Around a year ago, independent Milan-based private equity firm BS Private Equity was in the process of undertaking a number of divestments as it sought to provide evidence of the value within its portfolio. For BS, this was a pressing issue. Not long before, the firm had opted to pull a fundraising – and, by the firm's own admission, this had a lot to do with a lack of exits from its prior fund.

By May 2008, it appeared that BS's fundraising concerns would be eased thanks to a strategic partnership with Milan-based investment banking group Banca Leonardo. “They agreed to buy 20 percent of our management company with an option to buy the remaining 80 percent in 2009,” says BS managing partner Francesco Sironi. “We planned to do a [€600 million] fundraising in which they would commit €20 million as fund sponsor and we would also commit €20 million, with a view to eventually becoming a captive firm.”

In October, approval for the tie-up was granted by the Bank of Italy and antitrust authorities. The following month, however, Banca Leonardo sent BS a latter calling the deal off. Sironi says there was no material adverse change (MAC) clause written into the agreement and that BS is seeking legal remedies. In a statement, BS said it considers Banca Leonardo's decision as “unjustified” and illegitimate”.

Sironi declined to comment on whether the objective of the legal action was to try and force Banca Leonardo to commit to the agreement or simply to try and extract compensation.

One lesson of the episode would appear to be that, during down-cycles, banks and private equity just aren't a marriage made in heaven. Further examples may follow.