Since spinning out of Citigroup in the early 1990s, CVC, which owns stakes in rugby’s Six Nations championship, Unilever’s tea business and Spanish football’s La Liga, has been notoriously secretive. Even plans to put just 10pc of the business in public investors’ hands will expose it to unprecedented scrutiny.
Yet the prize for CVC’s top brass might be enough motivation to bite the bullet when market conditions improve. Mackenzie stands to be among a group of shareholders who will divide a £1.7bn pot if the listing goes ahead.
Companies such as CVC deploy strategies that involve purchasing companies with debt, before turning them around and selling them for much higher valuations. Buoyed by the ultra-low interest environment since the financial crisis, they have built sizeable war chests.
Now, the deteriorating economic environment presents both problems and opportunities. A new generation of industry chiefs are having to contend with rising costs for the first time as inflation soars.
Hugh MacArthur, a partner at consultancy Bain & Company, says: “Whether or not you believe inflation is an enduring concern, there’s no arguing that private equity faces a dual threat from rising rates and costs.
“Inflationary cost pressures and the resulting margin pressure pose a real threat to just about any portfolio company.”
One senior private equity executive based in London argues the scarring will be less severe than it was in previous eras, however.
“If you think about private equity now versus 10 years ago, most lending came from banks which had very strict covenants [restrictions that lenders include within a loan deal],” he says.
“As soon as companies would take a dip in profit, covenants would trigger, people would hand over the keys and get wiped out of investments.
“Now, most lending comes from private credit firms who don’t have the same kind of capital constraints so they don’t have the same covenants to banks. So there is actually much less risk to private equity through rising rates than there used to be.”
A “bigger concern”, he thinks, is the prospect of weak GDP growth, a recessionary environment and the impact that has on dealmaking.
Yet at the same time, economic gloom also engenders opportunity. The majority of private equity firms are confident that deal activity will improve or remain the same, according to S&P Global’s latest industry outlook report.
For dollar-based funds, British companies are also regarded as cheap and a renewed campaign is expected as valuations fall further amid the economic downturn. In recent weeks, HomeServe was bought by Brookfield while Apollo has joined forces with Mukesh Ambani, Asia’s richest man, in a bid for chemist chain Boots.
But there are also concerns the industry is too vibrant. The chief investment officer of Amundi Asset Management warned last week that some parts of the private equity market are starting to resemble a “pyramid scheme”.
Another issue CVC will have to contend with is dealing with public investors for the first time. Bridgepoint was given a rude awakening with US hedge fund Millennium taking a short position in the company in recent weeks.
As the London-based executive says: “The European shareholder familiarity with these businesses is relatively limited.”
It will also be looking to steer clear of any scandals. CVC owns a majority stake in PR giant Teneo whose founder and chief executive Declan Kelly resigned last year as a result of drunken misconduct. CVC declined to comment about whether Kelly still owns a stake or whether he received a pay off.
Since CVC’s departure from Formula One, Mackenzie has gone on to grow CVC into a global powerhouse.
Mackenzie will be hoping CVC’s stock market listing will eventually take off, and reap more fortunes for himself and senior leadership.
