ALEX BRUMMER: Government sits on its hands as a private equity feeding frenzy threatens to tear UK PLC to shreds
There is no escaping the fact that the FTSE 350 has become a happy hunting ground for the private equity barons.
The main explanation for this happening is that London stock prices are cheap – relative to peers – and that private equity is sitting on so much money that almost any buyout looks possible.
The underwhelming bid for supermarket giant Morrisons from Fortress, leapt upon by a spineless board, is a case in point.
London stock prices are cheap relative to peers and private equity is sitting on so much money that almost any buyout looks possible
The deal should have been rejected on price even if a convincing case could be made that the undertakings by Fortress to preserve the integrity of the group as a Northern treasure could be enforced.
Instead of creating an auction and getting the best price the board chose to cave in almost at the first smell of cordite.
Long shareholders in UK companies owe a debt of gratitude to broker Canaccord Genuity.
It has run the numbers on the quoted universe and found there are 177 stocks with a market value below £1.5billion which have a free cash yield of 10 per cent, making them easy prey for private equity.
Even more frightening, it has identified a large and quite frankly alarming list of larger FTSE outfits with values up to £10billion, which could be fodder for the sharks.
It covers the waterfront, from high street firms Dixons and M&S to vital utilities such as British Gas owner Centrica. The names of the vulnerable reach the heart of creative Britain and include ITV and Bloomsbury.
Allowing even a small sample of these firms to fall into private equity hands would be an act of self-harm for post-Brexit Britain.
On these pages earlier this week we explained how the UK’s industrial landscape has been fatally wounded by previous buyouts which have weakened R&D budgets, loaded companies up with debt and dismembered firms such as Cobham without regard to lost technology.
The pendulum has swung too far in favour of private equity buyouts and it is time the authorities acted decisively to look after the interests of all stakeholders.
Business Secretary Kwasi Kwarteng should ensure that the powers gained under the National Security & Investment Act are exercised to the full.
At a time when the Treasury faces huge pressure on the public finances it could pump up receipts by removing the tax breaks for debt and the ‘carried interest’ privileges of private equity. Instead it prefers to turn its guns on tax relief and the triple lock for pensioners.
The Department for Culture should be working hard to ensure that tech and creative talent is not lost to financially driven owners. The sell-off of Channel 4 should not be seen as a green light for open season on broadcasters and production companies.
The Morrisons bid, because of its ramifications for food security, supply chains and consumers, ought to be a huge wake-up call for ministers and Whitehall.
The pendulum on the UK’s open financial system has swung too far in favour of untrammelled asset strippers.
Never, never
The biggest commercial threat to fintech start-ups and the banks always was going to come from Silicon Valley, with its IT skills and vast customer base.
Apple is joining the disrupters, with its ‘buy now, pay later’ service to be backed by Goldman Sachs.
Apple’s incursion has cast a pall over rivals such as Australia’s listed Afterpay and smaller US players such as Zip and Sezzle.
The bigger question is what is it going to mean for Sweden’s Klarna, widely used in the UK by shoppers at Boohoo, Asos and retailers across the globe.
At its latest funding in June, Klarna achieved a huge valuation of £33billion. As first and biggest mover, Klarna might expect to become the darling of the sector.
Apple chief executive Tim Cook might have other ideas.
Wealth of Croesus
The bull market in equities and huge inflows have driven Blackrock’s assets under management in the second quarter up to $9.5trillion (£6.8trillion), or £1.4trillion higher than at the same point last year.
Chief executive Larry Fink hailed the landmark, saying it shows how the voice of the ubiquitous investor resonates ever more deeply with clients across the world.
At the current valuation its funds are worth almost half the annual output of the world’s largest economy, the United States, and three-and-a-half times that of Britain.
Tricky to maintain the personal touch.