Here’s a game you might have considering playing with yesterday’s Sunday papers. Count the number of times the two words private and equity appear next to each other. Come to think of it, don’t bother, such is the frequency of their use, that the game gets very tedious within a few minutes.
Private equity is in the limelight; from the TUC to just about every economics and business commentator, it’s become the central talking point. And with the latest rumours connecting the US private equity groups Kohlberg Kravis Roberts Co and Texas Pacific Group with the buy-out of Texas energy giant TXU for $32 billon, it seems likely to stay in the full glare of publicity for some time.
But TXU is simply the most spectacular name yet to full under the spotlight of private equity. In the UK, the rumour mill has suggested that Sainsbury’s could fall under the hammer soon, while yesterday the Sundays were quick to spill the beans on talk that New Look is likely to be subject to a Â£2 billion bid.
But, while the rumours and the astonishing pace at which businesses are joining the private equity club have guaranteed high press attention, the secrecy in which the sector immerses itself is like a red flag to news and scandal hungry media hounds.
As John Waples in the Sunday Times pointed out, the industry now controls businesses employing one third of the UK’s work force. To a large extent we don’t know who the private equity companies really are, we certainly don’t know what their bosses earn, and unions fear that asset stripping, which many consider to be private equityâ€™s hallmark, could lead to large-scale job losses.
For its part, the sector has tried to go against its natural instincts, and attempted to go public in its defence. In the UK, Damon Buffini, head of Permira, the largest private equity group in Europe, has attempted to use the tools of public relations to defend his sector’s corner.
And Mr Buffini does, in many ways, cut an impressive figure. This is no man of the old establishment, a child of expensive private schooling. He has fought his way to the powerful and highly paid job he has today from the bottom. If he was American, we would say he exemplifies the American Dream. It’s just that we don’t like too much success in the UK.
Whether private equity represents a threat to the stability of the UK economy, or is the panacea of the country’s future hopes of remaining competitive, seems to depend on your own point of view.
But, what we would say is this: there is a good and a bad side.
The unions and some media are quick to point to the Mr Hyde nature of private equity. And maybe Mr Buffini did his cause no good recently when he described the media focus on the salary levels of the sector’s bosses as a form of financial voyeurism.
There are dangers aplenty in the private equity craze, and not least in the industry’s modus operandi to highly gear the companies it owns.
But equally, private equity offers massive potential benefits to the UK.
In the UK, we love to build people up and then knock them down again. We don’t like it when people are too successful, and love it when they take a knock. This creates an environment that is not favourable to the entrepreneur.
And while the UK boasts notable exceptions, such as Sir Richard Branson, most of our entrepreneurs remain small fry. Then men and women who change the world of business are still predominantly based in the US – although they are frequently not American by birth. Maybe private equity’s Dr Jekyll is that it could provide the means to redress the UK’s failure become a truly entrepreneurial based economy.
For more, read on.
© Investment & Business News 2013