The following summarises a Bloomberg Opinion column by Chris Hughes, who covers deals and previously wrote for Reuters Breakingviews and the Financial Times. It reflects the author’s personal views.
- CVC’s Fund VII holds 47% of Milan-listed drugmaker Recordati, acquired from the founding family in 2018, and has been unable to exit cleanly, with sale talks in 2024 producing nothing. In May a consortium led by CVC’s own Fund IX and Groupe Bruxelles Lambert agreed to buy the whole company for €10.7 billion.
- Recordati’s board approved it six votes to four, and the four dissenters were the independent directors, who judged the price inadequate. Those are the people whose role is specifically to represent minority interests.
- CVC added nearly €400 million this month. Palliser Capital’s James Smith called it a token 3% increase that does not make the offer fair nor fix the conflicts and coercive structure at its heart. The improved bid is a 12% premium to the three-month average before talks emerged in March, below the midpoints of valuation ranges prepared by Lazard and Rothschild for the directors, and several analysts say the company is worth more.
- Hughes identifies the structure precisely. Fund IX is a conventional buyout vehicle rather than a continuation fund, but the economics match one: the buying fund gets a discount in exchange for giving the selling fund a clean cash exit.
What Happened?
The offer requires 67% acceptances and the consortium has passed 60%, combining Fund VII’s holding with market purchases, while full control would need 90%. Raising the bid again would cost credibility after declaring the latest number final. With partial control the consortium could attempt to force the company private, leaving holdouts with unlisted shares unless they took cash compensation, but that requires sign-off from the same independent directors who called the price inadequate. Replacing them is possible and, Hughes writes, legally doable but reputationally troublesome. If the deal fails, Fund VII would face selling its 47% into the market at discount prices across several staggered placings.
Why It Matters?
This is the continuation-fund conflict conducted in public, which is why it is worth following closely. Transactions between funds run by the same manager normally happen privately, where the only parties to the price are the manager and its own limited partners, and no independent market tests whether the valuation is fair. Here the selling fund’s co-investors are public shareholders who can object, and they have: the independent directors voted against, an activist calls the structure coercive, and two investment banks produced valuation ranges whose midpoints exceed the offer. The public market is doing what limited partners in private continuation vehicles generally cannot. That bears directly on the structures now being marketed to the industry. Goldman Sachs, Evercore, Jefferies, Raymond James and Lazard are pitching evergreen continuation vehicles that would let managers hold assets indefinitely, and continuation funds already account for just under half of a $121 billion secondaries market. The objection to those structures is precisely that nobody independent sets the price. Recordati suggests what that absence is worth: when someone can contest the valuation, they say it is too low. Hughes is careful to note there is nothing automatically wrong with such deals where each side has independent governance and gets what it wants, and that is the condition being tested here. The endgame is instructive about why these situations arise at all. Every route available to CVC now is unattractive: raise again and lose credibility, take partial control and need approval from directors who have already objected, or let the deal fail and dribble 47% of a listed company into the market at a discount. His closing observation is the one to carry, that when private equity firms deal with themselves they do so for lack of alternatives, which is the same condition behind Two Sigma shutting a fund it could not raise and Celsa’s owners asking banks whether a sale or listing is even viable.
What Next?
The acceptance threshold is the immediate test, with the consortium above 60% against a 67% condition. Watch whether CVC raises again despite calling the offer final, and whether it attempts a squeeze-out requiring the independent directors’ approval. Palliser’s continued opposition determines how much public resistance persists. For the wider industry, this case will be cited by limited partners evaluating continuation vehicles, because it shows what an independent price check produces when one is available.
Affected Tickers and Coins: CVC, REC, GBLB
Source: Bloomberg Opinion
