United Kingdom

ALEX BRUMMER: Private equity buyout sharks are circling

The closure of the very last Debenhams stores at the weekend, after 240 years of trading, provides vivid testimony to the ravages of unsafe ownership. 

Navigating the choppy retail waters is hard enough with Covid, the challenge of online, business rates and much else. But when solid enterprises are starved of investment by private equity sharks, underlying enterprises don't stand a chance. 

Weak post-Brexit valuations among FTSE350 companies, pusillanimous boards and flaccid commitment by supposed principled long-only investment funds have made London a hunting ground for private equity groups. The pandemic has left unaccountable financiers sitting on around £720billion of cash. No sector of the economy is safe from their attention. 

Victim: The closure of the very last Debenhams stores, after 240 years of trading, provides vivid testimony to the ravages of unsafe ownership

Despite government efforts to create safe space, with the recent passage of the National Security & Investment Act, the bidding is relentless. The future of our aerospace sector has been jeopardised by opportunist private equity deals. Victims include flight refuelling pioneer Cobham, satellite innovator Inmarsat, private jet specialists Signature and GKN Aerospace. 

Melrose's buy, improve and sell model means that the GKN Aerospace arm (like air conditioning company Nortel) will be flogged to the highest bidder when opportunity knocks. Meggitt is the latest UK aerospace firm being eyed up by an overseas bidder. The rash of deals is disrupting supply chains, denuding R&D and allows intellectual property to flow overseas. 

The bout of private equity assaults is so fast and furious it is hard to keep up. Latest to come under fire is the fund administration firm Sanne, which has rejected a £1.35billion initial approach from Cinven. This is par for the course. Boards rarely submit at the first whiff of cordite. Typically, they defend only to raise the offer price and to enrich their own executives.

A proposed deal for Sanne is the latest in Britain's leading edge financial sector. It has witnessed Esure and Royal Victoria bought by Bain, and Royal Sun Alliance gobbled up by smaller overseas insurers. It always comes down to price. 

The world's largest security group, G4S, made a pretence of resisting the attentions of private equity ghouls before falling to a heavily indebted, private equity-backed bid from Allied Universal. As a consequence, UK nuclear facilities and private prisons are now in the hands of foreign owners. 

Britain's pharmaceutical firms have done heroic service in the pandemic. But that did not stop UDG Healthcare, which provides services to the industry, being swallowed by Clayton, Dubilier & Rice in a £2.6billion deal. St Modwen Property has revealed it has received a £1.2billion bid from Blackstone. 

The UK's corporate landscape is littered with the victims of debt-fuelled private equity predators. The objective is rarely honourable. It is to break-up the enterprises and sell them on piece by piece as quickly as possible and make a profit for their super-rich investors. 

The same UK long-fund investors who shout environment, governance and social (ESG) investing from the rooftops consent to unprincipled marauders taking charge of good UK firms with scarcely a bleat. The insouciance in the face of private equity gunfire is unadulterated hypocrisy. 

By leaving private equity and overseas buyers the chance to do their worst behind closed doors they wash their hands of responsibility.

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