General Policy and Objectives
CVC intends to build on its existing portfolio of private equity investments offering superior medium and long term returns. The company’s performance objectives relative to each of its investments is to achieve a minimum 20% internal rate of return (calculated on a cash in, cash out basis).
Nature of Investments
The company will seek to obtain equity positions in investee companies either by way of investment in new shares, or by the acquisition of existing shares, or by investment in debt instruments which convert into equity.
Size of Investments
Each investment is likely to be in the range of $1 million to $15 million. The company does not intend to set parameters for the minimum or maximum size of the equitable interest in each investee company. Depending on the investee company and the nature of the investment, the company’s equitable interest may range from a small minority holding to a controlling interest. Should the size of any future investment equate to more than 20% of the total gross assets of the company, then the company may seek to raise additional capital so as to ensure that no individual investment exceeds 20% of the company’s gross assets.
Composition of Investment Portfolio
The company proposes to develop a portfolio which comprises predominantly of investments in early expansion stage companies, semi mature companies and established companies with positive cash flows. All investee companies must be able to demonstrate growth potential.
The company does not propose to specialise in a single industry segment, preferring to be generalist with a broad spread of investments in differing industries.
Criteria for Investment Selection
The company has in place a tested and proven methodology which incorporates the various characteristics and requirements of the investment which the company will evaluate as part of its review and selection process. A prerequisite for investment by CVC will be experience, track record and quality of the management team of the investee company.
Investment Exit Strategy
While it is not always possible to pre-determine an exit strategy at the time of making an investment, the company will, as part of its investment evaluation process, endeavour to identify and define appropriate exit strategies.
When it comes to identifying an appropriate exit from a successfully built and much loved business, owners may not naturally consider approaching the venture capital or private equity market for assistance – an area traditionally regarded as a source of purely start up or expansion capital. However, as part of a growing international trend, more business owners are discovering that private equity can provide a succession option which preserves and ultimately enhances value.
Benefits of Private Equity in Succession Planning
Realisation of ownership at fair market value
Private equity funds manage funds specifically for business acquisition and need to put their money to work. They are able to pay a fair value for a business which is often greater than that available through a sale to an industry competitor or individual.
Continuity of business and preservation of value
Trade sales often result in synergies which may see the business substantially changed or merged. Mergers are often extremely disruptive and can significantly erode value. Private equity buy-outs allow owners to see their businesses, staff and long term relationships continue into the future.
Expansion capital, management expertise and value creation
CVC will partner with businesses where there is potential for expansion, either organic or through acquisition. The team possesses an extensive range of business and industry knowledge and skill, which enables it to add significant value to investee companies and play an instrumental role in achieving their strategic objectives and expansionary plans.
Participate in future upside
Business owners are able to retain a varying amount of equity in the business and participate in future upside, particularly where capital and management constraints have previously prevented expansion plans from being explored.
Reward for long term management
Existing managers within a business will generally lack the funds to pay fair market value for a successful long standing business. Private equity buy-outs, particularly management buy-outs, provide them with the structure to acquire a portion of the equity of the business and maintain their management role.