Fury over plan to bail out firms owned by private equity giants
MINISTERS are facing a backlash over plans to bail out troubled companies owned by cash-rich private equity firms.
Many high street chains are owned by private equity firms, which snap up businesses and attempt to sell them on a few years later for a profit.
But some of these businesses, such as Pizza Express, Legolandowner Merlin and restaurant chain Prezzo, have been battered by the coronavirus pandemic, which left them with little or no income for months during lockdown.
In the face of huge job losses, the Department for Business, Energy and Industrial Strategy (BEIS) wants to extend taxpayer-backed aid schemes to these companies in order to prevent any possible collapses.
But the plans have been met with hostility by politicians and campaigners, who object to millions of pounds of public money being used to bail out companies whose owners are already flush with cash.
Labour MP Margaret Hodge said: ‘Of course saving jobs is important, but these deep-pocketed private equity firms have large cash reserves they should use to save the businesses they own rather than turning to the taxpayer.
‘If they want to avoid an unemployment crisis the Government should extend the furlough scheme rather than bail out wealthy private equity firms.’
Around 14,000 jobs could be on the brink at Debenhams, which is still suffering from the effects of three years of private equity ownership that ended in 2006.
The struggling department store is now owned by hedge funds, which have called in advisers to draw up liquidation plans as a last resort in case other options for saving it fall through.
Several private equity-owned businesses have already gone bust this year. Furniture company Harveys collapsed in June, after less than a year of ownership under Alteri Investors, and administrators immediately cut 240 jobs.
Private equity firms are funded by mega-rich investors such as sovereign wealth funds, pension funds and wealthy families.
These investors usually accept the higher risk associated with private equity, in return for potentially blockbuster returns.
Over recent years they have been piling cash into private equity funds, which are now sitting on a record £1.8trillion of unspent cash, according to data provider Preqin. The partners who work for the private equity firms, and invest the money, are often wealthy too, as they will share in any profits they make.
Yet many of the companies they own are currently not eligible to receive emergency coronavirus loans from the Government because they make heavy losses.
Often this is deliberate – even when a company’s sales are booming, private equity firms will pile on debt to reduce the business’s profitability and lower its tax bill.
Private equity barons have now fallen foul of EU rules on state aid, which prevent countries from handing government support to companies that make big losses.
BEIS, working with the Treasury, is hoping to find a way around these rules, to allow private equity-backed companies to secure cheap government loans.
A Treasury spokesman said: ‘We are continuing to explore whether more can be done to support these businesses within the parameters of EU state aid rules.’