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UNI’s Philip Jennings has called for more transparency in the operations of increasingly ambitious private equity groups and tougher regulations to protect against de-stabilising company collapses. He was speaking in a BBC World Service radio debate on the rise and rise of private equity buyouts that have captured a $38bn office management company in the US and are now looking to buy a £10bn supermarket chain in the UK.

“What bothers us is the sheer scale of the deals done,” Philip told listeners to the BBC’s World Business Review. “This is not just about personal fortunes, this is about a series of investors who have serious money to buy any publicly quoted company any time, anywhere, any place.”

He accused some private equity groups of squeezing too much value out of companies they buy in a short time scale and of creating “a pressure cooker to deliver - and too often employees are in the front line”.

Heavily leveraged buyouts (with borrowed money) often put a great burden on victim companies, along with heavy fee charges from the private equity buyer. “We think that a spectacular collapse is inevitable,” said Philip.

He called for:

• Greater disclosure about company performance, including about investors, debt and fee burdens on bought out companies and rewards to top managers.
  
• Regulators should strengthen the robustness of their systems to ensure long-term financial stability.
  
• An examination of the ethics involved in management buyouts - “We have to look at the whole role of whether we should ban management buyouts. We have a manager in the box seat telling one thing to his shareholders and another to private equity and he ends up in some chateau in the Home Counties (the rich south east of England).”
  
• Closer examination of the exposure of pensions funds, which help provide the cash to private equity funds that finances the buyouts.
  

In the radio debate the head of Alchemy Partners, , John Moulton accepted the criticism of some funds and some buyouts.

“There are deals being done that make good sense for the companies, good sense for the economy and good sense for employees. There are deals being done where there is a level of risk and there are deals being done that are frankly dodgy in every respect.”

He said his fund worked on a 5 to 7 year time scale of buying a company, restructuring it and, eventually, selling it on.

“The idea that the company (bought) has to work hard is sometimes good, sometimes bad - you can overdo it. You can wreck things by pushing them too hard.”

He conceded that the ratio of debt to the profits in buyouts is higher now than 20 years ago and some funds don’t just stop at high debt and take out quick dividends too leaving the company with equity. “These are headless chickens, companies with no equity left in them - they are dangerous animals.”

Europe’s biggest PE fund Permira recently agreed to meet affiliate GMB to discuss the union’s concerns about the growing role of private equity buyouts that now employ two million workers in the UK and where private equity buyouts reached $2.8bn last year.



http://www.bbc.co.uk/worldservice/programmes/world_business_review.shtml