Converteam: a delicate matter

As the biggest deal of the year so far, Barclays Private Equity's (BPE's) sale of Converteam was going to draw the public eye to French private equity. However it was the figures themselves that have attracted the most attention. Naturally, when a small amount of people make a huge amount of money in a short amount of time such a feat is likely to be portrayed in a negative light on the grounds of fairness. Following the deal, Dominique Senequier, chief executive of AXA Private Equity in Paris, has spoken out about the issue by suggesting a fairer divide of capital gains should be implemented between private equity and the target companies.

Irksome to a number of French politicians and the general public at large, BPE's astronomical returns have become a double-edged sword. The financial details of the deal are indeed staggering. Bought for little over EUR150m three years ago and sold for EUR1.9bn, the top eight managers pocketed around EUR700m between them. The majority of this sum has been reinvested to purchase a third of the company.

The deal has the potential to turn into a PR disaster for the entire private equity industry and there is a genuine concern that French politics may wrap private equity in more red tape in order to make excellent returns fairer and more equally distributed throughout companies. Running battles on this subject have been commonly fought between the Government and French regulatory body AFIC.

Senequier has suggested that private equity houses should distribute up to 5% of the capital gains among the employees of the company concerned. Speaking to Jeremie Delecourt at AXA PE, we understand that Senequier is not only trying to avoid a media frenzy but is also a strong believer in the responsibility that private equity carries with it. Calling for a code of conduct, as she has, across the European market is, however, unlikely to be met with open arms by some of her foreign counterparts, particularly some of the UK players who are still struggling to digest the Walker report.

After all, giving money away has never been popular, be it to deserving employees or not. In this case, in a move pre-empting the public and political wrath generated by the deal, Gonzague de Blignieres, head of BPE in Paris, has since agreed to pay Converteam's 4,600 staff a bonus of two months' salary.

With this new debate, the ethics of private equity are yet again called into question. Senequier's viewpoint is in line with public and political opinion in France and, as a result, a number of private equity players in France have signed an agreement to spread equity more equally among the acquired companies. It remains to be seen whether or not she will convince many European players to join her cause.

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