DEBATE: Are overseas private equity bids good news for the UK?
Morrisons has accepted a £7bn bid from US private equity firm Clayton Dubilier & Rice. The fierce competition from US investors to buy the British supermarket giant has prompted concerns over what an injection of foreign money would mean for the high street stalwart. Ewan MacKinnon and Fraser Thorne take on the debate:
Ewan MacKinnon, Partner at Maven Capital Partners, says YES
Approaches to buy Morrisons by US private equity firms have revived concerns that UK businesses will be run for quick cash rather than using them to invest in the long-term. These fears hark back to a few high-profle examples of private equity mismanagement. These are exceptions rather than the rule
US private equity has enjoyed several notable successes with high-street names in the UK. Majestic Wine, for instance, has gone from risking closure to supporting more than 1,000 jobs in just two years, while B&M has enjoyed years of growth since being bought by US private equity in 2012. More generally, investment interest from private equity, from the UK or overseas, is an encouraging sign for the future of the economy, which continues to grow in confidence following the success of the vaccine rollout.
There are also numerous examples of US private equity investing successfully in small growth companies which are playing a critical role in driving the economic recovery, but which do not attract media attention because they are not household names. Many private equity houses now prioritise supporting tech-enabled, environmentally-conscious businesses that will help to shape a more sustainable economy, encouraging strong ESG principles in support of job creation and economic growth.
Fraser Thorne, CEO and Founder of Edison Group, says NO
The raid on corporate Britain somewhat subsided during the pandemic, but as many businesses emerge from the last 18 months, damaged and in need of funding, overseas firms are circling to take advantage of stricken public companies, with bids for British businesses at their highest since 2007.
While the injection of funding into troubled UK businesses can be seen as a positive and a sign of natural development, we have often seen cash-rich private equity firms buy up businesses, undertake large corporate restructuring, strip the assets, and overburden companies with debt, before jumping ship. This leaves the business in a worse condition than before the private equity firm took ownership, with employees and the taxpayer left to pick up what is left.
The most notable businesses under threat now are Morrison’s and the defence company Ultra Electronics. As two British stalwarts, a damaging takeover would harm communities and employees throughout the UK. Ensuring businesses are kept in the hands of those who want to promote growth and deliver suitable returns for stakeholders will be crucial to Britain’s economic recovery following the pandemic. And those private equity firms that are intending to take over these businesses will need to demonstrate long lasting commitment to all stakeholders.