Donald McKenzie (right) has reportedly announced his intention to join Formula One after returning from lunch with Bernie Ecclestone. Photo: Charles Coates/Getty Images < p>Kneeling in the thick snow, arms outstretched and head thrown back to the sky, Rob Lucas seemed to thank the gods for his safe passage to the top of the world.
In his free time, the 61-year-old grey-haired man is an avid mountain climber. After flying to the desert valley of Skardu in northeast Pakistan in late June 2021, Lucas spent several weeks acclimatizing in the shadow of K2's towering peaks. After enjoying local goat meat and banana bread prepared by his daughter, his group had to wait patiently for the strong winds to subside before they began the grueling six-day climb to the summit.
“What an adventure this ‘has been,’” he exclaimed. he posted on Instagram after walking through the so-called “death zone” to base camp.
In the coming weeks, Lucas is preparing to conquer a different kind of heights. He is the managing partner of private equity giant CVC, which is heading toward a stock market blockbuster that will reluctantly thrust it into the spotlight.
The planned move is a multibillion-dollar gamble that requires close attention. all aspects of the company, which has made every effort to remain in the shadows. In cases where CVC came into the public eye, it often ended up badly injured.
Eat What You Kill Culture
Private equity has long been suspected of operating behind closed doors, but the risks associated with sunlight are well known to its top managers. One former adviser says the idea of going public would fill some CVC executives with «dread.»
«Private means private, and that's the problem,» the person said.
p>This will mean that CVC will have to confront some of the long-standing problems that have hampered the demands of private equity, such as a reliance on debt to boost profits and a habit of prioritizing investor returns over the financial strength of the companies under its control.
But it will also open the firm, which one rival describes as «at the most aggressive end of capitalism», to questions about its tough «eat what you kill» culture and exceptional financial rewards.
And a stock exchange listing would make CVC much more liable for any financial difficulties its investments face, as well as any scandals they encounter.
Even the timing seems strange to some observers. One rival private equity executive notes that the «fragility» of the global economy and financial markets makes now a risky time to go public.
Meanwhile, the Labor Party, which could soon come to power, has vowed to crack down on the tax affairs of private equity executives. Shadow Chancellor Rachel Reeves described the lucrative share of profits, known as interest income, that executives receive as a £600 million «loophole» and an «absurd» tax break for the rich as it entails a lower rate of tax.
< p>Tax lawyer Dan Needle points out that bankers receiving bonuses pay income tax at the full marginal rate of 47 percent, but private equity executives receiving interest are taxed at 28 percent due to a dubious 1987 agreement between the British Venture Capital Association capital, the Inland Revenue Department and the Ministry of Trade and Industry.
He believes the arrangement was “technically suspect” and “highly likely illegal.” «That's why many buyout fund managers have to pay 47% tax,» he says.
However, rumors are growing in the Square Mile that CVC could do the unthinkable as early as next month by pulling the trigger on an Amsterdam listing that is expected to value the company at somewhere between €15-20 billion, crystallizing staggering paper fortunes for employees. , which own almost three-quarters of the shares.
The start of the buyout kings
The firm is led by three co-founders Donald McKenzie, Rollie van Rappard and Steve Koltes, who spun it out of Citibank more than four decades ago. CVC is one of the world's largest and most successful private equity firms. It is called the «kings of Europe» for the billions of pounds of profit that have been made by its large investors, the management of the companies it owns and its staff.
«It's very simple: the services they sell make money, and they do it better than most,” said a senior private equity executive.
Mackenzie is considered a dominant figure. The 66-year-old Scot is admired and feared in equal measure. “He can be intimidating sometimes, and he seems to enjoy it,” says someone who has worked closely with him. Another says that nothing happens at CVC without Mackenzie's consent.
Donald Mackenzie is considered the dominant figure at CVC, the Scotsman was admired and were equally afraid. Photo: Charles Coates/Getty Images
Its reputation has improved in recent years thanks to CVC's ownership of Formula One. One City figure called it “the deal of the century.” McKenzie reportedly announced his intention to take up the sport after returning from lunch with Formula One leader Bernie Ecclestone sometime in 2006. It is impossible to obtain exact figures, but it is estimated that he made billions of pounds from the ransom. Apart from several photographs of Mackenzie and Ecclestone in the Formula 1 paddock, Mackenzie is said to be fiercely protective of his privacy.
The float will result in a rare changing of the guard. Lucas, described by a former colleague as “quiet and cautious,” will take over as CEO.
“He's a crafty player — he doesn't have the elbows that Donald has,” says one opponent. Chief Operating Officer Fred Watt will become chief financial officer. The 63-year-old was previously finance director of the Royal Bank of Scotland before leaving in 2006 to spend more time with his twin daughters. His low reputation at the bank prompted one former colleague to remark that «he should have been called Fred Who, not Fred Watt.»
Koltes plans to retire «to focus on his personal interests» after 35 years of service in the bank. firm. “Whatever I do well, there are dozens of people in the firm who can do it better,” he told colleagues last year. McKenzie is expected to retain a seat on the investment committee but will give up the role of co-chairman, with Van Rappard, an avid art collector believed to be a descendant of Dutch nobility, becoming the sole chairman.
Behind the scenes. player
In the UK, CVC owns stakes in tea maker PG Tips, road rescue provider RAC and petrol station operator Moto. In Europe, its investments include Swiss luxury watchmaker Breitling, French pasta maker Panzani and German betting platform Tipico, as well as a total of 120 investments across four continents, including North America, South America and Asia. The company employs 850 people in 25 offices worldwide and has a portfolio valued at more than €180bn (£155bn), making it one of the world's largest asset managers.
In July CVC has broken a fundraising drought to create the largest private equity fund in history — almost £23 billion from investors and its ninth pool of capital since its inception. This figure was slightly higher than planned and £3.5 billion more than the previous fund.
“When we announced at the beginning of the year that we were trying to raise the largest pool of capital in these market conditions and in record time, people thought we were being a bit ambitious,” a jubilant Lucas told The Financial Times.
The opponent admitted: “They beat everyone, but they deserved it because they showed exceptionally good profits.”
Building on its hugely successful ownership of Formula 1, CVC has become a genuine household name in recent years with a quickly amassed portfolio of bets across sports such as football, rugby and cricket. However, the people running the CVC have managed to remain almost entirely out of the public eye.
The CVC gave rugby a big boost. financial boost as company takes £90m stake in Six Nations Credit: Ian Cook — CameraSport
However, this does not mean that the company has managed to avoid controversy — far from it. She remains haunted by her former ownership of Debenhams, which came to symbolize everything that was seen as wrong with private equity. The big-box chain closed its doors two years ago after struggling with massive debts it accrued to CVC, Texas Pacific and Merrill Lynch Private Equity a decade earlier.
MacKenzie admitted at a parliamentary hearing in 2007 that the company was «damaged» by the deal. He admitted it had created a «reputation problem».
Controversy mounts
In the same year Debenhams collapsed, CVC came under fire for its management of RAC after staff were offered a pay rise of 1 per cent, while her bosses received a 25 per cent rise and CVC and its joint venture were paid tens of millions of pounds in dividends. owners, Singapore sovereign wealth fund GIC.
Unite called the proposal «ridiculous» and one tabloid quoted a source close to the union as saying: «Loading a company with unmanageable debt is ultimately a recipe for disaster.»
Parallels have been drawn with the AA , which needed to be saved from collapse after being loaded with huge loans and paying huge dividends for a decade under the ownership of CVC and rival private equity firm Permira.
Debenhams became a symbol of everything that was seen as wrong with private equity when its doors closed after accumulating huge CVC debt. Photo: Paul Ellis/AFP
Tim Parker, who was named chief executive when the couple bought the company in 2004, earned the nickname «Prince of Darkness» for presiding over a painful restructuring that led to thousands of job cuts. Then, in 2007, MPs accused CVC and Permira of «blatant asset theft» after it emerged they had shared £500 million in dividends in the three years leading up to 2007.
However, it was the scandal that unfolded in 2021 at Teneo, a public relations firm where CVC was the majority shareholder, that has perhaps proved most painful. Its co-founder and executive chairman Declan Kelly, a former Clinton aide, was forced to resign after he was accused of inappropriately touching several people while intoxicated at a charity event organized by the campaign group Global Citizen. Kelly later apologized.
“I made an unintentional, public and unfortunate mistake for which I took full responsibility and apologized to those directly affected, as well as [to] my colleagues and clients,” Kelly said at the conference. time.
The incident was «extremely embarrassing» for CVC, a top executive at another investment firm said. However, it was doubly awkward because Chris Stadler, who led the Teneo takeover, sat on the board of Global Citizen and had previously faced allegations of inappropriately touching women. In a 2016 gender discrimination lawsuit filed by a former CVC employee, he allegedly «grabbed, 'hugged' and 'fondled' female employees.» CVC and Stadler denied the allegations and the case was later settled.
The following CVC decision
Deciding to take up the sport further is another risky gamble that risks further reputational damage. The purchase of a 27% stake in Premiership Rugby in 2018 was hailed as the start of a “new era” for English professional club rugby. Since then, the firm has spent a further £500 million on bets on the Six Nations and Pro14 competition.
The move into sports was led by star trader Nick Clarry, a suave former investment banker with an interest in the arts. The 51-year-old is chairman of the Old Vic Theater in London's West End. The firm believes there is potential to grow the commercial side of rugby, largely driven by the lucrative TV deals that have attracted football and other major sports such as tennis, Formula One and cricket. With revolutionary rights packages remaining elusive, experts question whether rugby union has the fan base that could deliver the growth potential seen in other sports.
Murmurs of dissatisfaction with the CVC's involvement began to emerge as the sport fell deeper into financial crisis. Several of the country's biggest clubs — Wasps, Worcester Warriors and London Irish — were forced to declare bankruptcy last season. A committee of the Ministry of Culture, Media and Sports described the incident as a “stain on the reputation” of sports stakeholders. Steve Lansdowne, the billionaire financier who owns the Bristol Bears, called CVC's involvement «disappointing.»
Wasps, along with Worcester Warriors and London Irish, have declared bankruptcy. Photo: David Rogers/Getty Images
But CVC's timing was unlucky as the pandemic hit the game like a torpedo, forcing Premier League clubs to rely on loans provided by the government and Sport England through the Sports Survival Package. Clarry noted that «while this support was a key factor in ensuring that no clubs went bankrupt during the main phase of the pandemic, these loans will remain on club balance sheets for many years to come» after Premiership Rugby's losses doubled to 36 million pounds sterling. last year.
Investments in Spanish football may be more profitable. CVC's €2.1 billion spend in 2021 has given it a share of broadcasting and commercial revenues for almost half a century. Amid speculation that the company could triple or quadruple its value within a decade, it has been called «the best deal in private equity history.»
It remains to be seen whether CVC has the courage to move forward with a variable rate. The rival points to «great tension» in the financial system, which has been plagued by interest rate hikes and huge amounts of borrowing. This created “troubled waters” for listings. The danger is that the shares will collapse, leaving shareholders «trapped» at a level well below the floating price, with «significant losses» that will make it much more difficult to sell the shares further, he says. Bridgepoint's buyout price has almost halved since it floated at 350p a share in the summer of 2021.
Questions have been raised as to why CVC, a firm that has produced scores of multimillionaires, feels the need to make its staff even richer , if this means that restrictions on its practice must be removed. Rivals believe this is an attempt to strengthen the co-founders' stakes before they retire.
Insiders deny this information. The driving force, they said, is the desire of a group of long-standing outside investors, including the sovereign wealth funds of Singapore and Kuwait and Hong Kong's central bank, to sell off their holdings. At the same time, the company sees this as a way to secure its long-term future by accessing capital to fund expansion and diversification into other asset classes.
CVC sources also insist the firm has nothing to fear. from opening your doors. They claim that the financial statements of its portfolio companies are more detailed than you would find in a typical UK company.
There is speculation that the firm chose Amsterdam because its disclosure requirements are less onerous than those in London , but this is also rejected by those close to the firm. They argue that the Dutch city is the most natural home for a business that considers itself truly pan-European.
Observers note that his activities will be subject to tight scrutiny wherever he chooses to operate. . “Whatever they can avoid by listing in Amsterdam, they will get many times more if they decide to do an IPO. Regardless of the index, they will be asked questions anyway,” says one City consultant.
Stricter scrutiny of the big beasts of private equity is long overdue, according to many. Private equity and venture capital-backed companies now employ more than two million people across the UK, according to the British Venture Capital Association. Yet despite efforts such as Sir David Walker's 2007 Corporate Governance Report to bring greater transparency to private equity, they have largely failed.
“It's incredible — all these assets and influence , as well as CVCs are still as private as everyone else. Very little has changed,” said a senior City official.
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