LONDON, July 23 (LPC) - CVC is poised to take a third dividend payment of up to €620m from German sports betting group Tipico, bringing total shareholder payments to more than €1bn since the company’s private equity buyout in 2016, banking sources said.
CVC’s acquisition of a majority stake in Tipico in 2016 was financed with around €720m of equity and €620m of leveraged loans. After the current dividend, CVC will no longer have an equity stake in the business, the sources said.
“The business has performed incredibly well since CVC acquired it. The company is a stellar performer and a cash machine,” a senior banker said.
The third dividend will be funded through a new €550m, five-year term loan B that Tipico launched on Tuesday, via Morgan Stanley, Nomura and UniCredit, along with €140m of cash on balance sheet.
The remaining €70m of cash will be used for a franchisee acquisition and related fees and expenses, sources said.
CVC took its first dividend in July 2017, after raising a €190m add-on term loan. It then took a second shareholder distribution in October 2018 of around €200m, using cash on the balance sheet.
However the cash generative company quickly delevered again to 2.3x in May 2019, from 3.3x in December 2018.
“Tipico delevers like a bullet,” the banker said.
Private equity firms removing all of their equity investment via dividend payments can be controversial with leveraged loan investors who expect sponsors to keep ‘skin in the game’.
However, Tipico’s latest dividend deal is expected to be well received due to the company’s strong performance and CVC’s ongoing commitment to the business.
“Tipico has shown it rapidly delevers and generates cash. Even though the equity is derisked, investors are happy with the debt so it is easy to leave in the portfolio as a long term, reliable asset,” a syndicate head said.
CVC’s strategy with cash cow Tipico is reminiscent of its previous approach with high-performing portfolio companies. CVC bought Formula 1 in 2006 and took around US$3.5bn out of the business in multiple dividend payments.
Although Formula 1 proved hard for CVC to exit, the company performed well and was strongly cash generative. The business was bought by Liberty Media in 2016 for an enterprise value of US$8bn.
CVC is expected to remain committed to owning its star portfolio company Tipico until questions relating to potential German regulation are answered, sources said.
The new €550m term loan is set to be shown to investors at a bank meeting on July 24, when pricing will emerge. Pricing is expected to be guided around 375bp-400bp. Investors have been asked to commit to the loan by August 2.
The company operates online and mobile portals, as well as more than 1,000 betting shops. (Editing by Tessa Walsh)