vehicles are expensive to execute — you're paying advisory fees, legal costs, and often offering LPs a premium to roll or exit. You don't do that unless you see a clear path to multiple expansion.

MidOcean didn't disclose what percentage of existing LPs took liquidity versus rolled into the new vehicle, but that split is the real tell in any continuation deal. If the majority of LPs exited, it suggests skepticism about the extended hold — they'd rather take their money now than wait for the next exit. If most rolled, it implies confidence in MidOcean's plan.

The presence of Goldman Sachs Alternatives and Lexington Partners as lead buyers is notable. These aren't passive investors; they're sophisticated secondaries players who've underwritten continuation vehicles across dozens of deals. Their entry suggests they see legitimate value, though it's worth noting they're buying at a negotiated price, not the result of a competitive auction. Continuation vehicle pricing tends to be friendlier to the GP than a full sale process would be — which is part of why sponsors like them.

The Cloyes deal is a data point in a larger trend: continuation vehicles are no longer just for high-flying tech unicorns or trophy infrastructure assets. They're being used for industrial roll-ups, B2B services companies, and traditional manufacturing businesses where the value-creation story needs more time to play out. That's broadening the secondaries market and creating more liquidity options for LPs, but it's also raising questions about whether continuation vehicles are being overused to avoid taking losses or selling at fair value.

Some LPs have voiced frustration with the proliferation of CV deals, arguing they're being forced to choose between taking a haircut on liquidity or re-upping into an asset they wanted to exit years ago. Others appreciate the optionality — especially sophisticated LPs who can evaluate the underwriting independently.

For MidOcean, the calculus likely came down to alternative value. What would Cloyes fetch in an auction today, net of fees and taxes, versus what it might fetch in three to five years after more M&A and margin expansion? If the delta is significant — and if MidOcean believes it can execute — the continuation vehicle makes sense. If not, this becomes a very expensive way to delay the inevitable.

Jefferies, as secondaries placement agent, earned a fee for structuring the deal and bringing in the buyer group. That's become a lucrative advisory niche as continuation vehicles multiply — investment banks that used to focus purely on M&A exits now have dedicated teams that help GPs design and market CV transactions.

Cloyes isn't the first automotive-adjacent business to end up in a continuation vehicle. In 2024, Centerbridge Partners executed a CV for Truck Hero, an aftermarket truck accessories maker, at a reported $1.8 billion valuation. Similarly, Clearlake Capital used a continuation vehicle in 2023 to extend its hold on Quiet Logistics, a logistics provider with heavy automotive exposure.

What these deals have in common: businesses with solid cash flow and defensible market positions, but exit markets that weren't cooperating. In Cloyes' case, the automotive aftermarket has been growing — S&P Global Mobility forecasts 3-4% annual growth through 2028 — but valuation multiples for parts suppliers have been compressed by macro uncertainty and the EV narrative. A continuation vehicle lets MidOcean wait for multiples to re-rate.

The $1.4 billion transaction size announced by MidOcean isn't a clean equity valuation — it's the total deal consideration, which typically includes existing debt, management equity rollovers, and new equity from incoming investors. Based on typical continuation vehicle structures and Cloyes' estimated EBITDA, here's the likely breakdown:

Cloyes was generating an estimated $120-140 million in annual EBITDA as of 2024, according to industry sources. If MidOcean originally paid around 8-9x EBITDA in 2021 (standard for industrial buyouts at the time), the entry valuation was roughly $1-1.2 billion enterprise value. The continuation vehicle at $1.4 billion suggests either EBITDA growth since acquisition — plausible if MidOcean executed add-on acquisitions or margin improvements — or a modest valuation step-up to incentivize new investors.

If this breakdown is roughly accurate, it implies MidOcean marked up Cloyes modestly from its 2021 basis — but not aggressively. That's consistent with a continuation vehicle designed to extend the hold, not manufacture a paper gain. The real return will come from the next exit, whenever that happens.

MidOcean's press release offered the usual boilerplate about "supporting Cloyes' continued growth" and "building on the company's market-leading position," but didn't detail specific plans. Reading between the lines: expect more M&A. That's what PE firms do when they extend holds on industrial platforms — they use the additional time to bolt on smaller competitors, expand product lines, or enter adjacent markets.

For Cloyes, likely targets would include smaller timing chain or engine component makers, particularly those with exposure to heavy-duty or performance markets where margins are higher. MidOcean could also push geographic expansion — Cloyes has a strong North American presence but less penetration in Europe or Asia, where aging vehicle fleets also need parts.

Operationally, expect continued focus on supply chain optimization, SKU rationalization, and automation in manufacturing. These are table-stakes moves for any PE-owned industrials business, but they take years to fully realize — another reason the continuation vehicle makes sense.

The wildcard is how quickly the combustion engine installed base actually declines. If Cloyes can consolidate market share faster than the market shrinks, revenues could stay flat or even grow. If the market shrinks faster than consolidation can offset, even margin gains won't save the top line. That's the bet Goldman Sachs and Lexington Partners just underwrote.

The Cloyes continuation vehicle is worth watching because it represents a broader shift in how private equity handles aging funds and exit pressure. A decade ago, if you couldn't sell after five or six years, your options were limited: take a loss, sell to another sponsor at a discount, or hold past the fund's term and face LP blowback.

Now, continuation vehicles have normalized the extended hold. That's good for GPs who genuinely have unfinished value-creation plans, and good for LPs who want optionality. But it's also a tool that can disguise exit challenges or avoid price discovery. The Cloyes deal feels like the former — a genuine thesis on automotive aftermarket consolidation — but the market will ultimately judge whether MidOcean was right to hold.

If Cloyes exits in three to five years at a meaningfully higher valuation, the continuation vehicle will look prescient. If it exits at a flat or lower valuation, it'll look like an expensive delay. Either way, it's another sign that private equity exits are becoming more flexible — and more complicated — than the traditional five-year-hold playbook ever anticipated.

For now, MidOcean has bought time. Whether that time translates into returns depends on execution, market conditions, and whether combustion engines keep running long enough for Cloyes to consolidate the parts business that keeps them alive.