Monday, February 19, 2007

Private equity

There has been much press recently about the private equity sector as the GMB has been lobbying Gordon Brown to prevent private equity companies from being able to offset the interest charges on loans they take out to buy companies, against tax. The GMB objects to the corporate ethics of the sector which buys badly managed companies, sells off the unprofitable assets, very often causing redundancies, improves the remaining business and returns the profits to its shareholders. The union believes that this creates unnecessary unemployment and distress and that the Government should do more to protect workers' rights by making such deals more expensive and therefore less attractive to the private equity companies. Jon Moulton, Managing Partner of Alchemy, thinks that the level of debt in the private equity sector is worryingly high. Banks are eager to lend to them, looking at the forecasts of improved cashflow and apparently easy repayment of the loans. However, in an environment of rising interest rates, not only does the cost of capital rise but the slower economy may mean that cashflow forecasts are too optimistic so there is a double squeeze. The GMB has been conducting a personal vendetta against the Managing Partner of Permira, Damon Buffini, an alumnus of my old college at Cambridge, and they sent a camel to his local church. I'm trying to find out if they sent a needle as well.


Anonymous Anonymous said...

Well, hello again. I was about to post a stinging rebuke of your fascination with the benefits of the 'Private Equity' company over 'Public Ownership'. Or even the 'Public Limited Company. And don't even get me started over that anomaly the 'Limited Liability Partnership.

And how you are clearly using your privileged Cambridge background and obvious prejudice that your chums are running such Private Equity Companies must mean that they are a 'good thing'. And your obvious 'irrational hatred' of anything related to unions, even though they have helped to advance the cause of the average working person in this country. No problem, I thought.

Let me just surf around on Guardian Unlimited - I'll soon show her a few 'home truths'. But what is this. The first article is one by those well-known rapacious evil mongers the 'Wellcome Trust'. And they think 'Private Equity' is a 'good thing' because, for all its faults, it has helped their charity to achieve better returns for its 'good causes' than might have been the case if their 'tax treatment' had been fiddled about with..Hmm..,,2016405,00.html

This might be harder than I thought. Ah, this next article is more promising 'How big tax breaks enrich Private Equity'.,,2015382,00.html

Although that doesn't seem to outlaw Private Equity 'per se', just that the tax benefits here, as opposed to Germany, may need reviewing.

Aha, now this next one seems a bit more juicy. 'Private equity targets social housing' - great ! Rapacious capitalists decending 'vulture-like' on the poorest and most vulnerable in society...

Sugar !! It refers to Apollo being 'already owned by LDC, the private equity arm of Lloyds Bank [sic]'. Curses !! I have a wodge of shares in LTSB and they are doing this..

But what is this at the end of the article..

"A spokeswoman for the GMB union said that there was 'no objection in principle' to private equity involvement in the public sector, 'but that any investor would need to take into account the long-term interests of people who are dependent on the state'." Hmm...

No objection in principle, eh ??

This is trickier than I thought..,,2015370,00.html

Righty-ho, we now have an article that refers to private equity funds as 'robbers and plunderers' - now we are on much safer ground !!

Ah, the first part of the article is not that important because the CBI director general is defending them - we don't need to bother reading that.. Disappointingly the unions don't seem to have passed comment, and the 'robbers' quote is not attributed. So we must fall back on a comment by Chris Gibson-Smith, chair of the London Stock Exchange.

"He said he had told the Treasury its policy of allowing free inward investment was "90% correct". But he said there were "real issues" about losing headquarters in the UK as a result of foreign takeovers.",,2013168,00.html

Hmmm..So there is more to this debate than meets the eye. I can't help thinking that there does need to be some 'oversight' of such companies, and that letting them off many of the boundaries, checks and balances which plc's have may be dangerous and counterproductive.

And going down the route of 'free for all' takeovers like KKR on RJR/Nabisco is to be avoided. But as I have discovered, being anti-capitalist isn't quite as easy as I thought.. But that is just as well, since it keeps me out of mischief.

Gotta dash - PM with Eddie Mair has started - with a bit of luck that agent of global capitalism 'kinglear' will be along soon to put me in my place..

5:11 pm  
Blogger kinglear said...

Unfortunately, if the businesses remain uneconomic and inefficient, they will end up on the scrap heap with ALL the workers out of a job. Rover is a classic example. Although we can't be sure , Alchemy's bid might have saved about half of the workforce - and I would back John Moulton to make anything work. As it was, the government backed Phoenix 4 bid destroyed the whole company and all the jobs.
I am reminded of the British welly boot industry, at one time employing something like 100,000 in the UK. In the late 60s and early 70s, imports from Korea, Japan, etc started undercutting the home businesses. One of the manufacturers took his shop stewards to see the production lines in Hong Kong, in an effort to show him that the demands for ever increasing pay and benefits could not be sustained. His answer? " We wouldn't allow our members to work for these sums of money" OK, but the workers making the boots then were paid about double the average wage in their country, and it was well below the UK. But if more mechanisation and better marketing had been allowed, there might now be rather more than the odd few making wellies in Dumfries. And that's been bust twice.

11:15 pm  
Anonymous Anonymous said...

kinglear - i must say i found your tales of derring-do with glasgow city council very amusing. i would suggest that to top that you could try dealing with bristol city council.

their levels of incompetence and bureaucracy would challenge even the folks at glasgow. unless of course you wanted to put a concrete jungle on one of their parks and were able to bribe the planning department, in which case they may suddenly become far more amenable.

A classic seventies 'closed-shop' operation.

And talking of wellies, I notice that there is a nice picture of 'Wife in the North' on her site in a pair of 'Hunters'. Never been a fan of them myself, as they are too closely associated with the 'green welly brigade'. Although 'wifey's are black - and it does make me wonder why girls spend so much money on their funky 'Manolo Blahnik's.

Being a country lad it was important to be able to judge the prospects of a young lassie in her 'working togs' [inc. wellies] as if one waited until Friday night at the pub, one might have lost out to someone who had 'struck while the iron was hot'..

Or maybe the 'Whisperer' has the best of both worlds, and owns a pair of 'designer wellies' ??

Now there's a thought !..

10:18 am  
Blogger kinglear said...

Anonymous - whoever you are - thank you for calling me an agent of global capitalism. I hhave always believed a benign dictatorship gave the best of all possible worlds, until the present government which, unfortunately, is NOT benign.
Anyway, just as a side line, Guido has a nice piece about Ronnie Cohen and Brown - I wouldn't hold your breath for very much to happen to hedge funds

12:00 pm  
Blogger kinglear said...

And by the way, anonymous, I much prefer dealing with corrupt bodies. It is so much easier when things have a price and it is all out in the open. And after all, at the end of the day, the punter pays whatever happens.
( Actually, the most succesful business men have always been regarded as " honest" in their time. It's how you define "honest" that makes the difference!)

12:04 pm  
Anonymous Anonymous said...

kinglear - yes, take a look at the post under 'Rob Roy' [thanks for your enlightenment on that, btw] which refers to that book, and the fact that under the 'feudal' system the 'Lord' had a duty to his tenants, to keep them fed, and to defend the land in times of war. I must admit one of the biggest eye-openers for me was in listening to 'Today In Parliament' as an aid to getting off to sleep.

The House of Lords actually is far more sensible than the House of Commons, since they don't have to worry about getting voted back in.

One only has to look at the antics in these hideous 'reality shows' to see what happens when you try to please the lowest common denominator. And as the books' author says, it actually has some advantages because the Lords can't be bribed [well, that may not be the case after the recent Blairite shenanigans].

I was thinking, KingLear, that we should maybe have a whip-round to try and get our delightful host into the House of Lords ?? Though as the latest post indicates, she is moving in such rarefied circles, she may not need our assistance !

All the best

2:59 pm  
Anonymous Anonymous said...

kinglear - you might enjoy the book 'Freakonomics'. To be honest it is a little 'dumbed-down', but more of a 'light read' for late evening with a glass of port/brandy. It covers the point you make about 'dealing with corrupt' entities quite well.

From getting people to pay extra if they are late picking up their kid from the nursery [can backfire, as parents are excused the guilt], to an analysis of 'honesty boxes' to pay for 'fresh bagel delivery'.

On the point about 'benign dictators', to be honest, if Prince William gets to the top job anytime soon, we could get abolish that lot in Westminster and save ourselves a lot of dosh. Surprisingly us Welsh would be all in favour, as London doesn't help all that much, and at least Wills would be sympathetic to a land of farmers and rugby players - not sure what the Scots view would be ??

3:39 pm  
Anonymous Anonymous said...

You may well have heard Damon Buffini being interviewed by Robert Peston, but if not - well worth a listen.

9:54 pm  
Anonymous Anonymous said...

Peston has a good follow up to his interview in his blog, and raises some important questions. Although having heard Justin King this morning on 'Today' what really scares me is that a guy who is at least willing to engage with his suppliers, the farmers, [albeit not to the same extent as Waitrose] may well get booted out by some 'bottom feeders' who know the 'price of everything and the value of nothing'. Probably with new staff headhunted from the evil Tescopoly.

Let's hope Justin beats them off - even if it is by getting into bed with Stuart Rose, so to speak..

12:43 pm  

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