CVC plans an overhaul to keep its lucrative post-IPO earnings stream private

Europe’s largest private equity firm, CVC Capital Partners, plans to overhaul its operations as part of a possible IPO, a move that would keep most or all of the lucrative profits it makes from buying and selling companies in private hands.

The Luxembourg-based group is considering listing a company that would allow public investors to benefit from its management fee income, a steady cash flow 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 source of income, a 20 percent profit share on successful transactions, which can be far greater, would be available to the public under the plan, the people added.

CVC is the latest buyout group to consider this structure, which has grown in popularity since Swedish firm EQT acquired it when it went public in 2019. Although performance fees from successful buyouts can be far higher, stock market investors are drawn to management fees that are higher, reliable, but a smaller share of industry profits.

“The light came on for some CVC executives after EQT’s listing, when an IPO “felt more appealing,” said one person with knowledge of the matter. “All of a sudden there’s a group of people who say I love these management fees, I love their sheer predictable tedium,” they added.

EQT’s decision to return all management fee income to shareholders has earned the company the highest rating in the industry.

CVC’s plan marks a departure from the approach taken by buyout groups like Blackstone, KKR, Apollo and Carlyle, which were publicly traded between 2007 and 2012 and typically give public investors access to both streams of income in roughly equal shares as the company self granted.

A CVC listing would mark a historic transition from a mysterious private equity group to a high-profile giant. CVC has $122 billion in assets under management, according to its website, and has previously invested in Formula 1. It owns stakes in the Six Nations rugby tournament, communications company Teneo and last year agreed to buy Unilever’s tea business for €4.5 billion.

The buyout group is working with Goldman Sachs, JPMorgan Chase and Morgan Stanley to draw up plans for a listing, a person familiar with the matter said, although it’s not certain it will go through.

CVC declined to comment.

The management fee for CVC’s latest private equity fund is 1.5 percent, according to an investor presentation, with rebates for institutions investing large sums.

US-based company TPG restructured its finances as part of its IPO this month, giving shareholders just 20 percent of its future performance-based earnings, compared with 50 percent if the overhaul had not happened

In contrast, Bridgepoint, which last year became the first leading private equity group to list on the London Stock Exchange since the 1990s, plans to increase the share of performance fee income it sells to public investors to up to 35 percent of future funds to increase.

Shares in public buyout groups have been plummeting for much of the pandemic, with a group of 11 companies collectively gaining nearly $240 billion in market value in 2021. However, Bridgepoint’s shares are down 24 percent since the beginning of this year.

CVC has taken steps over the past year to bring in debt capital and increase its asset base, which sometimes precede private equity group listings.

The company agreed to sell a minority stake to Blue Owl’s Dyal Capital unit in a deal that values ​​CVC at about $15 billion, according to a person familiar with the matter. Separately, it bought Glendower Capital, which buys stakes in other private equity funds and backs deals in which buyout groups sell companies to their own funds.

Faced with pressure to increase returns from their public shareholders, public buyout groups are finding themselves raising more and larger funds — and buying other money managers — to expand the pools of liquidity on which to charge.

Additional reporting by Antoine Gara

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