Even within leveraged finance, a market defined by risk, Cinven can come across as a maverick. This trait has served it well so far.
On Monday, the fund announced the sale of French medical diagnostics business Sebia to rivals Montagu Private Equity and Astorg Partners – the funds that had owned Sebia until its takeover by Cinven in 2010.
Cinven expects to make over €1bn from the sale – around €600m more than it originally invested in Sebia. But the fund took on substantial risk to acquire the company in the first place. To pre-empt a potentially difficult auction process, Cinven initially funded the takeover – France’s largest LBO since the 2007 financial crisis at the time – with equity alone.
The fund paid about 13 times Sebia’s Ebitda, GlobalCapital reported at the time, even before Cinven obtained the backing of banking lenders.
And Cinven demonstrated similar acumen in its dealings with Numericable and Ziggo. Cinven and telecoms firm Altice established the Numericable group in 2005 by buying and merging the cable assets of France Télécom, Canal+ and TDF. Likewise, Cinven created Ziggo in 2006 by combining three Dutch cable businesses – Kabelcom, Casema and Multikabel.
Fresh from the 2001 telecoms crash, there was no guarantee these new consolidated cable businesses would perform.
Nicolas Paulmier, a partner at Cinven, has said betting on Numericable “was a contrarian investment at the beginning”.
But the sale of its stake in both businesses has brought Cinven some of its highest returns yet. The fund generated €1.7bn in total proceeds from the sale of Ziggo, and a further €1.5bn from a partial sale of its stake in Numericable at the time of its initial public offering in November last year.
These exits mean Cinven will need to find new sources of revenue, however. Consolidation in the cable sector has reduced the number of companies to be had. Cinven’s reliance on cable has come to an end.
And while Sebia yielded high returns, other healthcare firms may not prove as lucrative. The Financial Times reported in March that Cinven was looking to dispose of Spire Healthcare in a sale process valuing the company at £1.5bn.
The private equity firm acquired BUPA’s hospital assets (since rebranded as Spire Healthcare) in 2007 for a total consideration of £1.4bn – just £100m less. Hardly a big gain.
Cinven has taken calculated risks in the past. It needs the same approach to assess which firms will see the most growth in years ahead, and guarantee its future earnings.