LONDON (Reuters) – French private equity firm PAI Partners would be ready to scale down its 5.4 billion euro ($7.94 billion) buyout fund by half, following a recent management bust-up, two sources familiar with the situation said.
Any shrinking of the fund, which bought stakes in IT services company Atos Origin and building materials firm Xella last year, would echo similar moves by peers TPG [TPG.UL] and Permira [PERM.UL], who have faced pressure from investors keen to reduce their exposure to private equity.
The move, which the sources said was outlined in a letter to investors, follows the shock early retirement of Dominique Megret as chief executive last month, twinned with the departure of his right-hand man, Bertrand Meunier, last month, after a boardroom battle with other partners.
Megret’s exit triggers a so-called “key-man” clause, allowing investors to renegotiate their commitments to the PAI’s fifth European buyout fund. In extreme situations, the clause allows for investors to withdraw all commitments and call for the wind-up of a fund.
“The one thing that investors have made clear is that they want everything to be done as quickly as possible,” said one of the sources.
The clause has frozen PAI’s ability to make new investments as investors decide whether they want to reduce commitments and support the new management team.
It was PAI declined to comment.
PAI suffered a blow in July when it lost control of roofing materials group Monier to a consortium of Apollo Management [APOLO.UL], TowerBrook and York Capital backed by senior lenders.
PAI’s woes are echoed across a buyout industry struggling with underperforming and over-leveraged companies, causing rifts to appear among firms’ management and with their investors.
Jon Moulton earlier this month left Alchemy Partners following an acrimonious bust-up with one-time protege Dominic Slade, citing planned changes in strategic direction and reduced deal capacity and activity.
Moulton’s public exit from Alchemy followed the more orderly planned departure of industry veteran Colin Buffin from Candover (CDI.L), as the British private equity firm looks to salvage its suspended 2008 fund.
Lionel Zinsou, who joined PAI from Rothschild last year, succedeed Megret as chief executive. Before the boardroom shake-up he was head of PAI’s consumer goods group and a member of the firm’s executive committee.
He advised PAI on a number of deals while at Rothschild, including food producers Panzani, William Saurin and United Biscuits.
No formal proposal on the scale of the fund reduction has been made to investors, one of the sources said. ($1=.6802 Euro)
By Simon Meads
(Editing by Simon Jessop)