Co-ordinated approach pays off for CVC
Many private equity funds will remember 2005 with pleasure and a sense of achievement. But for the banks and investors polled by EuroWeek, one institutional firm stood out — CVC Capital Partners. Tanya Angerer explains why it has such a strong following in the market
Unlikely as it may sound, you may have cause to thank private equity firm CVC Capital Partners the next time your car breaks down.
Probably unknown to most of its 13.5m members, the Automobile Association, the UK roadside repair business, has been owned by CVC since a £1.3bn leveraged buy-out in 2004.
The AA is just one of 220 companies that CVC Capital Partners has acquired since its foundation as Citicorp Venture Capital in 1981. Whether it was to get your keys cut or drink a quick pint in a pub, the chances are that you have been a customer of many companies owned by CVC.
The firm was itself bought out in 1993 and is now independently owned by its management. It is one of the oldest and largest private equity fund managers in Europe, and won the title of most impressive LBO sponsor in EuroWeek's syndicated loans and leveraged finance awards poll. The institutional investors and banks that participated gave the resounding response that CVC was their favourite, and it beat its nearest competitor by more than 25%.
"CVC has consistently had a very strong dealflow," says John Foy, head of leveraged finance at Prudential M&G, "and appears to be well plugged in across its European base."
CVC has 12 offices dotted around Europe, including a presence in Amsterdam, Copenhagen and Jersey.
"CVC is typified by its broad international network," says one leveraged loans banker. "A lot of other sponsors have just recently set up offices abroad, whereas CVC has long been inside the local network and management framework."
CVC also has a different approach to its debt financing. It was one of the first private equity houses to have a central financing team, which other houses are starting to replicate.
The firm recognised early on that as the markets became more complex, it would benefit from having one team in charge of negotiating and managing the financing package. That team, run by partner Marc Boughton, oversees all the leveraged loans that CVC participates in.
"As everything on debt transactions migrates to London," says Foy, "there is a fairly consistent and co-ordinated approach across the whole group, whether it is a UK, Spanish or French transaction."
Being one of the larger houses, CVC has more access to funds than smaller institutions. But just because it has an edge over others in acquiring companies, that does not mean it overpays.
"CVC is successful in paying competitive prices for companies," says one loans banker. "They have the ability to bring a great amount of resources together quickly to focus on winning the deal. They spot the value in businesses quickly and generate strong returns."
Striking gold with Debenhams
One example of the company's shrewd investments is Debenhams, the UK depatment store chain, which it acquired alongside Texas Pacific and Merrill Lynch Private Equity in 2003. Despite criticism that the offer of £1.7bn was too much, Debenhams last year reported record sales and profits. What is more startling is that this growth occurred amid the gloom that engulfed the rest of the UK high street retail sector.
In November the 120-strong chain announced a near 10% increase in trade over the previous 12 months, taking its sales to more than £2bn for the first time.
The consortium is also contemplating an initial public offering in March or April that could value Debenhams at about £3bn, including debt.
The emphasis that CVC puts on investors and banks is cited as one of the main reasons the firm was voted most impressive arranger.
"They work very hard at forging relationships with banks and investors," says Foy. "CVC keeps lenders informed early on about the strategic direction of the business, such as potential exit strategies or bolt-ons."
With the financing team under the leadership of Boughton concentrating on the debt side, many feel that the company truly understands the buy-out market, and pays special attention to its lenders.
"CVC is very investor-focused," says David Forbes Nixon, chief investment officer at Alcentra in London. "They understand their debt partners and treat them as clients."