The decade-old deal haunting Cinven

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In today’s newsletter:

Cinven’s image under threat

Private equity circles a top law firm

PE execs, beware of AI replacing you

Cinven faces its next big test

Cinven has until recently been seen as one of the most steady and reliable European private equity groups out there. But a deal the UK buyout firm made more than a decade ago could now haunt its unshakeable visage.

When Cinven bought a drugs group in 2012, firm partner Supraj Rajagopalan described the company’s off-patent medicines as “little jewellery boxes”.

Those little boxes showered diamonds, with Rajagopalan later describing Cinven’s 2015 sale of the group now known as Advanz as “one of the most successful deals we’ve ever done”.

But the sparkle has since faded. Earlier this year, a court upheld the Competition and Markets Authority’s findings that Advanz had price gouged the NHS. Now, regulators may apply to court to have Rajagopalan barred from running UK companies, DD’s Alexandra Heal and Ivan Levingston revealed last month.

(Rajagopalan contests the regulator’s allegations and plans to challenge the body if it does move to disqualify him.)

Today, Heal and Levingston examine what impact a potential ban could have on Cinven, which manages €45bn in assets.

The group won its steady image through refraining from listing itself on the stock market like CVC or EQT. It stuck to what it knew, and didn’t diversify into the hot strategy of the day, like credit, even as rivals strayed. Instead, it just delivered generally consistent buyout performance.

But if Rajagopalan were to be disqualified, it would force Cinven to change its leadership for the second time in two years.

Cinven rocked the boat last year when it announced, to the surprise of its investors, that Rajagopalan and two others would be taking the helm as co-heads from former managing partner Stuart McAlpine.

That leadership shake-up followed a controversy over another Cinven deal, this time involving the Italian insurer Eurovita.

Eurovita entered administration in 2023 after Cinven did not provide all the capital that regulators wanted. The fiasco turned European watchdogs sour on wider insurance buyouts and was followed by another top partner leaving the firm.

Cinven is expected to launch its next flagship fund as soon as next year. But it better have its (three, or two?) top ducks in a row before then.

Is Big Law for sale?

Big Law is one of few US industries that private equity firms haven’t bought into. That’s largely because ethics rules say non-lawyers can’t own law firms.

But that could now be about to change. One of America’s biggest law firms, McDermott Will & Schulte, is exploring a restructuring that could allow it to sell a stake to a private equity group or other outside investor, DD’s Kaye Wiggins and Antoine Gara and the FT’s Stephen Foley and Oliver Barnes report.

That would be a big test of the ethics rules, and as such, could set a precedent for other large firms. It’s worth getting to grips with the structure that could allow private equity to get around those rules.

The law firm would be split into two entities. One would remain fully owned by lawyers. The other would provide services that the lawyers need, such as back-office work, IT and licensing the law firm’s brand.

Enter: private equity. Investors could buy stakes in that second entity. The lawyer-owned unit would buy services from it, giving the investors exposure to the kind of steady revenue streams that buyout groups love.

A similar model has already been used to open up medical practices and accountancy firms to private equity ownership.

McDermott — formed from the merger of McDermott Will & Emery and Schulte Roth & Zabel this year — hasn’t made any final decisions. And there is scepticism about the structure, which opponents believe could still breach the ethics rules.

Either way, McDermott is a large firm, with $3bn in revenues. Its move is an indication that law firms are starting to take the model seriously.

AI is coming for your (private equity) job

It’s the last thing anyone wants to hear.

Over the summer, private equity chief executive Robert Smith shocked a room full of financial services professionals when he said that more than half of them would be replaced by artificial intelligence within the year.

“We think that next year, 40 per cent of the people at this conference will have an AI agent and the remaining 60 per cent will be looking for work,” the CEO of Vista Equity Partners told an audience at the SuperReturn International private capital conference.

Some thought at the time that Smith’s declaration was all talk. But Vista has told investors that it’s planning to significantly reduce its workforce and replace some roles with AI tools, the FT’s Ashley Armstrong and DD’s Antoine Gara scoop.

Smith has suggested to some of its investors that AI could help Vista shrink its workforce of about 700 by as much as a third, said one source.

As Vista seeks to replace its own employees with AI, Smith has been urging portfolio companies to adopt the technology to find savings.

Vista, which manages more than $100bn in assets dedicated to software-focused buyouts, wants portfolio companies to build so-called AI agents that can automate tasks with minimal human intervention. The firm now scores portfolio companies on their use of AI.

Vista has already cut some internal headcount this year and further efficiencies could soon come, especially for operational roles. Meanwhile, software-focused PE investors such as Vista must grapple with the potential looming disruption from AI.

In that sense, Vista’s internal AI work and what it’s asking its dozens of portfolio companies to investigate is looking over the horizon on the disruptive technology. But AI’s decimation of white-collar jobs could be years in the making, if it arrives at all.

People close to Vista said the CEO’s comments at SuperReturn were intended to be “provocative” and challenge finance executives to increase their AI usage. Smith later said that while AI would hit certain jobs, it would also create new ones.

Job moves

Marks and Spencer has appointed British Airways CEO Sean Doyle to its board.

Deutsche Bank has appointed Freya Van-Oorsouw global head of the bank’s private and sovereign funds group, a source tells DD. It has also named Ludwig Hartmann and Slavko Andrejevic co-heads of financial sponsors in Europe.

Constellation Energy board member Peter Oppenheimer plans to retire at the end of this year. He currently sits on Goldman Sachs’ board and was Apple’s chief financial officer.

Houlihan Lokey has named Neil Price as managing director in its financial sponsors group. He joins the bank from Mayfair Equity Partners.

Smart reads

Pest control Regulators and investors should heed the growing warnings on the booming private credit industry, even if they sound a bit overblown, the FT editorial board writes. More cockroaches could soon scurry out from the shadows.

Accounting tricks US Treasury secretary Scott Bessent has avoided nearly $1mn in Medicare taxes with a manoeuvre routinely used by investment firms, The New York Times reports. Now he’s in charge of tax collection.

Drug wars DD’s Oliver Barnes spoke to the FT Behind the Money podcast about the pharma giants battling for the blockbuster weight-loss drug market.

News round-up

First Brands’ founder regains access to funds as court rejects asset freeze (FT)

Anthropic to invest $50bn in new US data centres (FT)

FanDuel to launch prediction markets that bypass US state gambling bans (FT)

Oil major Chevron shifts focus to prioritise profits over production (FT)

Waymo to roll out driverless taxis on highways in three US cities (FT)

Vladimir Putin approves sale of Citi’s Russia business (FT)

Due Diligence is written by Arash Massoudi, Ivan Levingston, Ortenca Aliaj, Alexandra Heal and Robert Smith in London, James Fontanella-Khan, Sujeet Indap, Eric Platt, Antoine Gara, Amelia Pollard, Kaye Wiggins, Oliver Barnes, Jamie John and Julia Rock in New York, George Hammond and Tabby Kinder in San Francisco, Arjun Neil Alim in Hong Kong. Please send feedback to due.diligence@ft.com