Transcript: CVC hopes third time’s the charm

This is an audio transcript of the FT News Briefing podcast episode: ‘CVC hopes third time’s the charm’

Sonja Hutson
Good morning from the Financial Times. Today is Tuesday, April 16th and this is your FT News Briefing.

Goldman Sachs is breathing a sigh of relief, and private equity firm CVC has announced plans to go public again. Plus, a dangerous migration route in Central America has become extremely popular. I’m Sonja Hutson and here’s the news you need to start your day.

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Goldman Sachs hit Wall Street with a big surprise yesterday. The bank reported that profits rose 28 per cent in the first quarter. That surpassed analysts’ estimates by almost $1bn. The results reflected an uptick in revenues from its investment banking and trading businesses. This was a huge turnaround for Goldman, which has had a tough 12 months under chief executive David Solomon. He’s been heavily criticised for focusing too much on growing the company’s consumer banking. Solomon recently pivoted to focus on wealth and asset management instead. Analysts say that’s a major reason for Goldman’s stellar performance this past quarter.

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Private equity firm CVC Capital Partners has announced plans to list on the Amsterdam Stock Exchange. When it does, it’ll be one of 2024’s most anticipated initial public offerings. CVC manages about €186bn worth of assets. Here to talk about whether the debut as part of a broader revival of IPOs in global markets is the FT’s Ivan Levingston. Hi, Ivan.

Ivan Levingston
Hey. How’s it going?

Sonja Hutson
It’s going well. Thanks. So what did CVC say yesterday about its plans to list?

Ivan Levingston
CVC said that it plans to list its shares in Amsterdam, raising a mix of new money and allowing some existing investors, who have been longtime backers of the firm to finally begin cashing out some of their stakes. When private equity groups like CVC list, it can be complicated because private equity firms have a mix of two main revenue streams. There are the fees that investment groups get from managing assets, and then there are the profits known as “carry” that they get from profitable transactions. So when CVC lists, there will be a breakdown where the public vehicle, so to speak, will be more based on the fees from assets under management, whereas there will be a private company that keeps some of the exposure to the profits from deals.

Sonja Hutson
Got it. So it’s kind of like a half IPO.

Ivan Levingston
Exactly. It’s splitting the revenue streams in a way. Not a 100 per cent, but public market investors favour the steady fees gained from managing assets while dealmakers can be more partial to the lucrative profits that come from successful transactions.

Sonja Hutson
So give me a little bit of a background on CVC. I mean, how big of a player is it in European markets, and what sort of route did it take to get to this IPO announcement?

Ivan Levingston
CVC is one of the most important private equity groups in Europe and its route to the public market has been a long time coming. The group was founded about three decades ago as a spin out from Citibank, and for the last couple of years, it’s been attempting to go public to keep up with some of its rivals that have also held IPOs: Blackstone, KKR, those types of large US competitors. So CVC was gearing up two years ago to IPO, but that was disrupted by geopolitics. It was gearing up this past fall to IPO, also disrupted by geopolitics. So this time around, in the third push, they decided even a barrage of drones and missiles from Iran was not enough to prevent them from going ahead.

Sonja Hutson
And how important is this IPO for European markets?

Ivan Levingston
It’s certainly one of the most anticipated offerings of the year. The company is planning to raise at least €1.25bn. It’s also a good test for how a financial sector company will perform. And if it does well, it could further open the markets to more IPOs after about a two-year-long slowdown.

Sonja Hutson
Yeah. Well you know that’s something that we’ve talked about on this show quite a bit. When will we actually start to see this revival of the global IPO market that we’ve been hearing about for so long? So do you think that CVC is the listing that could get it back on track?

Ivan Levingston
The IPO market now I would describe as gradually coming back to life. But the companies that have pursued IPOs this year so far are in the most case, mature companies whose investors have been hoping to start exiting their positions for a long time now. So CVC, having a successful listing, would be a further continuation of that trend. We haven’t started to see, in a significant way, tech start-ups that are a little more untested or innovative- focused companies that are typically what IPO markets are known for. We’ll have to see more companies like that taking the jump to know that we really have a healthy and roaring IPO market.

Sonja Hutson
Ivan Levingston covers European mergers and acquisitions for the FT. Thanks, Ivan.

Ivan Levingston
Thank you.

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Sonja Hutson
Tesla is laying off 10 per cent of its global workforce. That’s roughly 14,000 jobs. This is the second round of major lay-offs in about two years. It’s another sign that the carmaker is struggling with a global slowdown in electric vehicle sales and a brutal price war. If that wasn’t bad enough, we also learned yesterday that two of the company’s top executives have left. Tesla isn’t the only one struggling, though. Companies all along the supply chain are feeling the pressure, too. Yesterday, China’s CATL — the world’s largest EV battery maker — reported lower-than-expected revenues for the second quarter in a row.

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The Darién Gap is a dense rainforest that cuts across the border of Colombia and Panama. It doesn’t have any roads, and crossing through it can be really dangerous. But despite the risks, the Darién is now one of the primary routes to get from Latin America to the US southern border. The FT’s Michael Stott recently travelled to the area and he joins me now to talk about it. Hi, Michael.

Michael Stott
Hello, Sonja.

Sonja Hutson
So, Michael, when exactly did the Darién start becoming such a popular route?

Michael Stott
It’s a new phenomenon, Sonja. It’s really taken off after the pandemic and it’s been soaring over the last three years. Last year, more than half a million people came through this once pristine stretch of jungle. And this year, the numbers are up again. They’re up about 38 per cent in the first three months of this year, over last year. And something else which is new is that there are more and more nationalities now using the Darién route as a way to get towards the United States. So the mainstay of the migration of people from the most disastrous economies, if you like, of Latin America, which are Venezuela, Cuba and Haiti. But they’ve now been joined in recent years by an increasing number of Chinese, some Africans, Afghans, Iranians have been starting to use this. And this is because there are gangs and organised criminals who are using the route as a way of making money.

Sonja Hutson
But like I said earlier, I mean, this route is really dangerous, so why are people choosing to use it?

Michael Stott
So it’s partly the fact that this is a way to get towards the United States, avoiding the controls you would have if you were flying. So you might ask, why are people not taking aeroplanes. There are flights to Mexico if you’re trying to reach the US border. Well, the answer is that Mexico has imposed strict visa requirements on lots of these countries that have problems like Venezuela or Ecuador or Haiti or Cuba. And the other thing is, of course, a lot of these people don’t have passports. So they then go to these gangs who advertise online offering help in getting through the Darién. And they pay anything from several thousand dollars in the case, maybe, of Venezuelans right up to $25,000 in the case of Chinese, who have more money. So there are people making a huge amount of money out of this. And the Panamanian minister estimated recently that last year alone, criminals made $820mn off migrants going through the Darién.

Sonja Hutson
Wow. And what’s happening in these countries that people are leaving that’s causing such a big increase? Is that a factor as well?

Michael Stott
So yes, Venezuela’s economy cratered over the last few years. Cuba’s economy is in the worst shape probably it’s ever been. And in other countries in Latin America, places like Ecuador, there’s been a big rise in murders and extortions and violence, which has also driven people to flee. So it’s a number of things, mainly economic problems, but also criminal violence.

Sonja Hutson
Now a number of different countries are involved here. I mean, obviously Panama and Colombia, the two countries on either side of the Darién, but also the US, where, you know, most of these migrants are trying to get to. What efforts have been made to deter them from taking this route?

Michael Stott
So the US is very keen to try to reduce migration via this route. And it’s pressed the governments of Panama and Colombia to do something about it. But so far, without much success, the Colombian government is keen to reduce the number of Venezuelans, in particular living in Colombia, more than 2mn of them. So, so far, the Colombian government has really done very little to deter migration at all. On the Panamanian side, they’re facing a different problem, which is they’d like to seal the border, but it’s a very difficult border to police. It’s remote. It’s dangerous. There’s no roads. And Panama doesn’t even have an army. The country only has a police force.

Sonja Hutson
Michael, I’m curious. What do you think the Darién represents? I mean, we’ve talked about this huge surge in migration, multiple countries being impacted. What sort of moment are we seeing reflected in what’s going on at this crossing?

Michael Stott
So the Darién is a dramatic demonstration of the failure of several states in the region — Venezuela, Cuba, Haiti in particular — to provide anything like a decent living for most of their citizens. And that’s triggered the worst migration crisis in the Americas’ history. But it’s now rippled out and become broader still, because you have increasing demand for migration to the United States from many countries in the world with economic and political troubles. So it’s become a kind of super migration highway, which is now being used not just by South Americans or Central Americans, but by nationalities from Asia and Africa as well.

Sonja Hutson
Michael Stott is the FT’s Latin America editor. Thanks, Michael.

Michael Stott
Thanks, Sonja.

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Sonja Hutson
You can read more on all these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.