The Sunday Times - UK (2022-04-24)

The Sunday Times April 24, 2022 5

BUSINESS

Don Mackenzie, an accountant, joined CVC in

He is now
co-chairman

Rolly van Rappard joined CVC in 1989. He is expected to be chairman when the firm floats

Rob Lucas, a mountaineer who has climbed Everest, is lined up to become chief executive

Donald Mackenzie’s Dorset mansion

between their reservations and the golden opening presented by record lev- els of private equity activity. The value of global buyouts more than doubled to $1.1 trillion last year, according to the con- sultancy Bain & Co. The average deal size passed $1 billion for the first time. It was the second-best year ever for fundraising. Private equity consortiums are making huge leveraged bids for companies such as Ramsay Health Care, Australia’s big- gest private hospitals operator, and the Italian toll roads group Atlantia. In a sign of the stunning rewards that can be made, TDR, the private equity firm that helped take over Asda last year, was last week reported by the Financial Times to have made 20 times its initial outlay already. CVC, founded in 1981 and spun out of the American bank Citicorp in 1993, is one of the industry’s giants. It manages €123 billion of assets, with 25 offices in 24 countries. It has 37 managing partners, 47 partners and 112 managing directors. It is investing its Fund VIII, which is €21.2 billion in size, and has bought assets such as Unilever’s tea business, which includes PG Tips. According to dis- closures in the US, Fund VII had made a 37 per cent rate of return as of last Decem- ber. Fund VI had returned 24 per cent. Fund VII took a majority stake in Teneo, the PR empire co-founded by former Hillary Clinton aide Declan Kelly, in 2019. It valued Teneo, an adviser to brands such as Coca-Cola, at $700 million. Kelly, 54, resigned last June after admitting “an inadvertent, public and embarrassing mistake” with his behaviour at an event for Global Citizen. The charity, co-chaired by the CVC partner who led the Teneo deal, Chris Sta- dler, ousted him from its board within hours of the incident. Sources close to CVC said it had not written down the

The secretive buyout giant is whirring to a lucrative

float, but the prospect of scrutiny is causing jitters

W

est Lodge is a Grade I-listed Georgian mansion set in 866 acres on the edge of Cranborne Chase in Dorset. It hosts a pheasant and partridge shoot, with a lodge in the shape of a granary where friends of the owner can pause for lunch between blasting birds. But West Lodge’s master is no aristo- crat. The estate is one of many trophies bagged by Donald Mackenzie, a Scottish chartered accountant, during his 38-year career at the forefront of private equity. The divorced father of four, described by a friend as “brusque” and “very tough”, is co-chairman of the buyout giant CVC. Mackenzie, 65, also owns a Grade II-listed home in Hampshire, a pied à terre in Knightsbridge and a collection of racing cars. Associates conservatively value him at several hundred million pounds, and he is about to get a lot richer. He is among the shareholders set to share a windfall of up to €2 billion (£1.7 billion) if CVC, the secretive owner of stakes in Six Nations rugby and RAC roadside rescue, goes ahead with a plan to float on the Euronext exchange in Amsterdam this year or next. The private equity firm would be following in the footsteps of Sweden’s EQT, backer of the vet chain IVC Evidensia, and Britain’s Bridgepoint, owner of Burger King UK. Both have listed on the stock market in recent years. They in turn were following American pioneers such as Blackstone. An industry-wide boom offers an unprecedented opportunity to cash in, and get quoted stock as currency to do deals and expand. Private equity — where firms such as CVC buy companies using debt, re-engineer them and sell them on — is roaring away. Yet CVC’s senior team is in a state of high anxiety. Selling a stake of about 10 per cent to public-market investors, at a valuation of €15 billion to €20 billion, will invite scrutiny on a scale it has never before encountered, even if Euronext has looser governance require- ments than the London Stock Exchange. Mackenzie and his team have always been sensitive about their wealth, and reluctant to go under the spotlight. Mack- enzie is said to have been scarred by an appearance before parliament in 2007. Labour MP John McFall said interviewing him was “like peeling an onion”. “He loathed that [experience] to a degree that there was no word for it,” said a friend. “He simply never got over it.” There are also questions about how CVC’s “eat what you kill” culture — where staff are mostly paid based on the deals they bring in — will be perceived on the public market. And there is the lingering shadow of its investment in the PR firm Teneo, whose executive chairman was forced to resign last year after he was accused of drunkenly touching people inappropriately at a charity event. These factors add up to a jittery management team. In the words of one City adviser, “they are beyond paranoid... about being written about, exposed, cas- tigated for making the money they’ve already made, let alone the money they’re going to be sitting on.” Some observers say a desire to avoid

OLIVER SHAH

value of its $450 million stake in Teneo and that in any case it accounted for less than 2.5 per cent of Fund VII. Goldman Sachs, JP Morgan and Mor- gan Stanley have been lined up to handle a float of CVC’s management firm, which gets a steady income stream for oversee- ing the funds. CVC has already sold stakes to Singapore’s GIC, the Hong Kong Mone- tary Authority and the Kuwait Invest- ment Authority, which together own 10 per cent. It sold a further 10 per cent to specialist investor Blue Owl last year. Sources close to the firm argue that listing would give it the flexibility to make acquisitions using its shares as currency, as well as broadening its offering at a time when the industry is consolidating. EQT’s deal to buy Baring Private Equity Asia, announced last month, is held up as an example of what private equity firms can do with a stock market quote. Sceptics suspect that CVC’s older deal- makers, led by Mackenzie and co-chairman Rolly van Rappard, are also keen to monetise their stakes in the management firm. Mackenzie, best known for spear- heading CVC’s lucrative involvement with Formula One, is expected to keep his role on the firm’s influential investment committee if it floats, but to step down as co-chairman. Van Rappard, 61, an avid art collector who owns works by Lucian Freud and David Hockney, is expected to become chairman. The younger generation includes Nick Clarry, a hard-charging former banker who has driven its sports investments. Clarry, 50, is an unusually public figure for a senior CVC executive. He is a trustee of the Courtauld Institute and chairs the Old Vic. In the latter role, he apologised after an investigation into Kevin Spacey’s 11 years at the theatre revealed that it had received 20 allegations of inappropriate behaviour against the actor.

C

VC sullied its name in the last private equity boom with debt-fuelled deals for Debenhams, Saga and the AA, all of which made big returns for the firm and its clients but flopped after being floated. CVC and two other firms extracted almost £2 billion of profits from Debenhams by cutting investment and selling off most of its free- hold property. The store chain collapsed last year, although CVC’s supporters argue that it was a victim of changing shopping habits rather than the private equity firms’ ownership. CVC is trying to tread more carefully with its moves into sport. It eschewed the offer to take part in last year’s doomed Super League breakaway football plan, instead preferring to take minority stakes in existing sporting “pyramids” such as the Six Nations and Spanish football’s La Liga. Some of those deals have still pro- voked controversy. CVC’s €2 billion investment in La Liga, in return for 11 per cent of its TV revenues for 50 years, faces a legal challenge from Barcelona and Real Madrid –— two key proponents of the Super League — plus Athletic Bilbao. Lucas, 59, is a driven character who has climbed Mount Everest. He may need to present a gentler, subtler face if he is to get the listing away — and that could be a challenge given CVC’s aggressive style and the increasing focus of investors on environmental, social and governance (ESG) issues. “There’s this huge clash for all public companies between ESG and maximising profits — but it’s especially acute for private equity, which is about maximising profits at the expense of everything else,” said a seasoned venture capitalist. “They are medium-term hit-and-run merchants,” he added. “Private equity is about growing profits as quickly as possible and creating a capi- tal gain, and the devil take the hindmost.”

Nick Clarry has pushed CVC into sports investing. He also chairs the Old Vic theatre

They are beyond

paranoid about

being exposed for

making big money

THE TOP BRASS

Inside CVC’s

billionaire

factory

publicity is at least partly behind the decision to opt for Amsterdam rather than London. They argue that CVC is, in effect, a British firm and that many of its senior staff work from an office on the Strand in London. However, sources close to CVC say 40 to 50 per cent of its investments are in continental Europe, and less than 10 per cent in the UK. They point out that its legal domicile is Luxembourg and say it wants to be seen as European. Rob Lucas, the managing partner lined up to be chief executive of the floated company, is friendly with William Jack- son, executive chairman of Bridgepoint, which has had a bumpy ride since listing in London last July. There were raised eyebrows at a £1.75 million signing-on fee for ex-Asda boss Archie Norman, who became a director. Norman, 67, had to invest the sum in Bridgepoint stock. Then there was criticism over Bridge- point’s decision not to disclose “carried interest” payments — the share of private equity funds’ profits earned by the deal- makers, typically 20 per cent above a cer- tain hurdle rate. CVC plans to give public investors some exposure to “carry”. At CVC, staff are mostly paid based on deals they oversee, meaning they are incentiv- ised to compete with one another. Bridgepoint’s shares initially did well but have now fallen by about 7 per cent, valuing it at £2.6 billion. Some onlook- ers wonder whether its experience contributed to CVC’s Amsterdam choice. “It’s for the brave-hearted these days, to list in London,” said an industry source. “Lon- don has now got a reputation for revelling in sucking lemons when things go wrong, and being less willing to celebrate success [than, say, the US].” CVC’s bosses may be torn

ILLUSTRATION: JAMES COWEN

When the Financial Conduct Authority asked for views on its targets for gender and ethnic diversity, it was deluged with responses — and not ones of support. Of 439 replies, 438 disagreed on one particular issue: the FCA’s proposal to count anyone self-identifying as a woman, including biological males, when collecting data on boardroom diversity. Only one response backed the idea.

The FCA’s move to

change rules on board diversity is

vexing executives,

Jill Treanor writes

managers and employees, rather than whether they have self-identified. “There could have been a risk between the Companies Act and reporting under FCA rules of identifying individuals at board level... We’re trying to achieve disclosure and transparency. We won’t want to have rules that will result in privacy concerns for individuals,” said Sarah Pritchard, the FCA executive who has overseen the consultation. Pritchard defended the regulator: “These are difficult and challenging issues, but we think they are the right issues for us [to tackle] as a financial services regulator that’s committed to driving the right outcomes for consumers and markets.”

boards. Ann Cairns, global chairwoman of campaign group the 30% Club, seemed sympathetic to the FCA consultation: “We take people as they’ve declared themselves to their company. We are not querying that, or how the company presents its board. Personally, I think respecting the individual for who they are is the right thing to be doing.” But Maya Forstater, executive director of campaign group Sex Matters, disagreed: “We talked to lots of women in the City who are angry about this. “They are saying, ‘My company is really not doing very well at maternity discrimination, sexual harassment and equal pay. And now they’re trying to say

Behind the City watchdog’s muddle over trans rules

least one of the senior board positions — chair, chief executive, finance director, or senior non-executive director — to be held by a woman. It is the first time the FCA has required companies — on a “comply or explain” basis — to provide such information. “Not all organisations will meet these targets,” said Phillippa O’Connor, a partner at the professional services firm PwC. The FTSE Women Leaders Review of 2020 found that about half of FTSE 100 boards and two-thirds of those in the FTSE 250 do not meet the target of 40 per cent women. The argument over self- defining women risks overshadowing the FCA’s attempt to boost diversity on

we don’t need to worry about collecting data on sex — it’s about gender identity now.’ ” Critics have also warned that self-identifying as a woman is not the UK legal definition of a person’s sex. That, they have argued, means companies could be left vulnerable to being sued under the Equality Act 2010. Other complainants to the FCA said the move could result in even more men being on boards, because quotas would include those identifying as women. Others were concerned about the issue of privacy. The Companies Act requires businesses to state in their strategic reviews — contained in their annual reports — the number of people of each sex who are directors, senior

It meant that the FCA, when it published the outcome of the consultation last week, had to change its plans. It will now require stock market-listed companies just to disclose details about the “men” and “women” they employ — and leave it up to companies to decide whether they want to report on the basis of sex or gender identity. The row exploded into the open in October when The Times reported that Sheldon Mills — an executive director at the FCA and chairman of the trustees at campaign group Stonewall — had helped draw up the proposals, which included plans to force a wide range of companies to meet new targets for diversity. One

female City worker said that women were being “erased”. Mills recused himself from the final decision on the rules, which were intended to match language used by Nasdaq in America, whose rules demand companies on the stock exchange have “at least one diverse director who self-identifies as female”. However, the row has added to the sense of disarray at the FCA, which is also embroiled in a row over pay with some staff who have voted for strike action. It took some time for the FCA to publish the outcome of the consultation, which began in July. The regulator will now require companies to report against targets aiming for 40 per cent of the board to be women and at

50% of FTSE 100 companies had not met this target in 2020

438 of 439 responses opposed a self-identification plan

40% The target for female representation on boards

The Sunday Times - UK (2022-04-24)

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