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France is not enough

A co-founder of Apax Partners is filing suit against his partners to claim profits he says have been ‘unjustly’ withheld

A dispute among the partners of London-based mega-buyout firm Apax Partners was made public last month when Maurice Tchenio, one of the three men who founded the firm more than 30 years ago, sued his partners for allegedly withholding profits and management fees on five European investments.

In the suit filed in London, Tchenio alleges that the undisclosed amount that he is owed comes from recent deals in Sweden, Italy and the Netherlands by Apax Europe V, Apax Europe VI and Apax Europe VII. He has also asked that information be disclosed by Apax offices in Hong Kong and Mumbai.

The firm opened its first Asia office in Hong Kong in 2005 and followed with the Mumbai branch in 2006, with its first investment in the region occurring the following year when it acquired a stake in Apollo Hospitals, India's largest private hospital group. It is set to open offices in Shanghai and Beijing as it has increased its focus on Asian investments.

The dispute between Tchenio and his partners centres on investments made since a 2001 agreement, specifically how much of a share of management fees and carried interest Tchenio may be owed and whether investments in the Netherlands and some start-up fund costs should be factored in. Partners in private equity firms typically earn most of their salaries from carried interest profit sharing agreements.

Apax was founded in 1976 by Tchenio in France, Ronald Cohen in the UK and Alan Patricof in the US. The firm was originally structured as a collection of separate funds, but in 1999 the US, UK, Swiss, German and Spanish operatives merged, while the French operative managed by Tchenio elected out of the merger. As an independent entity the Paris-based branch of Apax invests its own money in deals, while the others invest a combined fund.

In his suit Tchenio said the profit-share agreement was updated as the firm continued to expand its global presence, and that it would be “unjust” for Apax to deny his claim over the millions in profits accrued from European buyouts. But since Tchenio's operation was making investments exclusively in France and the London-based consortium was doing deals in the UK, Germany, Austria and Spain, the other partners contend that Tchenio has no right to profits made in these territories.

Apax currently manages around $40 billion in assets worldwide, and its funds usually invest in values of between $1 billion and $6 billion. Apax Partners broke a European record when it closed its seventh fund on its hard cap of €11 billion in April 2008.

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