ALEX BRUMMER: Stop the madness of feeding private equity

ALEX BRUMMER: Government is on its hands as a private equity-fuelling frenzy threatens to rip the UK PLC to shreds

There’s no denying that the FTSE 350 has become a happy hunting ground for the private equity barons.

The main explanation for this is that London stock prices are cheap – compared to comparable companies – and that private equity is on so much money that almost any buyout seems possible.

The disappointing bid for supermarket giant Morrisons from Fortress, which has landed a spineless board, is a good example of this.

London stock prices are cheap compared to peers and private equity sits on so much money that almost any buyout seems possible

The deal should have been rejected on price, even if it could be shown conclusively that Fortress’s commitments to preserve the group’s integrity as a northern treasure could be enforced.

Rather than create an auction and get the best price, the board chose to give in almost at the first smell of cordite.

Tall shareholders in UK companies owe a debt of gratitude to broker Canaccord Genuity.

It scoured the numbers of the publicly traded universe and found that there are 177 stocks with a market value of less than £1.5 billion that have a free cash yield of 10 percent, making them easy prey for private equity.

Even more terrifying is that it has identified a large and frankly alarming list of larger FTSE outfits worth up to £10bn, 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 are reaching the heart of creative Britain and include ITV and Bloomsbury.

To drop even a small sample of these companies into private equity hands would be an act of self-harm for post-Brexit Britain.

In these pages earlier this week, we explained how the UK industrial landscape has been fatally damaged by past acquisitions that have weakened R&D budgets, left companies in debt and ripped apart companies like Cobham without regard for lost technology.

The pendulum has swung too far in favor of private equity buyouts and it is time for the authorities to act decisively to represent the interests of all stakeholders.

Company Secretary Kwasi Kwarteng is responsible for ensuring that the powers obtained under the National Security & Investment Act are fully exercised.

At a time when the Treasury is under tremendous pressure on public finances, it could pump revenues by doing away with debt tax breaks and the carried interest privileges of private equity. Instead, it prefers to focus its guns on tax relief and the triple lock for retirees.

The Ministry of Culture should work hard to ensure that technical and creative talent is not lost to financially driven owners. The Channel 4 sale should not be seen as a green light for open season among broadcasters and production companies.

Morrisons’ bid, given the implications for food security, supply chains and consumers, should be a huge wake-up call for ministers and Whitehall.

The pendulum on the UK’s open financial system has swung too far in favor of rampant asset strippers.

Never never

The biggest commercial threat to fintech startups and the banks would always come from Silicon Valley, with its IT skills and huge customer base.

Apple joins the disruptors with its ‘buy now, pay later’ service backed by Goldman Sachs.

Apple’s foray has crippled rivals like Australia-listed Afterpay and smaller US players like Zip and Sezzle.

The bigger question is what it will mean for Sweden’s Klarna, which is widely used in the UK by shoppers at Boohoo, Asos and retailers around the world.

When it was last financed in June, Klarna hit a massive valuation of £33 billion. As the first and largest mover, Klarna can expect to become the industry’s favorite.

Apple CEO Tim Cook may have other ideas.

Wealth of Croesus

The rising stock market and massive inflows pushed Blackrock’s assets under management in the second quarter to $9.5 trillion (£6.8 trillion), or £1.4 trillion higher than at the same point last year.

Chief executive Larry Fink praised the milestone, saying it shows how the voice of the ubiquitous investor is increasingly resonating with clients around the world.

At current valuations, its funds are worth nearly half the annual output of the world’s largest economy, the United States, and three and a half times that of Britain.

Difficult to keep the personal touch.

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