Pandemic dilemma: does private equity deserve a bailout?
“Survival has become the sole focus of many British businesses,” said the Financial Times. Among them are household names – such as restaurant chain Pizza Express and Legoland – snapped up by private equity funds during a “decade-long spending spree in sectors such as hospitality, travel and retail”. But some of these now-troubled acquisitions have been unable to tap state-backed emergency loans because “high levels of debt” mean they fall foul of EU state-aid rules. Eyeballing the disastrous potential loss of “tens of thousands of jobs”, the Government is now considering bailouts.
That spells conflict, said Edward Hadas on Breakingviews. Rescuing a bunch of “highly leveraged companies owned by buyout barons” was always going to be controversial, given the model’s exploitation of tax loopholes. It seems doubly “perverse” now that the hard-hit British taxpayer is facing a vast recovery bill. Still, this is no time for sermons. “Protecting jobs is the right priority” in a crisis. “The authorities have had decades to fix PE flaws. The best they can do for now is to limit profiteering.”
New figures drive home what a grip private equity has on finance now, said The Daily Telegraph. While City floats have “plunged” to an 11-year low in 2020, private financing has flourished, with companies raising some £27.5bn through 80 fundraisings – indicative of a “long-term shift”. PE firms globally now have a record $2.5trn in “dry powder” waiting to be invested: and yet they’re queuing up for state aid? Virgin Atlantic boss Richard Branson and others sent away with empty bowls “must be grinding their teeth”, said Jonathan Ford in the FT. “Realpolitik” is one thing. “But ministers should remember there’s a political cost to cutting deals seen to favour private equity. It isn’t just Branson who is watching. Taxpayers are too.”