CVC agrees £3bn Barclays iShares deal

The European private equity firm has bought the British bank's exchange traded fund business after two weeks of exclusive talks. Barclays provided over 70% in debt for the deal and is entitled to a 20% stake of the equity upon exit.

Barclays has agreed to sell iShares – its exchange traded fund (ETF) platform – for £3 billion (€3.3 billion; $4.4 billion) to private equity firm CVC Capital after two weeks of negotiations.

CVC, which raised an €11 billion fund last year, has also secured £2.1 billion in debt financing from Barclays, which plans to hold 51 percent of the total financing for the first five years and may syndicate the remaining 49 percent after the first year.

Barclays has been granted a participation interest by CVC, which entitles it to 20 percent in cash of the value of the equity return from the iShares upon exit. However, this is on the proviso that the investment returns 2.0 times its equity in the first two years and 2.5 times thereafter, as well as a 25 percent internal rate of return.

“iShares has reached a point where it can develop further on a standalone basis,” John Varley, group chief executive of Barclays, said in a statement.

ETFs are listed investment vehicles popular among investors because they typically offer the diversification, low expense ratios, and tax efficiency of index funds, while still maintaining all the features of ordinary stock.

A slice of the pie

Previous bidders for the business, which last year provided around 45 percent of Barclays Global Investor’s £1.84 billion in revenues, included investment bank Goldman Sachs and a private equity consortium led by Hellman & Friedman.

Today, Barclays announced the sale agreement having had ongoing negotiations with CVC since late March.

The agreement contains a “go-shop” clause, which gives Barclays 45 business days, from 15 April, to solicit or consider “superior” transaction proposals.