CVC Capital Partners Ltd., one of Europe’s biggest private-equity firms, said Michael Smith will step down as chairman in January as it prepares to raise as much as 11 billion euros ($14 billion) for its latest fund.
Donald Mackenzie, Rolly Van Rappard and Steve Koltes, three of the firm’s remaining founding partners, will take over as co-chairmen, Mackenzie said in an interview today. Smith, who joined the European unit of Citicorp Venture Capital in 1982 and negotiated CVC’s spinoff in 1993, will turn 60 in January. He will keep a stake of less than 5 percent in CVC, the firm said.
“The firm has always been run as a partnership and that will continue as before,” Mackenzie said. “It’s not the end of an era. It’s business as usual.”
CVC, which sold a stake in itself to three sovereign wealth funds earlier this year, is preparing to start raising a fund in January that may be as big as the 10.8 billion-euro pool it amassed in 2008, according to people briefed on the talks who declined to be identified because the fundraising is private. Unlike U.S. competitors such as such as Blackstone Group and Carlyle that have gone public, the closely held firm plans to remain private.
“We’ve had debates,” Mackenzie said. “We like our current status. Being private in many ways suits our type of business.”
Mackenzie, 55, will chair the Luxembourg-based group’s board meetings and continue to head the investment and portfolio committees for Europe and Asia, whose decisions include new investments and asset sales.
He joined the firm in 1988, and led CVC’s investment in Formula One motor racing, the private-equity firm’s most-profitable holding in the past 12 months. The firm has already reaped more than $4 billion on its original investment of $1 billion, and expects to make as much as $7 billion from the holding ultimately, Mackenzie said today. CVC will next year review its options for selling its remaining holding through an initial public offering, he said.
Last year, Mackenzie became chairman of the European investment committee, which oversees the firm’s 10.8 billion-euro fund. He also became head of the firm’s Asian committee this year, which runs a $4.1 billion fund.
Koltes, 56, will take over Smith’s responsibilities for dealing with investors and fundraising, while Van Rappard, 52, will continue to oversee the firm’s day-to-day operations.
Koltes, an American national, led the acquisitions of stakes in companies including German chemicals maker Evonik Industries AG and metering company Elster Group SE. The firm reaped more than four times its initial investment after selling Elster to Melrose Plc in June.
Van Rappard has been in charge of acquisitions in Belgium, the Netherlands and Luxembourg, where the firm acquired holdings in the Belgian Post, and chemical distributor Univar NV. The firm plans to sell Univar in the next 12 months, Mackenzie said.
Hardy McLain, who joined CVC in 1988, will retire at the end of the year after turning 60. Also a founding partner, he focuses on investments in southern Europe. Iain Parham, the firm’s last founding partner, will remain with the firm.
Mackenzie, Koltes and Van Rappard have committed to remain with the firm until about 2020, Mackenzie said. There’s no retirement age policy as long as partners contribute to the firm, he said.
“If you look at the firm as 16 managing partners, that’s the succession of the firm. In those 16, the future is,” Mackenzie said. “We know who they are, they think they know who they are.”
The firm has about 70 shareholders, compared with the six founding partners in 1993, Mackenzie said. Two-thirds of the company is now owned by non-founding partners, he added.
Under Smith, CVC raised nine funds totalling $50 billion. Its European funds have delivered annual returns of 7 percent to 41 percent, according to March data from the California Public Employees’ Retirement System, an investor.
CVC’s latest fund, raised in 2008, had an 11 percent net annual return, more than the 6.6 percent median for funds raised the same year. The firm’s previous fund, raised in 2005 and invested during the leveraged-buyout boom, is expected to return more than 25 percent annually, Mackenzie said.
CVC has delivered mixed returns in Asia, where the firm lost its A$1.77 billion ($1.8 billion) investment in Nine Entertainment Co., when it this month ceded control of Australia’s second-largest television network to creditors. The firm had written down the investment to zero in 2009.
The company plans to start raising a new fund for Asia in June or July next year, Mackenzie said today.
The firm’s investment in Formula One has also been a source of controversy: German prosecutors claimed in June Bernie Ecclestone, the sport’s chief executive officer, sent $44 million to a Bayerische Landesbank executive in exchange for the 2005 sale of the German lender’s stake to CVC.
Mackenzie appeared in a Munich court in January to say he wasn’t informed about the payments. Former Bayerische Landesbank Chief Risk Officer Gerhard Gribkowsky appealed in July a verdict sentencing him to more than eight years in prison. Ecclestone, 81, claims he was blackmailed. He remains under investigation and hasn’t been charged with a crime.
While CVC’s partners were “irritated” by the case, they decided to back Ecclestone, Mackenzie said.
“He is the most competent man to run Formula One at the moment,” Mackenzie said. “He’s innocent until proven guilty.”
Buyout firms such as CVC typically use loans secured on the targets they acquire to finance more than half of the purchase price and cash from their own funds for the rest. The firms seek to improve performance at the companies they acquire or expand them before selling them within about five years.
CVC sold a 10 percent stake in itself to three sovereign wealth funds, the Kuwait Investment Authority, the Government of Singapore Investment Corp. and the Hong Kong Monetary Authority. The firm plans to use some the proceeds to expand its credit businesses as it seeks to diversify from buyouts to generate a steadier income flow.
In January, CVC bought Resource America Inc.’s leveraged-loan investment division to combine it with its own Cordatus unit which it started in 2006. The firm is also seeking 300 million euros for its first infrastructure fund.
“The core strategy will remain primarily private equity,” Mackenzie said.