Amaury-Daniel de Seze, walks up Paris' L'Avenue de l'Opéra and points to the opera house. Newly restored to its opulent and ornately gilded grandeur, de Seze chuckles at the extravagant initials that adorn the entablature's frieze. As much as he may marvel at the restoration of Charles Garnier's lavish design, it seems that deep down the stunning building is just a bit too outlandish for his liking.
The opera house stands in marked contrast to a nondescript doorway just 100 metres away: the discrete entrance to the offices of PAI Management, where de Seze is chairman and chief executive. Blink and you might walk on by. Certainly the entrance gives no indication of the influence and power that lie behind it.
But that is just as de Seze would have it. A small plaque by the door to mark his office suits just fine, and the firm's investors probably approve of it as well.
The understatement is a reflection of a quality that clearly matters to de Seze: humility at your own good fortune. “In life you always need to be humble. I think luck is a very important parameter. Everybody talks about performance and professionalism, but you also need luck,” he says.
Make no mistake, however: success is not just about luck. This is a venture capitalist talking, and there is no question that performance and professionalism are critical, too. At no point are you left in any doubt that in de Seze's world, you make your own luck.
Behind the modest exterior of his office lies a steel that has driven PAI to complete some of Europe's largest LBOs of recent years, while also raising France's biggest ever buyout fund and completing its own buyout from BNP Paribas. Furthermore, the firm has expanded well beyond its domestic market. A London office has just opened.
A buyout in three stages
De Seze has been at the helm of the business for the past ten years and has much to do with the progress it has made during this period. Securing independence for what was once Paribas Affaires Industrielles, the captive private equity manager of Banque Paribas, is a prime example for the stroke of luck that tends to come de Seze's way after years of persistence.
He first attempted to buy Paribas' portfolio of industrial assets in 1993, when he joined the bank as head of PAI right after he had left his high profile role at Volvo, the carmaker, where he had served as the only non-Swede on the main board. But an initial bid for the business failed to meet with Paribas' approval.
It did however lay the foundation stone for a later spin-off of the business. De Seze convinced the board that it was vital for a private equity business to operate as an independent manager.
“It was very important to have an independent management company,” he recalls. “That was agreed by the board and it enabled us to have a totally independent management company, ratified by the Commission des Opérations de Bourse, the equivalent of the SEC. The company was 100 per cent owned by Paribas and later BNP Paribas, but [in 1993] it became a separate legal entity with no one from Paribas sitting on the board.”
The next step towards genuine independence came five years later after Paribas had succumbed to a hostile takeover by BNP. PAI moved out of Paribas' headquarters and into the office on L'Avenue de L'Opéra. It was then that the plan for a timely divorce was finalised between de Seze and his new boss, BNP's chief executive, Michel Pebereau. It was a critical move: “If you wanted to keep a good team and to move forward and have that transparent and independent relationship with investors, it was important to go a step further,” says de Seze.
Everybody talks about performance and professionalism, but you also need luck
The final episode came in 2002. It may seem surprising that the spin-off took so long to complete. But with nearly €7bn under management, much of it the bank's money, de Seze and his team were unlikely to skip out the door without so much as a by-your-leave. Indeed, BNP Paribas still retains a 49 per cent stake in the business at this point, but as de Seze is at pains to make clear, his team have control of the business and it's a done deal. “We have bought 100 per cent of the company. We have paid for 51 per cent and we still have 49 per cent to pay, but the agreement, price and everything is fixed and in reality we have full control of the company. There is a time frame, which closes in 2005. But all the profit is for us. It is just a condition of payment.”
As part of the deal, PAI has a management contract to look after €4bn of assets on behalf of BNP Paribas. The bank will also see returns as a limited partner in PAI's second and third buyout funds. The bank invested €250m in PAI Europe III, which closed on €1.8bn in July 2002, just after PAI and its former parent had finalised terms of the buyout. The bank is not the largest investor in the fund, which highlights a significant change from 1998, when BNP Paribas committed 50 per cent to PAI's €650m second vehicle.
Although the bank, like many of its peers, is scaling back its involvement in private equity, de Seze is adamant that this is not a question of it being scared away by falling returns. On the contrary, he says, the bank has fared well in the asset class: “Private equity, if you talk about Paribas until 1998, was the most profitable activity of the group. It has represented between 40 per cent and 85 per cent of its overall global profit. Last year we made a contribution to the group's €600m of gross profit.”
Independence has given PAI the best of both worlds. It can still take the bank's money while at the same time being able to raise third-party cash. For de Seze, raising PAI Europe III was a memorable experience. “It was our first fundraising in the States, we'd never been there before because we always had the money from our main LP. It is unbelievably tough. You need to be humble and to explain to people who don't know you what you are doing and what you bring to the table. You need to be open and transparent.”
Going by the numbers, the firm must have got the message across rather well. The fund comfortably outstripped its €1.25bn target in one of the toughest fundraising climates the industry has seen.
Since then, PAI has wasted no time working its way through the capital. In July 2002, it closed the €1.5bn secondary buyout of Elis, the textile rental group, from BC Partners, in one of Europe's largest leveraged buyouts to date. A month later followed the €820m purchase, alongside CVC Capital Partners, of a controlling interest in Provimi, the Netherlands-based animal feed manufacturer. In September, PAI completed the €555m bolt-on of Lustucru, a French dry pasta and rice business, to existing investment Panzani.
Lessons from industry
With PAI Europe III now half spent, a new fundraising campaign is expected soon. Already placement agents are paying visits to Paris in the hope of winning what they regard as one of the choicest mandates in the European market.
Its ambition has placed PAI squarely in the heart of Europe's mega-buyout scene. Market insiders say de Seze personally has been a major influence on the business. A Paris-based investment banker says: “In the French environment he is the captain of industry and a gorilla in the private equity business. He knows everybody. It is hard to catch them out because PAI knows very early in the game what's going on, and they will have met everyone and looked at every plan at least once.”
De Seze himself has no doubt about the value this network bestows on the firm: “To have the local knowledge, speak the language, understand the environment and learn the news at the dinner before instead of reading it in the newspaper two days after is going to help you.”
Investing is about a relationship that you develop with the management of a company
His previous career in industry is what sets de Seze apart from many of his peers. This background inspired the firm's bottomup, sectoral investment approach. He says: “You have an edge because investing is not only about money. It's about a relationship that you develop with the management of the company, it's the knowledge about the management team, because it is their choice too: who is the preferred bidder, with whom can they develop, who do they feel comfortable with?”
This partnership approach has allowed PAI to crack some tough nuts. The joint venture with Sodiaal, the French co-operative owner of the global Yoplait brand, at the start of 2002 was a case in point. Dominique Megret, a general manager at PAI and architect of many of its favoured transactions in the food sector, noted in an interview at the time that private equity houses and co-operatives were worlds apart. But the two teams had come to agree a common set of goals.
Now PAI is taking the dairy through the hoops to an IPO. The business has a new management team and has increased marketing spend to support key products, coupled with a cost reduction programme. It is launching new products and new franchises to increase its global coverage.
De Seze is adamant that in-depth industry knowledge is essential to PAI's success, because his managers can speak the same language as the industrialists. The financial package has to be right but that is not necessarily the point of difference.
An advisor who has worked with de Seze on PAI's ultimately unsuccessful bid for LeGrand, the electrical equipment manufacturer, says he has seen this at first hand: “He just clicks with CEOs especially if they are hands on, operational types. He knows how their minds work, what drives them.” De Seze himself notes: “When my team is passing through a plant, we understand if the process is good, if the plant is working well. You need to talk with the worker and the head of manufacturing. To build the relationship, to be able to make tough remarks, you need to have the respect or you won't be listened to.”
“He just clicks with CEOs especially if they are hands on, operational types. He knows how their minds work, what drives them”
Once a portfolio company's people are on side, the next step is to get them fired up about the business plan and persuade them that they have got what it takes to execute.
De Seze tells the story of a worker who once told him after his machine had broken down it would take days for the manufacturer to come and repair it. Knowing the man used the machine day and night, de Seze asked him whether he could fix the problem. The worker said of course he could, but no one had asked him to.
To de Seze, this is the sort of mindset that a general partner needs to transform to ensure a deal goes well: “The role of a leader is to convince the management, the people, the workers that they can do it. They say they can only jump one metre. You have to tell them, for God's sake, you can jump three metres, even if you don't know it yourself. And then they are going to do it and when they look back they're happy.”
Can PAI crack the UK?
It's with palpable enthusiasm that de Seze discusses such matters. The 35 years he has spent in business have not dimmed his passion for the art and the science of making a company succeed. His personal background also lends credibility to PAI's aspiration of operating as an industrial partner rather than as a purely financial investor.
When buying a business, PAI will naturally look to improve the bottom line and cut costs, but as de Seze points out, there is more to do with savings than pay back debt. Reinvestment is important. “We're not trying to milk the company, we want to give them the tools to develop and structure their product. If you want a company to get the right price, you need to have taken the right coverage, the right market share, the right positioning, because that is what an industrialist is going to buy off you.”
That is what Mars bought when it bought Royal Canin in July 2001, which PAI had helped become the European leader in dry petfood. BNP was able to book a €846m capital gain on the exit. And when Unilever bought Amora Maille, the French ketchup maker, in 2000, it also bought the number one business in the sector. The bank quadrupled its money on the deal.
When my team is passing through a plant, we understand if the process is good, if the plant is working well
De Seze clearly cares for his portfolio companies. The Amora deal almost brings a lump to De Seze's throat: “Amora Maille has been a fantastic story of love. When we had the final dinner with the team, it was tough for the heart.”
Clearly he has an appetite for more of the same though. His ambition is to grow PAI to the next stage and to take his team forward, grooming them to eventually take over. A key challenge will be to replicate the success the firm has enjoyed in France in other parts of Europe, where it cannot rely on equally strong industrial networks. One competitor says the jury is out: “They're a sharp outfit. To move to the next stage they have to crack it in the UK. It's Europe's most open market, but it is also the most aggressive and if you have to spend to win it can be expensive.”
In April 2000 the €1.8bn takeover of UK-based United Biscuits, alongside Cinven and DB Capital Partners, established PAI's reputation as a contender in the UK. It sent a message to the market that the firm is ready to take on the UK challenge. So is de Seze, the man in charge.