PAI reshuffle to trigger key man clause

The departure of two long-serving senior members of PAI Partners, including CEO Dominique Mégret, means LPs could suspend, dissolve or renegotiate and restructure Fund V.

Surprise changes at the helm of French firm PAI Partners will trigger a “key-man clause” in the firm’s €5.4 billion fifth buyout vehicle, PEO has confirmed.

In a move described by one limited partner as an “internal coup”, Lionel Zinsou, a former general partner at private banking group Rothschild & Cie who joined PAI in July 2008, will succeed Dominique Mégret, a 35-year veteran, as chief executive.

Dominique Mégret

Mégret, who has filled the joint chairman and chief executive role since 2006, will step down as chief executive immediately and relinquish his position as chairman in January 2010, it emerged in a Private Equity News report.

Bertrand Meunier, meanwhile, who has been at the buyout house for 27 years and was considered a strong candidate to succeed Mégret, will also leave the firm.

During his time at Rothschild, Zinsou, who was head of the bank’s consumer products group, advised PAI on a number of investments, including its unrealised investments in dairy products group Yoplait and biscuit and snack company United Biscuits.

Zinsou joined PAI two months after it closed Fund V, meaning the fund’s approximately 130 LPs will legally have the option of suspending investment from the fund or closing the fund altogether, given key personnel changes at the management company.

A source close to PAI confirmed the firm had entered into dialogue with the fund’s investors and that a number of items “are on the agenda”, but that it is too early to say whether matters such as fund size or fee arrangements will be renegotiated.

When asked about such potential key-man issues, Zinsou told the Financial Times: “I have no doubt that we have a base of investors who are totally committed to PAI and prepared to accept the argument that we are improving management.”

The fund’s investors include Swiss fund of funds AIG Private Equity, Taiwanese investment bank China Development Industrial Bank and London-listed vehicle Mithras Investment Trust, according to PEO’s sister data provider Private Equity Connect.

The management changes follow a difficult period for the firm, which is the 25th largest private equity firm in the world, according to the 2009 edition of the PEI 300.

In July it was forced to give lenders control of Monier, a roofing business that it acquired for €2.4 billion in 2007. This resulted in a write-off of €256 million of equity from the fund’s fourth vehicle.

Another 2007 investment in the residential construction sector – listed housebuilder Kaufman & Broad – has had to restructure its debt, implement cost-cutting measures and sell assets cheaply.

In May, PAI partner and founding team member Lise Nobre left the buyout house to join Parisian turnaround investment specialist Butler Capital. Nobre had headed PAI’s capital goods group, a role which, until the latest changes are enacted, is filled by outgoing executive committee member Bertrand Meunier. The capital goods group covers sectors such as paper and packaging, automotive, aeronautics, electrical appliances and household equipment.

Additional research notes on PAI Partners are available here.