CVC Capital Partners was always the obvious contender to close the largest European buyout fund of 1998. Although four months of the year remain, no indigenous European manager is in the running to top the $3.1 billion (ecu 2.8 billion) raised for CVC European Equity Partners II (CVC EEP II), which ranks as the largest pan-European fund raised to date.
This massive pool is nearly four times the size of the $840 million CVC European Equity Partners (CVC EEP) fund closed in February 1996. Although that vehicle qualified as a “mega-fund” at the time, Nick Archer, CVC’s director of fund administration commented “With the benefit of hindsight, the first fund was just not big enough”. Given CVC’s recent investment rate – over the past 18 months the group has made new buyout investments totalling GBP1.76 billion – the size of the new fund does not appear excessive. Nick Archer said CVC hopes it will cover investments for the next three-and-a-half to four-and-a-half years.
CVC EEP ran out of money earlier this year, having built a portfolio of 33 investments, of which five are now fully or partially realised. CVC used a facility from Royal Bank of Scotland to bridge the gap between funds. This has covered at least six new deals, including the giant Kappa Packaging and one add-on investment, which together will absorb more than $450 million, or some 15%, of CVC EEP II’s committed capital.
Citicorp, CVC’s former parent, allocated some $600 million for investment alongside the LP, which had a $2.5 billion cap. The Citicorp commitment is roughly three times more than its co-investment with the previous fund.
Formal marketing for CVC EEP II began in January. Until the June first closing on $1.9 billion, CVC concentrated on marketing to existing investors, who were given priority. Sources accounting for 85% of the first fund’s committed capital participated in the LP component of CVC EEP II at a substantially higher level.
Commitments from previous investors account for approximately 80% of the new fund, excluding the Citicorp money.
Following the first close, Nick Archer said, CVC “marketed the fund on a first come, first served’ basis to selected partners who we judged would add strategic value”. Even so, the fund was oversubscribed at its 7 July final close, Nick Archer noted.
The new investors give CVC EEP II a slightly broader base than its predecessor.
Around 90% of the earlier fund was drawn from North America, whereas transatlantic investors account for 80% of the current fund. CVC has also succeeded in adding Australian and Japanese investors to its client list and in raising larger amounts from Europe and the Middle East. Major US investors in the fund include CalPERS, CalSTRS and Oregon Public Employees’ Retirement System. Nick Archer declined to name participants from other regions at this stage.
CVC declined to discuss the fund’s terms in detail, but Nick Archer revealed that CVC EEP II “mirrors the terms of the earlier fund, with a slightly reduced management fee”.
The unparalleled European coverage offered by CVC’s nine European offices will have been a decisive factor in securing substantial commitments from certain US investors who are currently fighting shy of the highly-priced and competitive domestic and UK buyout markets.