New dawn at CVC Capital Partners
By Paul Mackintosh - 05/11/12
So CVC Capital Partners chairman Michael Smith has said he will step down in January on the eve of the buyout firm's next major fundraising push, targeting up to 11 billion euros (US$14 billion), according to reports in Reuters and Bloomberg. Donald Mackenzie, one of the three other original CVC founding partners who will succeed Mr. Smith as co-chairmen, also became head of the firm's operations in Asia earlier this year, and this is a good moment to review the firm's fundraising record in a region where it built an important early presence.
Back in 2007-08, before the Lehman collapse, CVC Asia Pacific III was the fund to get into, despite its unprecedented size – a final close of $4.12 billion. Limited partners (LPs) saw the performance and the returns that the team had achieved with its previous vehicles, the $750 million Asia Pacific Fund I and the Fund II that topped out self-effacingly just short of the $2 billion threshold at $1.975 billion, and went along with their ambition and aggression in doubling up on the prior figure. And to give CVC and its backers credit, it was no mean feat to crack the buyout market in Asia through investments like confectioner Haitai in Korea. CVC had established a reputation as one of the name-brand pioneers in larger buyout deals, alongside the likes of TPG Capital (then operating as Newbridge in Asia) and Carlyle, and investors had no reason to question its thesis.
In retrospect it was a pity that Asia Pacific Fund III closed just before the financial crisis broke. The fund was left saddled with deals done on pre-crisis assumptions and leverage packages, notably the $1.8 billion investment in Nine Entertainment in Australia, written down to zero in 2009 and taken over by creditors last month. Maarten Ruijs, CVC Asia Pacific CIO, had advanced the thesis that capital drives the market – that a big enough fund could unlock hitherto unreachable assets. Whatever its merits, the drastically different circumstances of 2008-09, when the entire leveraged buyout (LBO) model was in question, were a fierce environment to test it.
CVC has survived and moved on in Asia, though, somewhat chastened. It continues to pioneer new developments in the region: the deal earlier this year where a group of SWFs, including Singapore's GIC, bought 10% of its operating partnership is another example, as are its recent large deals in Indonesia, including the 2010 investment in department store chain Matahari. And now a newer influx of buyout giants, notably Kohlberg Kravis Roberts, are seeking funds well above CVC's previous benchmark, at up to $6 billion. It will be interesting to see how these fare compared to CVC's trailblazing activities.