The private equity industry has a fix for maturing assets struggling to find a buyer: Sell them to another buyout fund, likely one run by the same firm. That remedy gets messy sometimes, as European buyout firm CVC Capital Partners Plc is discovering.

CVC’s Fund VII has a 47% stake in Milan-listed drugmaker Recordati SpA, following a deal with the founding family in 2018. The investment has performed well enough, but a clean exit has proved elusive. There were sale talks in 2024, according to Bloomberg News, though no formal transaction materialized.

In May, a consortium led by CVC’s Fund IX and Groupe Bruxelles Lambert SA agreed to buy the whole company for €10.7 billion ($12 billion). Recordati’s board backed the deal six votes to four, the dissenters being the independent directors who deemed the price “inadequate.”The terms were fine for Fund VII. But Palliser Capital, the activist firm led by former Elliott Management Corp. portfolio manager James Smith, called for a sweetener.

CVC added nearly €400 million earlier this month. Palliser remains unimpressed. “A token 3% increase does not make this offer fair, nor does it fix the conflicts and coercive structure at its heart,” Smith said.

Indeed, it’s still a cheap deal. The improved pitch is a mere 12% premium to the stock’s three-month average before the deal talks emerged in March. It’s less than the average midpoints of a range of valuations produced by Lazard Inc. and Rothschild for the directors. Several analysts say the company is worth more.

Fund IX is a regular buyout vehicle rather than a so-called continuation fund that focuses on private assets that have gotten stuck. But from the outside the situation looks very similar to a continuation-fund strategy, whereby the buying fund gets a discount in return for providing the selling fund with a clean cash exit.

Given the valuation, you can see why Fund IX has got backing from new private co-investors. But Fund VII’s bedfellows are public company shareholders and they want a higher price.

There are no easy ways forward. The offer is conditional on getting 67% acceptances and the CVC consortium is nearly there. It’s got over 60%, combining Fund VII’s position with purchases in the market. Ideally it would get to 90% to secure full control, but if it needs to up the offer to do so, it risks losing credibility after saying its latest number is final.

With partial control, the consortium could try forcing through a transaction that would take the company private, leaving the holdouts with unlisted shares unless they accepted some cash compensation. The snag for CVC is that the independent directors would need to sign off on such a move. If they didn’t, CVC could try replacing them — but would the successors be any more amenable? Minority holders wouldn’t be happy. A forced delisting looks legally doable but reputationally troublesome.

And should the deal fail, Fund VII would be left potentially having to cash in its stake by selling down its shares in the market, at discount prices and in several staggered placings to offload the entire position.

Deals between separate funds overseen by the same buyout firm normally happen in private of course. There’s nothing automatically wrong with them, assuming each side makes its decisions with independent governance and gets what it wants, whether that’s liquidity or value. But this situation is a real dog’s breakfast. It’s clearly not a good look for a single firm to be on both sides of a contested transaction that looks skewed in the buyer’s favor. And it’s a reminder that when private equity firms deal with themselves, they do so for the lack of alternatives.