CVC plans overhaul to keep lucrative profit stream private after IPO
Firm looks to prioritise investors’ access to management fees as rivals EQT and TPG have done
Europe’s biggest private equity firm CVC Capital Partners plans to overhaul its operations as part of a potential initial public offering, a move that would keep in private hands most or all of the lucrative profits it makes buying and selling companies.
The Luxembourg-based group is considering listing an entity that would allow public investors to benefit from its management fee income, a steady stream of cash from a levy on the pension funds and other institutions whose money it manages, according to two people familiar with the matter.
Relatively little or possibly no money from its other income stream, a 20 per cent share of profits on successful deals that can be far larger, would be available to the public under the plan, the people added.
CVC is the latest buyout group to consider the structure, which has become increasingly popular since Swedish firm EQT adopted it when listing in 2019. Although performance fees from successful buyouts can be far bigger, stock market investors are drawn to management fees, which are more reliable but a smaller proportion of the industry’s profits.
“The light went on” for some CVC executives after EQT’s listing, when an IPO “felt more attractive”, a person with knowledge of the matter said. “Suddenly there’s a group of people saying I love these management fees, I love the sheer predictable dullness of them,” they added.
EQT’s decision to give all its management fee income to shareholders has won it the industry’s richest valuation.
The plan from CVC marks a departure from the approach taken by buyout groups such as Blackstone, KKR, Apollo and Carlyle, which listed between 2007 and 2012 and typically gave public investors access to both income streams in about the same proportions as the firm itself.
A CVC listing would mark a historic transition of a secretive private equity group into a public-facing behemoth. CVC has $122bn in assets under management, according to its website, and has previously invested in Formula One. It owns stakes in the Six Nations rugby tournament, the communications company Teneo, and last year agreed to buy Unilever’s tea business for €4.5bn.
The buyout group is working with Goldman Sachs, JPMorgan Chase and Morgan Stanley as it draws up plans for a listing, said a person with knowledge of the matter, though it is not certain to go ahead.
CVC declined to comment.
The management fee on CVC’s latest private equity fund is 1.5 per cent, with discounts for institutions that commit large sums, according to an investor presentation.
US-based TPG restructured its finances as part of its IPO this month, giving shareholders just 20 per cent of its future performance-based profits, down from 50 per cent had the overhaul not happened
By contrast, Bridgepoint, which last year became the first leading private equity group to list in London since the 1990s, plans to increase the share of performance fee income it gives to public investors to as much as 35 per cent of future funds.
Shares in listed buyout groups have been on a tear for much of the pandemic, and a group of 11 firms collectively gained almost $240bn in market value in 2021. However, shares in Bridgepoint have fallen 24 per cent since the beginning of this year.
CVC last year took steps to bring in outside capital and increase its asset base, which are sometimes precursors to stock market listings of private equity groups.
The firm agreed to sell a minority stake to Blue Owl’s Dyal Capital unit in a deal that valued CVC at about $15bn, according to a person familiar with the matter. Separately, it bought Glendower Capital, which buys stakes in other private equity funds and backs deals where buyout groups sell companies to their own funds.
Facing pressure to lift the returns of their public shareholders, listed buyout groups are incentivised to raise more and larger funds — and to buy other asset managers — in order to increase the pools of cash on which they can charge fees.