Building up, (not) spinning out

HSBC is the latest bank to indicate it will part ways with its captive private equity groups, citing changing regulatory conditions. But at least one bank – BNP Paribas – is bucking the trend.

Investment banks are notorious for changing their corporate thinking on in-house private equity divisions, having given birth to a steady stream of spin-outs over the years.  Now, with a potential US regulatory change pending that could force banks to divest private equity and hedge fund units, many industry observers are expecting a wave of synthetic secondaries and management buyouts.

So it was not entirely surprising when HSBC confirmed in early June that, because of a “changing regulatory environment”, it was in MBO discussions with its five remaining in-house units (its European buyout arm spun out as Montagu Private Equity in 2003). Nor was it surprising to then read anonymous sources wax lyrical on other banks like JPMorgan or Goldman Sachs making contingency plans for their private equity teams – a possibility of which PEI readers are already well aware.

Lionnet: creativity needed to fi nd deals


It was unexpected, on the other hand, to learn that at least one bank – BNP Paribas – is bulking up its private equity activity, particularly as the bank has already given rise to at least four spin-offs. BNP Paribas Private Equity’s direct investment arm, led by Guillaume Lebrun, in mid-June hired Alexandra Dupont, who’d previously worked for Cognetas and 21 Centrale Partners, as an investment director. The unit also promoted Nicolas Schwindenhammer to investment director and has plans to grow further still.

The SME-focused group invests in French and Benelux companies with turnover of €5 million to €50 million. On average it raises around two tax incentivised funds per year, for a combined average total of €50 million, and invests third party capital only – nothing from the bank balance sheet.

“Currently there are 25 companies in the portfolio,” managing partner Brice Lionnet said. “We divested a lot back in 2007 and 2008; we were lucky to divest in good conditions and pushed hard to do it. So now we are not overloaded and try to sustain the rate of 10-12 new investments per year, which is a lot… as we are still growing, we need more people to sustain our growth.”

Lionnet was cautiously optimistic regarding the team’s future deal pipeline. “It’s very hard to find good, growing, profitable companies in Europe at an attractive price,” he said. “You need to be much more creative. We focus, for example, much more on build-up opportunities because you can recreate growth, but creating organic growth for companies is very difficult these days.”