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The $156bn PE firm with a succession problem

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Two big things to start: Binance chief executive Changpeng Zhao has resigned after pleading guilty to a US criminal charge of failure to protect against money laundering. The world’s largest cryptocurrency exchange also pleaded guilty to a host of criminal charges, agreeing to pay more than $4.3bn in penalties. Jaw-dropping details here.

US Treasury secretary Janet Yellen, attorney-general Merrick Garland, and deputy attorney-general Lisa Monaco
Left to right: US Treasury secretary Janet Yellen, attorney-general Merrick Garland, and deputy AG Lisa Monaco announce cryptocurrency enforcement actions on Tuesday © Mandel Ngan/AFP/Getty Images

And: OpenAI’s directors are in talks with Sam Altman to allow him to re-join the board, four days after their decision to sack him plunged the generative artificial intelligence start-up into turmoil.

Welcome to Due Diligence, your briefing on dealmaking, private equity and corporate finance. This article is an on-site version of the newsletter. Sign up here to get the newsletter sent to your inbox every Tuesday to Friday. Get in touch with us anytime: Due.Diligence@ft.com

In today’s newsletter:

  • Ardian’s succession dilemma

  • Broadcom/VMware spells a win for merger arbs

  • Carlyle cashes in at McDonald’s

The French private equity boss with big shoes to fill

A decade ago, French private equity group Ardian was spun out of insurance company Axa in a deal valuing the company at just over €500mn. It was among the best investments the firm’s founder and chief executive Dominique Senequier has ever made.

Since then, the company has benefited from a boom in private markets and established itself as one of Europe’s leading players. But the business is facing a brewing succession problem, DD’s Will Louch and the FT’s Harriet Agnew and Sarah White report.

Ardian has been valued at more than 10 times the price its executives paid Axa for it, people familiar with the matter told the FT. Only CVC Capital Partners has raised more money over the past decade, according to Preqin data.

But with no clear answer what happens when the 70-year-old Senequier steps back, questions loom over the fate of the $156bn firm.

Dominique Senequier
Dominique Senequier is the only executive remaining of the founding team © FT montage/Getty/Dreamstime

US peer Carlyle’s mishandling of its own succession plans has hurt its share price and the wider brand. Blackstone and KKR, by contrast, have handled things far more deftly.

Over the past few years, many of Ardian’s longest-serving and most influential executives departed, often abruptly. More are on the way out. Some of the group had been regarded as potential successors to Senequier.

“Succession within Ardian is a real issue,” one longtime executive said. The firm recently announced the promotion of four younger executives to sit alongside Senequier on the group’s top management team.

Among them is US-based Mark Benedetti who has been touted as a potential frontrunner in the succession race, people who know Ardian said (though there are few signs she is willing to relinquish control any time soon).

Succession isn’t the only issue Ardian is facing as the wider industry has to contend with higher interest rates and the end of a golden era for private equity fundraising and dealmaking.

As the industry consolidates, Ardian recently met with investment banks to review whether to pursue a deal to buy another firm. “Size is important in this business,” one board member said.

Like CVC, it has also considered going public, although that’s unlikely to happen in the near future.

Either way, 10 years on from its founding, Senequier has some big questions to resolve over the coming years. The decisions she makes will probably determine both her legacy and how well Ardian survives in a difficult market environment.

A software mega-deal plays out in merger arbs’ favour

“Phew” — that was the word used by more than one of our sources after Beijing approved US chipmaker Broadcom’s $69bn acquisition of cloud software company VMware on Tuesday.

China’s government approved the deal with some “restrictive conditions”, according to a statement from regulators on Tuesday, unleashing a collective sigh of relief among merger arbitrageurs whose biggest trade of the year is set to pay off.

Sure, many on Wall Street had been all-in on the deal from the jump. But some of the boldest of gamblers were feeling nervous when Chinese regulators considered delaying the deal last month.

Things aren’t set in stone just yet. Beijing’s final approval depends on the merged entity not abusing its market position, it warned, including allowing interoperability between VMware’s servers and other third-party hardware providers.

But the deal — which is due to close on Wednesday — could already signal mega paydays for hedge funds including Pentwater, Millennium Management and DE Shaw. Each holds a stake worth more than $350mn in VMware, according to disclosures for the end of September. 

It’s also a promising sign that the broader dealmaking pipeline between the US and China has begun to thaw.

“Our firm holds about a quarter-billion dollar position in VMW, but moreover, this approval is good for the broader global merger and acquisition industry,” Roy Behren, co-president and co-chief investment officer of Westchester Capital Management, told DD.

A lack of apparent antitrust issues, the fact that regulators across the globe had already signed off on the deal and Broadcom chief Hock Tan’s strong ties in China helped fuel Westchester’s bet that the deal would go through, Behren added.

The latter factor has been no coincidence. After Broadcom’s attempt to buy Qualcomm was scuppered by the Donald Trump administration over national security concerns in 2018, Tan has been keen to avoid another crushing regulatory defeat — staging an intense lobbying campaign in recent months to win over Chinese officials. 

The tech boss last week secured a seat next to vice-foreign minister Ma Zhaoxu at a lavish dinner for China’s president hosted by US businesses, according to photos and people familiar with the matter.

And with no plans to retire just yet, the septuagenarian master schmoozer has made clear that he still has plenty of deals to chase.

“I just signed up for another five years,” Tan told the FT earlier this year. “I’m having too much fun.”

Merger arbs will no doubt be watching his moves closely.

Carlyle’s Big Mac of a win in China 

Carlyle is selling its holding in the Chinese arm of McDonald’s for an equity value of $1.8bn, two people with direct knowledge of the matter told DD’s Antoine Gara and Kaye Wiggins. 

On its own calculations, it will return more than six times investors’ money before fees. Not everyone saw such a windfall coming.

To outsiders, Carlyle’s ownership of a minority stake in the unit — which it bought in 2017 — faced stiff challenges. 

Commercial ties between the US and China have been coming undone in recent years. These days North American investors have less and less appetite for exposure to the world’s second-largest economy, shrinking the number of potential buyers for the US private equity firm’s stake. 

The sale may also have come as a surprise because Carlyle had been working on plans to sell its 28 per cent stake to large limited partners such as sovereign wealth funds — a move that ultimately never came to fruition. 

The deal will leave McDonald’s with a 48 per cent stake in its China unit, since it had kept 20 per cent when it sold stakes to Carlyle and China’s Citic Capital six years ago. 

The next step could be for Citic Capital — which has rebranded as Trustar and owns the remaining 52 per cent — to sell some or all of its holding in effect to itself, one of the people said. Citic declined to comment on the move. 

Back at Carlyle’s offices, where chief executive Harvey Schwartz has been planning cost cuts and sounding gloomy about lacklustre fundraising, it’s a much-needed piece of good news. 

Job moves

  • Scott Shleifer, head of Tiger Global’s private equity business, will be stepping down from his current role at the hedge fund at the end of the year.

  • RBC Capital Markets’ London-based vice chair Mark Dickenson has been promoted to head of European equity capital markets and UK corporate broking.

  • Weil, Gotshal & Manges has named 16 new partners and a new counsel class.

  • KKR-backed financial communications group FGS Global has acquired Canadian advisory Longview Communications and Public Affairs and its 30-person staff.

  • Advent International has appointed Morningstar’s Tricia Rothschild as an operating partner to work on investments in wealth and asset management.

  • Linklaters has appointed Norton Rose Fulbright’s Jane Caskey as a partner and global head of risk advisory. 

Smart reads

NAV reality Extreme financial engineering by private equity firms can buy time for struggling portfolio companies. But it can’t stop the inevitable if the business hasn’t improved, Thoma Bravo managing partner Holden Spaht writes for the FT.

Diversifying the portfolio A small investment in the IPO of Abu Dhabi’s state-owned gas producer by Hollywood dealmaker Aryeh Bourkoff was requested by Emirati power player Sheikh Tahnoon bin Zayed, Semafor reports.

Restoring the magic After a series of blockbuster acquisitions, Marvel and Disney’s other moneymaking machines are running out of steam. CEO Bob Iger will now be forced to get creative in his second act, the FT reports.

News round-up

Permira and Blackstone lead €14bn bid to buy eBay-backed Adevinta (FT)

Morgan Stanley co-president Andy Saperstein diagnosed with cancer (FT)

Blackstone to shut multi-strategy fund after assets fall 90% (FT)

Telegraph auction paused while Lloyds reviews RedBird IMI offer (FT)

ArcelorMittal eyes US LNG in search for stable gas supplies (FT)

Forbes deal dead as Austin Russell fails to raises cash by deadline (Axios)

US tech group Palantir wins lucrative NHS data contract (FT)

Altice sells chunk of data centre business to Morgan Stanley (FT) 

Due Diligence is written by Arash Massoudi, Ivan Levingston, William Louch and Robert Smith in London, James Fontanella-Khan, Francesca Friday, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Antoine Gara in New York, Kaye Wiggins in Hong Kong, George Hammond and Tabby Kinder in San Francisco, and Javier Espinoza in Brussels. Please send feedback to due.diligence@ft.com

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