Revolution or evolution?

The (somewhat misleading) moniker ‘AXA Private Equity’ has been consigned to history. Having finally won its independence in October this year after what seemed like interminable spinout negotiations, the Paris-headquartered asset manager emerged with a new name: Ardian. 

Derived from the Gothic for ‘courage’, the name is certainly pithy. Private Debt Investor met with the firm’s head of private debt, managing director Olivier Berment, at the firm’s London office. One of the first questions posed – “What’s changed?” – was met with a typically Gallic shrug. “The colour, the name. Nothing else,” Berment responds, smiling. 

So is the spinout anything more than a re-branding exercise? French insurance giant AXA remains a key player, although it’s gone from being a majority shareholder in the management vehicle to a minority one. It never interfered with the running of the firm, Berment says, and behaved more like a cornerstone investor than a shareholder. The new relationship sees AXA continue to commit to the Ardian funds, including its latest private debt vehicle.

How did other investors respond to news of the spinout plan? “For those who didn’t know us, they had questions. But we told those who did know us early on about our intentions and there were no problems.”

Berment has been at the firm for 14 years, having joined in 1999, so he’s witnessed its evolution first-hand. Vincent Gombault, one of the firm’s three managing partners, was Berment’s finals teacher at ESSEC in France and invited Berment to work with him – initially at turnaround fund Marceau Investissement, and then at a similar vehicle run by AXA PE. So his grounding was in distressed equity, which taught him some important lessons. 

“You need in your private debt team people with a background in distressed situations. If you have security, you have to be able to enforce it. So we have built a team of people from both the debt and equity side – people who are used to negotiating.” 

His early years at the firm were spent buying into failing companies and fixing them. “I know what it is to be a sponsor,” Berment says. But he and his private debt team have been careful to avoid doing sponsorless transactions; he believes they’re too resource-intensive and high-risk. “We can’t have a portfolio full of sponsorless deals, because as a lender, you effectively become the sponsor. That requires more of your time. We can do it, but we’re not equipped in terms of numbers [of personnel] to do lots of them.” 

Berment continually emphasises the need to listen to what sponsors want in a financing package and adopt a creative approach in coming up with a solution. 

Pioneering unitranche 

Berment firmly believes Ardian has played a leading role in the rise of unitranche financing in Europe. 

During the course of investing AXA Mezzanine II, the firm realised mezzanine was falling out of favour, with demand for more flexible financing tools increasing. As a result, it sought permission from LPs to alter the strategy of the fund to allow for unitranche financings as well as traditional mezz. Permission duly granted, it set about deploying the rest of the €1.5 billion fund. This meant a shift in the firm’s target returns, however. 

“For mezzanine, you’re looking for 15-20 percent, including the warrants,” Berment says. “For unitranche, it’s different. It can be all senior, so you’re looking at LIBOR + 7 percent perhaps. All in, target returns are between 8-10 percent.” 
The firm’s currently in market with its successor vehicle, AXA Private Debt III. Berment declined to comment on the vehicle, as did a spokesman. It held a first close earlier this year on €1.22 billion, according to market sources, and is progressing towards its €2 billion target.

The start of a new fundraising cycle precipitated the departure of an AXA stalwart, Cécile Mayer-Lévi, who had been co-head of private debt alongside Berment and had been instrumental in launching and developing the group. A spokesman at the time said she had “decided not to commit to a new cycle of investment”. She’s since re-emerged at another French investment firm, Tikehau Group. Her departure left Berment as the sole head of the private debt unit, reporting to his mentor Gombault. 

The new fund retains the same flexibility its predecessor latterly enjoyed. It’s likely that it will predominantly focus on unitranche, because the ticket sizes for a unitranche deal tend to be larger than a mezzanine one, where it’s typically just a component of the capital structure alongside senior debt.

Capital from the fund has already been deployed: in October, it provided a €275 million unitranche facility to back Bridgepoint’s acquisition of Flexitallic, a French business which makes seals used in the oil and gas industry. 

The deal illustrates Ardian’s investment philosophy perfectly, Berment says.

“We’ve been a lender to that company since 2007, first with mezzanine, then unitranche. I’ve been on the board of the company a long time. We know the business well, understand its strategy, and have allowed it to pursue that through the specific financings we arranged for Eurazeo [its previous private equity owner] – initially mezzanine and then unitranche. For the new deal [its acquisition by Bridgepoint], we’ve provided €200 million at closing, plus €75 million for future acquisitions.”

The deal illustrates two of Ardian’s key attractions to a sponsor, in Berment’s view: certainty of follow-on financing and speed (and security) of execution. 

“Bridgepoint was in exclusivity with Eurazeo, but the deal wasn’t known to the market,” Berment explains. “Between the first discussion and the deal signing, the market wasn’t aware of it. It was really important for Eurazeo and Bridgepoint that there were no leaks. For the seller a leak is bad – if the process had fallen through, people would have assumed there was a major problem.

“Bridgepoint knew a lot of other sponsors were waiting for that company to come to market, and they pre-empted that. For them, it was important to avoid a leak which would have brought rival bidders to the table. We underwrote €275 million in a totally secret way. It’s one of the strengths of unitranche – you pay a premium on the debt but you can ensure secrecy. Better to pay a premium and win the deal than not pay and come second.”