Disgruntled private equity investors flexed their muscles on Friday, showing embattled buyout firms Candover and PAI Partners they call the shots when it comes to the future of funds and fees.
Crisis-struck private equity house Candover ditched ambitious plans for its 2008 flagship fund on December 4, shutting off cash supply for further deals, and raising question marks over the firm’s future.
And while PAI investors threw the French buyout house a lifeline, allowing it to continue doing deals, they cut its 2008 raised fund in half to €2.7bn and pushing through concessions on fees.
The problems faced by two of Europe’s leading names highlights buyout firms’ fall from grace as investors have lost faith in the asset class following two years of poor returns.
After a torrid year, during which it lost control of luxury boat builder Ferretti, and shocked investors by running out of cash to honour its own €1bn pledge to the 2008 fund, Candover proposed a scale back of future commitments to €100m from €3bn.
The move will see it retain just enough capital for follow-on funding for oil and gas services business Expro but prevent the firm from doing any new deals.
“I think, over the years, this will be seen as a case study in what can go horribly wrong when you get too ambitious,” said Iain Scouller, an analyst at Oriel Securities.
PAI has faced an equally troubled spell, losing chief executive Dominique Megret to early retirement following a boardroom bust-up and being forced out out of roofing material business Monier by its lenders.
Allowing PAI to get back on the acquisition trail, some 81% of investors voted for the fund continuing at half its original size, leaving the firm with €1.9bn available for investment.
But the case demonstrates how private equity firms will have to bend to the demands of increasingly vocal investor groups on issues such as fees and alignment of interest.
PAI will effectively ditch transaction fees — those fees levied on buying and selling portfolio companies — charging only its management fee of around 1.5%, a source familiar with situation said.
While out of the market for new deals, Candover will still consider raising new capital for deals once the situation surrounding its 2008 fund has been resolved, a source familiar with the situation said.
Much will depend on how much money Candover can realise from selling existing portfolio companies, as will protecting its four largest investments — Expro, Stork, Parques Reunidos and Alma Consulting — which account for some 75% of Candover’s net asset value, Scouller said.
Candover’s fund advisory board has agreed a short extension to the standstill agreement until January 8 to allow the discussions to be concluded.