An Own-Goal For Private Equity?
Elements of the Labour Party have been doing their damnedest to push back and defeat the onward march of private equity funds buying up UK companies, but one man may have struck the greatest blow. Step forward Lord Sainsbury of Turville, the former science minister whose eleventh hour intervention in defence of his family firm appears to have been decisive.
The Sainsbury clan controls just 18% of the company shares – not enough to derail the bidding consortium led by CVC. But Lord Sainsbury’s refusal to countenance any offer lower than £6 a share has garnered support from other shareholders and, like so many rats abandoning ship, the consortium has baled out, leaving the CVC to fight on alone.
It’s never over till it’s over, but it’s hard to see how CVC can successfully steer the ship into harbour by the agreed deadline.
David Sainsbury should be ashamed of himself. In determining the fate of the £11bn offer, he denied investors and employees the proceeds of a buyout. As a source in the CVC camp sums up, “the Sainsbury’s board is happy, but they cannot persuade His Stiffness”.
This bid promised to open a debate about the role of private equity in British business; it has wound up re-igniting a discussion about the place of founding families.
It would require a heroic extrapolation of the figures to argue against the bid on valuation grounds. By almost any traditional ratio, the latest 572p/share offer looks generous. But Lord Sainsbury’s view is that, after a decade in the wilderness, the company is setting out on a long haul back to former glory, so why cash out now?
Sainsbury’s is not in need of surgery… there is no problem that needs a private equity solution. In misjudging the situation so badly, four of the biggest names in private equity have scored an almighty own-goal. The shock of seeing a band of unknown financiers take aim at one of Britain’s best-loved brands was the trigger for intense public scrutiny, opening the eyes of British companies to private equity’s methods.
The question most likely to be raised in the future is “what can they do, that we can’t?” with the upshot that exploiting undervalued companies will become much harder.
Private equity has done everyone a service – the financial market is much better informed about what is at stake. But this ill-fated bid may turn out to be the high-water mark for leveraged buyouts in Britain.