It would be a serious mistake to move private capital abroad, says ALEX BRUMMER

The private equity train in Britain is still chugging along. The latest to be threatened is gaming group Keywords Studios, creator of Fortnite and League of Legends, which is set to be bought by Swedish firm EQT for £2.2bn.

The highly leveraged deal for Royal Mail owner International Distribution Services is, to all intents and purposes, a private equity deal, except that the buyers are Czech billionaire Daniel Kretinisky and Slovakian investment banking partners J&T.

There are reasons to oppose both deals. The new ownership of Palabras Clave could allow it to access new capital, which British asset managers are slow to provide.

However, the ultimate goal of private equity is to sell its profits as quickly as possible and collect.

No one knows where the intellectual property and ownership of the company will end up. The financing model for the purchase of Royal Mail is destabilising and the transaction cannot be in the public interest.

The track record of private equity in the UK is mixed. Some acquisitions (such as Debenhams, Southern Cross care homes and, most recently, Asda) have been destructive for the underlying businesses.

Others, such as Pets at Home, Worldpay and Formula 1, are huge successes.

As far as the British financial sector is concerned, private equity is a resounding success.

Unsurprisingly, the Labour Party sees the wealth it generates as a potential source of revenue to fund bigger government.

It is galling to see private equity barons amassing enormous wealth and benefiting from a quirk of the tax system.

When companies are sold, owners benefit from the “carried interest” – the profit generated by the disposals.

These gains carry a top capital gains tax rate of 24 percent, well below the 45 percent for additional-rate income tax payers.

The UK is a magnet for private equity firms. Some of the world’s largest, such as CVC, Permira, Cinven and Apax, have their main offices in the UK.

American groups, including the original KKR ‘Barbarians at the Gate’, have chosen London as their European and global headquarters.

Low stock valuations in London have made the UK a happy hunting ground.

The number of private equity partners receiving “profit sharing” is around 2,550 a year, says law firm Macfarlanes.

But the importance of the industry to financial and business services is enormous. Much of the bank financing for operations is done through the London branches of foreign and British banks.

Major American law firms have set up shop here, some of them very demanding, and there are also negotiators from investment banks and boutique firms who propose deals and collect huge fees.

There is also an army of other advisers, from PR gurus to accounting firms and consultants, who feed off the structure.

The City has survived and thrived since Brexit because it has a scale that does not exist in other European markets.

Some people may not like the agreements, but forcing companies to move to Italy or elsewhere through poorly targeted taxes would be a profound mistake.

Body-building

Activists can also be a positive force. They arguably made a difference at Aviva, GSK and Unilever, by setting the pace of change rather than the direction.

Smith & Nephew may get less attention than the big pharmaceutical companies, but it is a vital part of UK healthcare.

Establishing leadership stability has been an issue with the board and shareholders in a perennial battle over executive compensation.

With President Rupert Soames, we have a big beast in charge.

He should be able to fend off any attempts by Swedish activist Cevian to persuade him to leave his home in the UK since 1856 and head for New York.

Pay the snub

One reason executives find Wall Street attractive is to escape pesky governance experts and pay caps.

But it is not a completely free situation.

This week, Marc Benioff, chief executive of Salesforce, a San Francisco-based company valued at £200bn, took a beating when investors voted against his £35m pay deal.

America’s streets aren’t always paved with gold.