Barbarians Besieged

The Mail on Sunday (London, England), September 23, 2007 | Go to article overview

Barbarians Besieged


Byline: HELIA EBRAHIMI

Gordon Gekko, the infamous investment bankerinthe Eighties blockbuster film Wall Street, declared: 'I am not a destroyer ofcompanies. I am a liberator of them.' Twenty years on, it is private equitythat is being forced to defend itself after a year of public and politicalcriticism, and now the fallout from the credit crunch, which is threatening todry up its source of funding.

The industry, once derided as 'barbarians at the gate' is hitting back with acharm offensive aimed at combating its aloof image, plus a new strategy to windeals in tougher markets.

Earlier this year, private equity found itself under attack. It was accused ofbeing secretive and unaccountable, it was blamed for destroying businesses,cutting jobs and selling off the prize assets of companies, while creating afew obscenely wealthy individuals.

It spilled over this summer into the political arena when several major playersin the sector were hauledbefore the Treasury Select Committee to defend their industry.

But private equity was quick to fight back. It pointed out that some of itsbiggest investors are pensionfunds,whoreceive returns far higher than the stock market can offer; it has spearheadeda boom in the British economy; employs 19 per cent of the UK's private sectorworkforce; and has transformed moribund businesses.

In fact, though a staggering 13,319 private equity-backed deals have beencompleted in the UK since 1985, the industry kept a low profile - until now.

The growing appetite for high-profile multibillion pound deals, including FTSE100 companies suchas Alliance Boots, has turned the spotlight on the sector.

And despite current market turbulence, 2007 is already a record year forprivate equity-backed buyouts, with a whop ping [pounds sterling]23.4 billion worth of deals inthe first half alone.

However, just as these deals have hit the headlines, the fuel of its success -cheap debt - seems to have all but dried up.

Jacques Callaghan, managing director of leading advisory firm Hawkpoint, saysthe current uncertainty in the debt marketshasmadeprivate equity firms put on hold a number of disposals of their portfoliocompanies.

'It has also reduced potential new deal flow for them,' he says.

Tom Lamb, co-head at Barclays Private Equity, says: 'Given what is happening inthe market, there's a pause in activity. It's human nature to wait.' Whilethere may be a pause, the world of private equity is still awash with ideasand, more important, record levels of investors' cash.

About [pounds sterling]75 billion has been raised globally in the past year, with a fewsuper-funds securing the lion's share. That cash needs to be spent on deals andsome players think the present situation could throw up new opportunities. …

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