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CVC joins ranks of listed consolidators but raises limited cash — Dealspeak EMEA

CVC Capital Partners [AMS:CVC] finally took to public markets last month with an upsized, well-priced offering. The IPO means it joins EQT [NYSE:EQT], KKR [NYSE:KKR] and other private equity (PE) peers in the ranks of listed asset manager consolidators, but its small primary issuance begs the question of how it will use raised cash to capitalise on M&A opportunities.

The Luxembourg-headquartered sponsor itself only raised net proceeds of around EUR 210m in the IPO, with issuance of around 17m shares, around 10% of the total offering with the remaining sold by shareholders, according to Dealogic data.

CVC said that the proceeds could be used to provide balance sheet capital to help scale its secondaries and infrastructure funds, invest in recruitment and retention, support new offerings like wealth distribution channels. The proceeds could also potentially fund a portion of the up to EUR 466m cash payment agreed for its EUR 1bn acquisition of infrastructure manager DIF Capital Partners.

Realm of lions

IPO proceeds are, of course, not the only way to fund M&A – the sponsor has already tapped private placement notes and revolving credit facilities to partially fund the DIF deal. However, CVC would have to look to debt or equity markets were it to look at other transformative acquisitions.

Listed sponsors have been more active in M&A than their non-listed peers, according to Mergermarket data. This is largely due to their sheer size and scale, taking up the lion’s share of disclosed deal volume with blockbuster deals.

The 2019 and 2022 spikes are down to Brookfield’s [NYSE:BN] USD 4.7bn acquisition of private credit platform Oaktree, which was funded by a 50/50 split of cash and shares; and EQT’s EUR 6.8bn acquisition of Baring’s Private Equity Asia (BPEA), with a cash consideration of EUR 1.6bn partly funded by a sustainability-linked bond.

White to play

As well as DIF, CVC also formed a strategic alliance with Glendower Capital in 2021.  It now wants to take its consolidation further, saying in its intention to float document that it could selectively pursue “value-accretive inorganic acquisition opportunities”.

Unlike some of its peers, CVC lacks region-specific or sector-specific funds, which could be developed inorganically. It has also signalled that it sees further growth in infrastructure secondaries, as well as in Asia – a region where EQT is active.
The sponsor could also look to specialist healthcare or technology investors. This expertise is often easier to buy than it is to grow, as Apollo [NYSE:APO] showed in 2022 when it announced a strategic partnership with life sciences venture capital (VC) firm Sofinnova Partners.

Limited partners (LPs) – the investors who provide capital for general partners (GPs) – are consolidating their portfolios. This trend can act as a catalyst for more consolidation within the PE industry. Your move, CVC.