PAI partners still on the rocks

The departure of PAI's chairman Dominique Megret and his right-hand man Bertrand Meunier following what was labeled "a coup" triggered the key-man clause on the private equity house's EUR5.4bn fund, which subsequently allowed investors to renegotiate their allocations. Lionel Zinsou, who took the position of chairman, recently penned a letter to investors offering a 50% reduction in PAI's fifth fund, the largest in continental Europe, to EUR2.7bn. However, investors are yet to agree on which direction to take regarding the offer.

The response from investors to the offer was geographically split, with the majority of French LPs, such as BNP Paribas, allegedly keen to accept Zinsou's offer, while other investors such as Canada Pension Plan Investment Board and J.P. Morgan pushed for larger cuts. A number of LPs have been badly burnt during the downturn, and combined with the lack of exits from their private equity portfolios, many have found themselves cash-strapped and keen to reduce commitments, with at least one investor looking to fully withdraw its allocation from the PAI fund.

Counter-offers

Canada Pension Plan is said to be preparing a counter-offer to PAI's with demands including cuts of about 70%. Should such an offer be backed by LPs, it would mean PAI will be pushed to the limits of its investment strategy with regards to doing large buyout deals, a move that ironically usually worries LPs.

Should the LP gather a blocking minority, a fund wind down also becomes a possibility. Such drastic actions are likely to have widespread implications. For a start, it would bring about a number of issues concerning the management of the current portfolio companies.

Additionally, with the media spotlight firmly on PAI at present, a wind-down would send ripples of unease through French buyout houses as well as further afield. Whether it is seen as a necessary sacrificial lamb or a wake up call to French LPs by their Anglo-Saxon cousins remains to be seen, as do any political implications. Playing hardball in negotiations has not borne fruit with PAI of late. Recently, the GP lost its entire equity stake in roofing company Monier to creditors, the proverbial nail in Megret's coffin.

With its own future hanging in the balance, PAI is in for a long bout of negotiations and will have to swallow its pride. Should PAI overcome its current affliction, speculation regarding its abilities to fundraise and successfully do deals remains riddled with doubt; certain LPs have already stated they are unlikely to reinvest with the firm. The jury is out until November.

Meanwhile, PAI has waived its management fee, which stood at 1.5% of the EUR5.4bn fund, and has said it will keep the same percentage of the reduced fund size.

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• GPs
• France