Magazine article The Spectator

High-Street Icons Are Safe in Private Hands

Magazine article The Spectator

High-Street Icons Are Safe in Private Hands

Article excerpt

Those who fear that privateequity bidders, if they secure control, will destroy national icons such as Boots and Sainsbury's, might consider that J. Sainsbury fared pretty well as a private company for 104 years before it floated on the London Stock Exchange in 1973.

Family control with its paternalistic overtones may appear different from highly incentivised professional management backed by private equity, but in both cases the people at the top are motivated by the same goal. To make money for the company is to make money for themselves.

Private ownership enables managers to get on with this task without interference from the battalions of busybodies who besiege public companies.

In recent weeks the 'spectre' of privateequity takeovers has loomed over a growing number of FTSE-100 names including BT and ICI and even mighty Unilever, as well as Boots and Sainsbury's. Trade unions have taken up arms; 'asset-stripping' has re-entered the vocabulary in a way not heard since Lords Hanson and White provoked such ire -- as well as investor joy -- in the 1980s by snapping up totemic companies such as London Brick and Imperial Tobacco. The Hanson duo's activities inspired a band of followers -- among them the acquisitive Williams Holdings, built up by Brian McGowan and one Nigel Rudd, now Sir Nigel and chairman of AllianceBoots. True, private-equity firms offer honey hugs rather than bear hugs to their target companies, because they need a close look at their books before they bid. Even so they can stir up a good deal of unrest.

As in the 1980s, there is a general unease that a rapacious force for corporate evil is stalking the land. Hysteria has been whipped up mainly by the GMB trade union which, as private-equity-owned companies now employ a fifth of the British workforce, is only doing its job. The union blithely ignores, however, that these companies also create one eighth of British exports and pay £25 billion a year in taxes.

The fuss has prompted Damon Buffini, managing partner of Europe's biggest private-equity group, Permira, to go public about his meritocratic rise from a singleparent childhood on a council estate in the Midlands to become one of the most successful businessmen du jour. Belatedly, he has decided his industry needs to be a little less publicity-shy. To this end the British Venture Capital Association has formed a working party to look into ways of improving disclosure.

Shed no tears for Mr Buffini despite the unpleasant personal attacks he has endured.

Making oodles of money -- about £100 million in his case -- in the relative secrecy that private-equity companies enjoy was bound to create a storm as the deals got bigger and the targets closer to our hearts. Established private-equity groups such as the publicly quoted Candover and 3i have to abide by listed-company rules of disclosure, but newer ones prefer to reveal as little as possible -- except their own arrogance. 'We don't need to talk to the press because once we have bought a company it is none of their business, ' one senior executive told me.

Yet most of the arguments around private equity miss the point -- which is that there are bargains to be had on the London stock market and other markets around the world. Buyers of whatever ilk rarely come sniffing without reason. The current level of activity tells us that equity markets are undervaluing many household-name companies that have ceased to need quoted paper for expansion. …

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