CVC Capital Partners has successfully raised €4.61 billion (approximately $4.8 billion) for its latest longer-term private equity fund, CVC Strategic Opportunities III. This new fund mirrors the size of its predecessor and targets investments that go beyond the typical four-to-five-year holding period seen in the private equity industry.
CVC’s Strategic Focus on Defensive Sectors and Lower Leverage
The CVC Strategic Opportunities III Fund focuses on defensive sectors, aiming for long-term capital appreciation rather than short-term, aggressive growth. It uses less leverage in exchange for a lower, but more predictable, return. According to Lorne Somerville, Managing Partner and Co-Head of CVC’s Strategic Opportunities Platform, the fund’s goal is to deliver compounding returns over time, driven by evolutionary value creation rather than aggressive, short-term strategies.
CVC has now raised over €13 billion for its strategic opportunities funds, which are designed to provide dividends to investors as part of the capital return process. This steady return structure allows the firm to focus less on capital distributions and more on sustained growth.
Key Investments and Strong Performance Amid Challenges
CVC’s strategic opportunities funds typically involve holding investments for eight years. Past investments have included Asplundh (vegetation management), Sebia (diagnostic testing equipment), and Hempel (coatings solutions). Last year, CVC sold a significant portion of its stake in GEMS Education, a major private school operator in the UAE.
Despite the challenges presented by Brexit, COVID-19, and the inflation surge of 2022, CVC’s approach has delivered predictable and resilient returns. Somerville highlighted that their investment strategy has outperformed through various global disruptions.
Private Equity Investment Trends and CVC’s Strategy
As private equity investors become more selective due to slowing returns and a challenging M&A and IPO market, CVC has managed to raise €16 billion in capital over the past year. The firm’s strategy of targeting lower-risk investments has resonated with its limited partners (LPs), who are seeking stable returns within their private equity portfolios.
CVC’s investments in the StratOps Fund are distinct, with more than half of its 18 deals involving bilateral negotiations. Somerville noted that there is a larger pool of capital chasing high-leverage, full-control deals, making it harder to find substantial minority stakes, but the firm’s differentiated deal pipeline remains robust.
Navigating the Market: Alternative Deal Structures
In response to the persistent bid-ask spread between buyers and sellers, CVC has explored alternative deal structures like minority stake sales, continuation vehicles, and private IPOs. These structures enable the firm to hold onto assets for a longer duration, a strategy that is by design, not necessity.
CVC Strategic Opportunities III positions itself as a long-term, low-risk option for investors, offering a more predictable path in the ever-evolving world of private equity.
