IPO offers CVC chance to become multi-asset consolidator

A wave of consolidation has recently swept the private asset manager space, but the party could soon be crashed by a new kid on the block – should CVC successfully complete the public listing.

The sponsor, after months of stops and starts, looks to be reviving a process that would see it publicly list in Amsterdam, as reported earlier in August by the UK’s Financial Times. A person close to CVC told this news service that no decision has been taken as to whether there will be an IPO or when.

A source close to the IPO said that the listing should be thought of as more of “a finish line than a starting point,” adding that management has been “very focused” on the deal for some time.

“I don’t see anything bad in it, even though investment and professional services firms have often been hammered by investors,” the source said. “No one better than a PE itself can orchestrate a large-scale exit, just as they would with any of their assets.”    

Large multi-asset managers including BlackRock and Brookfield have been consolidating different asset classes, with the former acquiring credit shop Kreos Capital and the latter the secondaries arm of DWS Group.

The sponsor’s closest competitor in Europe, EQT, has already started to join in by acquiring life sciences venture capital firm LSP and Barings Private Equity Asia over the last couple of years.

However, CVC is not a stranger to M&A, having bought Glendower Capital to add secondaries to its roster in 2021. New cash on CVC’s balance sheet from a listing could tip it into the pool of regular consolidators, perhaps adding an asset such as infrastructure that it lacks.

The potential cash generation opportunity is a tantalising one for CVC, which has EUR 140bn in assets under management (AUM), with the firm potentially undertaking the IPO path for future growth, said one of the sources.

The consolidation of asset managers comes amid a bid to grow assets under management (AUM) and de-risk by running multiple strategies, at a time when LPs are turning to more established managers.

“Clients are choosing fewer managers, there are bigger bites of the pie going to fewer groups, which is creating scale among a smaller handle of institutions,” one large multi-asset manager previously told this news service.

The IPO is also likely to open the shutters on what is considered one of the sector’s most secretive private equity firms and puts it in a position where it can be benchmarked against peers like EQT. If the launch is successful, both of Europe’s largest private equity companies will be publicly listed.

Cashing out

For decades, private equity has positioned itself as a monetisation solution for founders who have built businesses small and large. Now, those are the top of those very same sponsors are starting to reckon with how they can realise some of the paper wealth that they have created.

At first glance, being a public company is an interesting choice for a manager that specialises in private asset classes. Thanks in part to increased reporting duties, opening the shutters on a secretive asset class, and the possibility for large share price depreciation.

An IPO, however, could also be a way for CVC’s founders and managing partners to monetise some of their holdings in the management company of the behemoth they founded in 1981, particularly co-founders and co-chairmen Donald Mackenzie and Rolly van Rappard.

“It’s a way for them to realise the value that they’ve created, as well as give some surety to the future of CVC on the balance sheet,” a banker familiar with the sponsor said.

EQT’s partners have done well so far from its listing, with directors selling 21% in 2021 for USD 1.4bn equivalent, sending the share price soaring, and a further 6.1% stake the following September for USD 2.7bn.

Many of EQT’s partners will have the opportunity to sell down when a lock-up expiry expires next month, as highlighted by this new service’s weekly ECM column ECM Pulse earlier this year, showing just how much the monetisation aspect matters.

While EQT's share price is down around 40% from the last sell-down, its stock is still more than 200% above its IPO price, meaning the September lock-up expiry may well be an enticing moment.

According to Dealogic data, some of the largest investors in EQT AB following its 2019 IPO were Capital World Investors, Fidelity and Putnam. Since the listing, Handelsbanken Asset Management has built a stake worth over 10m shares as of March 31, 2023.

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The potential CVC IPO also offers a chance for its minority investor, Blue Owl Capital, to realise some value in the 10% stake it acquired in the GP in 2021, at around a USD 15bn valuation. Blue Owl invested in CVC via Dyal Capital Partners V, a USD 12.9bn, 2020-vintage vehicle that has also taken stakes in H.I.G. Capital, I Squared Capital and PAI Partners, among others.

An IPO would be a familiar path for the GP stakes investor. In 2018, Dyal, bought a significant stake in UK sponsor Bridgepoint to become its largest shareholder, selling GBP 109m of the GP three years later in its IPO, according to reports, while retaining a GBP 578m stake.

Bridgepoint has fared less well than EQT at post-IPO, trading 50% below IPO price. Both, though, have suffered sharp declines since the end of 2021, making it more likely that Blue Owl might look to realise value in its portfolio by monetising its stake in CVC in equity capital markets, rather than selling down Bridgepoint at a far lower price than at IPO.

Carrying on

One big question going forward is whether CVC’s public shareholders will have access to the sponsor’s carry, or whether dividends will be weighted more towards prized management fees – as is the model underpinning EQT and TPG’s listings.

It is well reported that the sponsor runs a particularly “individualistic” approach to paying out rewards to its deal makers. Many might be unhappy if the proceeds of their hard work are divided to passive equities investors.

However, a growth in AUM via new strategies that are built organically or via M&A can only reap bigger piles of management fees.

Brookfield, in a letter published alongside its Q1 results, said that, like “virtually all sectors”, there are up to ten major players in the world in the asset management space, predicting further consolidation from itself and others including Apollo and Franklin Templeton.

CVC’s own AUM is currently about five to 10 times less than those consolidators, but if it can join them at the table, then its partners, LPs and public investors are likely to be a little more than placated.

EQT and CVC declined to comment. Blue Owl did not respond to requests for comment.

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• CVC Capital Partners
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