Boom that threatens bust
What is the thread which links Debenhams to Foxtons, Saga, Pizza Express and the aa? all of these stock market dogs have spent time under private equity control.
the great argument for this form of ownership is that it allows managers the freedom to make ruthless decisions and to invest without the scrutiny of the public markets. and to be fair to private equity owners, not all of its charges are rotten.
the UK fintech group Worldpay became a global leader under private equity tenure and last month was sold on to US financial buyer Fidelity National for £27bn.
Private equity behemoth Blackstone, excoriated for its flawed ownership of care homes group Southern Cross, claims to be a corporate saviour and revived luxury brand Versace.
What is inescapable is the surge in private equity in the decade since the financial crisis. the supply of cheap money led to a boom in private equity and some £3.9trillion of funds are now held in the industry.
Growth has slowed since the US central bank, the Federal Reserve, started to normalise interest rates raising america’s key rate to 2.5pc last year. that rise is a ticking time bomb for private equity investment because it dramatically changed the cost of hanging on to assets.
Exit routes also have been blocked. In some cases, such as toys R Us (controlled by KKR and Bain Capital), the owners decided enough was enough and pulled the plug. In Britain private equity has been the main source of initial public offerings and it has been ugly.
Debenhams has fallen into the hands of banks after past ownership by texas Pacific Group, CVC and Merrill Lynch. More recently we have seen the shares of Permira-backed Saga fall off a cliff. Other private equity fiascos include the estate agents Foxtons, off 72pc, the aa, down 66pc, and Premier african Minerals, which has sunk a mighty 96pc. Pets at home might have been thought a sure winner. But the stock is now almost half the offer price.
this ghastly record, which includes several fast food chains such as Byron, ought to be a huge warning to investors tempted to buy into private equity offers.
as unfortunate, for any one of us who has been tempted to buy these dud stocks, is the far more significant implication for financial stability. the promise of enhanced returns has led many pension and investment funds to divert cash from quoted markets into private equity.
Blackstone, KKR and the rest are stuck with assets no one wants to buy and swimming with cash which is hard to spend.
It is one of those booms which looks oddson to end very badly.
Wrong discount
YOU would think that after the beating taken by housebuilder Persimmon over the obscene (even after it was reduced) £75m bonus to departed boss Jeff Fairburn, the sector would have learned to be absolutely scrupulous in the way it rewards bosses.
the disclosure that taylor Wimpey chief executive Peter Redfern is planning to take advantage of a complex discount worth at least £100,000 on a £2.5m luxury apartment in central London is another giant embarrassment.
When Redfern was asked about the Persimmon bonus scandal he told the Evening Standard: ‘You start from “what do I believe is the right thing to do?”’
Redfern’s taking advantage of a scheme designed to help employees lower down the ladder to get a toehold in the market is precisely the wrong thing to do.
What makes it even more toxic is that he was one of Britain’s highest-paid executives earning £3.2m in 2018 and is on course for even more this year.
Investors must block this shameful exploitation of an in-house discount scheme by an overpaid panjandrum.
Energy shock
PRESIDENT trump has tossed a hand grenade into the energy market with his decision to end sanctions waivers, which allow eight countries including China to buy Iranian oil. Saudi arabia and other producers are being asked to fill the gap.
the result is a shock jump in the oil price by 2.6pc to $73.87 a barrel, its highest level this year.
that will act as a ‘tax’ on every motorist and business in Britain.