Parthenon Pays Summit $20M, Firms Dissolve Agreement

The ugly breakup between Ernest Jacquet and Summit Partners is finally complete. All it took was five years and $20 million.

Jacquet, a prominent buyout investor, is a former general partner with Summit, which he joined in 1990 after serving as a principal with Bain Capital. Jacquet quickly helped build up the Boston-based firm’s buyout practice, and later championed a diversification strategy that included non-buyout funds focused on smaller deal opportunities. By 1998, however, Jacquet was itching to run his own show. He also believed that the bull market would eventually run out of steam, and wanted to create a new firm that could pounce on that opportunity.

Jacquet found a kindred spirit in John Rutherford, a former Bain & Co. executive who had launched a strategic consultancy named The Parthenon Group in 1991. The pair began fund-raising for the debut vehicle of Boston-based Parthenon Capital in May 1998, just after Jacquet tendered his resignation with Summit.

At first, it seemed like the two firms would get along well. Summit clearly was disappointed in losing Jacquet, but salvaged the situation by instituting a deal-sharing and co-investment agreement that would continue to leverage Jacquet’s extensive network of industry contacts.

In exchange, Parthenon would have access to some of the small market deal-flow generated by Summit’s telemarketing efforts, according to sources familiar with the arrangement.

By the time Parthenon closed its $257 million debut fund in 1999, a Summit spokesperson told Buyouts (a related publication to PE Week) that the arrangement had become “unworkable.”

Other sources said that Jacquet had rarely mentioned the Summit relationship while fund-raising, and that the situation was deteriorating beyond repair.

In the four years between then and now, Summit Partners and Parthenon never co-invested in a single deal. Still, the partnership was maintained until late last year. It was at that point that the two firms finally began speaking again, albeit with more than a touch of acrimony.

The final result swung decidedly in Summit’s favor, with Parthenon agreeing to cut Summit a check for $20 million, according to multiple sources familiar with the deal.

The payout officially dissolved the partnership agreement, and kept the dispute out of either a courtroom or arbiter’s office. Parthenon took the $20 million out of its management company’s coffers, while Summit distributed its windfall back to limited partners, say informed sources.

Word of the deal began to spread on Jan. 12, when Summit sent its investors a distribution letter. Parthenon investors, however, were told of neither the initial dispute nor the subsequent payout.

“I wasn’t even aware that there was any arrangement between Parthenon and Summit,” says a Parthenon limited partner. “That wouldn’t have changed my decision to invest, but I should have been told about it during due diligence. It must have been pretty significant if they had to pay $20 million to get out of it.”

A source close to Parthenon says that the firm would discuss the situation with any LP who asked, but that the situation wasn’t urgent because Parthenon didn’t take the $20 million from LP fund commitments. Jacquet, who is co-chief executive officer of Parthenon, talked to PE Week briefly by cell phone while on a business trip in Europe. He said that the settlement was a mutual business decision. “It was just a cumbersome arrangement, and the payment will end up saving us time.”

Summit declined to comment on this story, although sources familiar with the firm say that it is pleased with the final outcome, and relieved that the matter is finally concluded.

Matthew Sheahan contributed to this story.