PE Deals of the Year
PAI Partners: Yoplait   Onex: Emergency Medical Services   Apollo: Hughes Communications   Silver Lake: Skype   El Paso   Castle-Harlan: Perkins & Marie Callender's   Midocean: Sbarro   Sun Capital: Friendly Ice Cream   Blackstone et al.: Travelport   Bain: Keystone Automotive  The year in PE bankruptcies  Other notable PE exits

The showy 10-fold gain PAI Partners SAS rang up when it exited French yogurt maker Yoplait SAS after a nine-year run as majority owner made it an easy choice for our Private Equity Deals of the Year. Yet for PAI, a Paris private equity house still recovering from internal strife that erupted during the financial crisis, the deal's importance transcended Yoplait.

As the time nears to raise its next fund, PAI, France's largest independent PE firm, hopes to convince investors that despite the turmoil, it remains on top of its game. Yoplait and other recent profitable exits may help it make that case.

Key dealmakers in Yoplait also played central roles in the shakeup at PAI two years ago.

In 2009, as PAI's relations with lenders and investors frayed badly, Lionel Zinsou, who joined the firm in 2008, led a mutiny that toppled PAI's No. 1 and No. 2 partners, Dominique Mégret and Bertrand Meunier, and took the reins as PAI's president.

In 2002, when he was a Rothschild banker, Zinsou had advised Sodiaal International, a cooperative of French dairy farmers that owned Yoplait, on its sale of 51% of Yoplait to PAI. Meunier had led those negotiations for PAI, assisted by Frédéric Stévenin, a younger partner.

The deal valued Yoplait at €300 million, worth $265 million at the time. PAI injected about €75 million of equity.

Stévenin, who assumed oversight of Yoplait from Meunier in the mid-2000s, says the deal began as a "pure turnaround" that morphed into a growth play. Except for Yoplait's famed brand, "basically everything was wrong" about the company when PAI bought in, he says. The world's second biggest yogurt seller behind Danone, Yoplait had obsolete plants plagued by overcapacity. Worse, meager marketing and a deterioration in product quality had cost it market share.

"They hadn't advertised on air in years," says Stévenin. "Customers had [caught on] to the fact that the quality versus other brands was not sufficient."

PAI brought in a new management team, headed by former Danone marketing chief Lucien Fa. The company shut some factories and spent heavily to expand and modernize the others while upgrading product quality. The marketing budget soared from about 2% of sales to more than 10%, Stévenin says.

"That was stage one" of the makeover, the banker says. "Stage two was more international."

Starting in 2007, PAI tightened its grip on its foreign franchisees. It bought up and assimilated money-losing franchises in the U.K., Portugal, the Czech Republic and Scandinavia. In 2010 it acquired Les Produits de Marque Liberté Inc., a Canadian producer of Greek-style yogurt.

"We focused on building the international brand back to its former strength so it could compete with Danone," Sté­veni­n says.

Although it didn't catch Danone, Yoplait thrived mightily under PAI. Ebitda soared from around €45 million in 2002 to about €160 million in the 2011 fiscal year. Systemwide sales jumped from €2 billion to more than €4 billion.

In early 2011 PAI launched an auction of its 51% stake, won by General Mills Inc. PAI pocketed upward of €825 million in the sale, 11 times its outlay.

Stévenin says PAI benefited from having rechanneled Yoplait's cash flows into operations and debt reduction, rather than siphoning cash to itself. In its stint as owner, PAI never took a dividend. Debt was less than €100 million when PAI cashed out.

"The company is highly cash generative, and we invested significant amounts in our plants and our franchisees. Doing so paid off in strong profit growth," Stévenin says.

Yoplait wasn't PAI's only big recent realization. It returned more than €3.5 billion to investors in 2010 and 2011, cashing out of a string of deals.

Whether those exits and a flurry of recent investments serve to placate investors who'd sided with Mégret and Meunier won't be known until PAI hits the market with a new fund and investors can vote with their pocketbooks.