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The third time is the charm for CVC IPO, but why now, and why at all?

CVC shares were floated for the first time on the 22nd of April at Euronext Amsterdam, with the firm’s valuation at €15bn. The stock surged 19% on the day from its base of €14. The private equity firm raised approximately €1.25bn as it only floated a minority stake of less than 10%.

The CVC Capital Partners office in London. PHOTO: Jason Alden/Bloomberg
The CVC Capital Partners office in London. PHOTO: Jason Alden/Bloomberg

But why become a public company in the first place?

€1.25bn is close to meaningless for CVC which has now around €140bn AUM. The reasons for the IPO are much more intricate than raising money.

Now CVC will be able to offer its own stock in the prospective deals, similar to what EQT group did in their acquisition of Barings Private Equity Asia back in 2022.

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With CVC publicly listed, employees effectively see higher liquidity on their wealth tied to the firm, making it easier for them to cash out.

The first attempt “failed” due to the Russian attack on Ukraine, and the uncertainty it brought to the financial markets. While the press seems to call this outcome a failure, it should not be the case.

The IPO was simply called off, despite strong interest from investors, it was a strategic decision to wait for better market conditions, rather than a failure of any sort.

The second attempt was called off in October of 2023 due to turbulent conditions in the European markets, with wider global equity sell-off.

The third time was the charm. CVC’s 17-strong board ultimately decided to go forward with an IPO, agreeing they would never be perfect conditions to do so.

More importantly, the market conditions have been recently improving for private equity players. While the cutting of the interest rates remains uncertain in the US, the dealmaking activity and IPOs started to improve.

As a result shares of publicly listed PE firms saw very strong performance for the last year, with KKR growing 89%.

Yet, public listing may be a threat to CVC

Alex Dibelius, one of the most prominent dealmakers at the firm, who saw the impact IPO has on his former employer Goldman Sachs, was a sceptic of the move to go public.

Board members and best-performing staff worried about the dilutive effect this move may have on company culture, making it less entrepreneurial and constraining the firm’s resources due to increased paperwork.

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Moreover, the IPO accelerated the departure of influential co-founders Donald Mackenzie and Steve Koltes, who felt that the public market was not suitable for their firm.

Despite their departure, they and other founders will retain a significant stake, as 70% of the profits from successful deals will remain with private shareholders, and the deal teams will receive 40% of these profits.

To get in contact with feedback on this article please email us at publishing@krugmaninsights.com

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