‘The misunderstood role of private equity’

PEI recently caught up with Virginie Morgon, co-head of the investment team at Paris-listed private equity firm Eurazeo, and finds her anticipating deal flow from forced divestments over the next 18 months

What progress has been made with respect to the investigation by the authorities into Eurazeo's share price decline on Sept 16?
Eurazeo asked the AMF to conduct an inquiry into the movement in its share price. The investigation is ongoing so I am afraid I can't comment any further at this time.

The mood of many in the investment community remains gloomy. What's your take on current conditions?
We are experiencing unprecedented market conditions but there are considerable opportunities for well-positioned investment firms. As a listed private equity firm, Eurazeo has the benefit of a longer investment horizon. In addition, Eurazeo has a [relatively] young investment portfolio and there is no pressure from our shareholders to exit, which allows us to concentrate on creating added value in our portfolio companies. Also, Eurazeo's portfolio of investments is well spread in terms of risk and includes financially resilient business such as Accor, B&B Hotels and APCOA. We anticipate that these businesses will perform well in current market conditions.

On top of this, we also have a strong balance sheet: €1 billion of cash and ‘near cash’, and a €1 billion revolving credit line, which we renegotiated on very good terms at the beginning of the year. We will use this cash to support and fuel growth at our investment companies as well as to take advantage of the many attractive opportunities that we foresee in 2009.

What are the strategic priorities for Eurazeo today?
We have two key priorities. The first is to manage our investments, accompanying them in their growth and seizing opportunities for consolidation and thus create value for our shareholders. The second is to watch the market. We believe that there will be a number of forced divestments over the next 18 months and we are ideally positioned to take advantage of these opportunities. The main question for us is timing.

Where is Eurazeo seeing opportunity on the new deal front? I understand PIPE deals are of increasing interest?
Eurazeo currently has one PIPE investment which is its stake in Accor alongside Colony Capital. Eurazeo and Colony together hold 30 percent of Accor and both have board representation. Eurazeo, via Colyzeo and ColTime, has been a shareholder in Accor since June 2005 and has closely followed the company's strategy since then. The decision to make this investment was based on in-depth research and careful analysis, first-hand knowledge of the sector, and the earlier investment in Accor which had given us an excellent insight into the business. Of course timing also played a role. We have been very clear that our approach is to work closely together with Accor's management, to be in constant dialogue with them, and to develop ideas for value creation. They have welcomed our presence on the board and our involvement in the group's future. It is working well and we would look to find a similar kind of chemistry before considering another PIPE deal.

What do you make of the bad press that some publicly listed private equity vehicles have been getting?
It is not for me to comment on what has been said in the media. I think there has been some misunderstanding as to the role private equity plays in today's economy. In France for example, private equity supports a significant portion of employment in the country. It has been proven that private equity-owned companies, in relative terms, create more jobs and contribute more to the economy than other businesses of similar size. The industry is working closely with all its stakeholders to ensure the continued success of the sector.