Comment: From ridicule to huge rewards, Roscos roll on

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The Independent Online
Perhaps the City and everyone else interested in the business of leasing should have taken more notice of the golden rule of privatisation, which is that the Government nearly always knocks these things out on the cheap, aided and abetted by an opposition that invariably talks down the price. The effect was multiplied in the case of rail privatisation for it took place against the background of a looming general election. Speed became a greater priority than price.

Nevertheless, Andrew Jukes, smug and rich though he now is, has a very good point when he complains that there was nobody else to buy Eversholt in 1995 when the rail leasing companies were being sold by the Government. If nobody else was able to see the real value of the Roscos, or take on the risk of buying them, that was their lookout.

The process was widely ridiculed in the summer and autumn of 1995 when the three Roscos were being sold. A lot of this came from the Labour Party, some of it from the press - though not these pages - and quite a bit of it too from the venture capitalists, who will always talk a price down if they can.

Even apparent experts took the view that the three companies, with their ancient rolling stock, would be lucky to fetch pounds 1bn between them; a number of the biggest names in leasing including NatWest looked and decided not to bother. As apparently did Forward Trust, the present buyer, which must have been circulated by Hambros with early details of the sale. It declined to bid and is now paying a very full price to buy second-hand.

The low number of first-time bidders and the fact that so many were management buyouts rather than big players in the leasing industry was interpreted as confirming that this was a privatisation that could be safely ignored. Even the Government was pleasantly surprised when Hambros pulled in as much as pounds 1.8bn for the three companies.

The real issue, and the one that has produced such rich rewards for the individuals concerned, is not in any case so much the underpricing of the company itself but the way the buyout was structured. In the little- known world of venture capital, it is routine to build a whole financial structure on a tiny amount of "sweet equity" - a description that must refer to the way the money sticks to the fingers of those who own it. In the Eversholt case, a mere pounds 2.5m invested at the outset in ordinary shares was able to lay claim to the whole profit.

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