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Driving returns

2 Dec 2015 By Robert Cole

Old-style public market investment managers take note: private equity is on your tail.

On the surface, CVC Capital Partners’ purchase of a half share in RAC, the UK roadside breakdown service, from Carlyle, another private equity group, is a bog-standard secondary buyout. In money terms, it is no big deal either. Media reports suggest the deal values the whole RAC business, including debt, at 2.2 billion pounds.

Dig a little deeper, however, and you will see an example of a private equity house taking its asset management skills up new avenues. RAC, in its current form, is the sort of company that traditional long-only public market investment institutions might have expected to own. Indeed, those investors might have bought in if an IPO, mooted in 2014, had come off.

Instead, RAC is the target for the first purchase by a new $4.5 billion CVC fund known as the “Strategic Opportunities Platform”. CVC says the fund was established to meet growing demand from large investors to “invest for the long term in stable, high quality businesses.” It has an investment horizon of up to 15 years, where many private equity funds look at five to 10 years. It has a more modest returns objective too. Instead of 20 percent a year, the new CVC fund would be happy with 12 to 15 percent.

Part of the reason CVC is turning its attention to RAC is because there is a shortage of buyout candidates of the sort typically hunted by private equity houses, and the high prices fetched by those assets that do come up for sale. But long-term money – ultimately owned by pensions funds and the like – is showing private equity practitioners the inside track.

So small though it is, the RAC deal is a wake-up call. If private equity outfits are thinking more to the long-term, perhaps their long-only cousins should become more activist-minded. In time, that might give institutions’ traditionally sleepy oversight of corporate activity some necessary bite.



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