Margareta Pagano: Last chance saloon for private-equity cowboys
Comet tale of woe shows that so-called knights on white chargers who help companies have questionable motives, and their time should be up
Margareta Pagano is a former business editor of the Independent on Sunday who now writes columns and business interviews for a range of publications, including the Independent, Independent on Sunday and London Evening Standard.
Sunday 11 November 2012
When money was loose and leverage was king, private-equity firms were the hottest beasts in town. Now that money is tight and the banks don't want to lend – to anyone – is private equity dead?
The industry's financiers who once pretended to be knights on white chargers flying to the rescue of troubled companies have certainly had a bad week. Their armour is slipping away fast, to reveal what most of us always knew – that most of these financiers who called themselves financial engineers were more like cowboys: loading up their targets with huge amounts of debt, helping themselves to bigger and bigger administration fees and then flipping the companies over to new owners a few years down the road.
The latest mask to fall is that worn by Henry Jackson, the United States investment banker whose OpCapita private-equity firm owned Comet, the electrical stores retailer now in the hands of the administrators with 6,500 jobs at risk. It may only be symbolic but there's some justice; across the Atlantic the king of the private-equity industry, Mitt Romney, didn't get the job he wanted at the White House.
Mr Jackson has many questions to answer over his stewardship of Comet. His company, OpCapita, bought the retailer for a nominal £2 last February and promised to keep it for at least 18 months. Comet's former owner, Kesa, even gave OpCapita a £50m "dowry", which was then lent to Comet, for which it paid interest. OpCapita also made £35m available, for which it charged Comet a fee as well as a management fee. Mr Jackson has done it before, paying £1 for the MFI furniture retailer in 2006 and receiving a £130m dowry for the privilege: MFI went on to collapse with £145m of debts.
Mr Jackson is going to keep Triptych, an insurer based in the Caribbean which runs Comet's warranty business and which made £30m profit in 2011 and has up to £50m cash to pay out future warranty premiums. (Here's another question: why do so many people get conned into buying warranties? Modern televisions hardly ever go wrong.)
So, Mr Jackson and his mates are going to walk away from Comet and cream off millions of pounds while thousands of people lose their jobs. It's a scandalous situation and what's worse is that OpCapita will be paid out first as it's a secured lender. If the structure of private equity is questionable, then some of our insolvency laws allowing companies to get away with such practices are equally so.
To be fair, OpCapita's poor management isn't the only reason that Comet collapsed. It's been badly run for decades and has suffered from the flight to buy electrical goods on Amazon et al but some of it could have been rescued. The way this deal was structured makes one wonder if Mr Jackson ever had any intention of investing in the business for the long term.
It's quite simple really. Most private-equity financiers are asset-strippers. As well as MFI, there's a long list of distressed companies who have been destroyed by them; there's Allied Carpets, Yellow Pages, now Hibu, Clinton Cards, Gala Coral and Woolworths.
There are good guys too; like Jon Moulton of Better Capital, who recently added Everest and Jaeger to his portfolio. He tells me the industry is not on its death bed yet but it is changing fast. Volumes are down to the levels of a decade ago; leverage is lower because there's less lending; the takeover market has dried up so exits are longer and returns are lower so lazy institutions are finally looking for new homes for our pensions. Thank goodness for that. Time to put some proper equity, and real managers, back into companies.
Dame Marjorie's exit has 'FT' hacks scurrying to find new backers
Within hours of Dame Marjorie Scardino, right, announcing last month that she is to step down from publisher Pearson, some of the Financial Times's most senior editors were on the phone to the Middle East looking for funds for a buy-out.
I'm told that the journalists were so shocked by Dame Marjorie's imminent departure – and what it might mean for their future – they wanted to find their own backers to bid for the newspaper rather than be at the mercy of a new management.
With Dame Marjorie famously promising she would only sell over "my dead body", they felt secure. But they weren't so sure that the new chief executive, John Fallon, had quite the same loyalty to the Pink'Un even though he keeps saying it's "a valuable" part of Pearson.
If the journalists were so convinced that Dame Marjorie's exit signalled a sale, what are we to make of the latest denial from Pearson? The story first appeared on the financial newswire Bloomberg so it may have been pure mischief-making as Michael Bloomberg has made no secret that he would love to buy the newspaper as would Thomson Reuters.
But there's never smoke without fire; as any hack will tell you. With circulation of around 60,000, advertising revenues falling and online subscriptions getting tougher by the day, the FT looks ripe for takeover; if Pearson can get a £1bn for it, which would be a fantastic premium, it makes sense to sell. Investors and readers would certainly like it.
I'm also told one of the FT's most persistent suitors, who has made serious offers in the past, is Sheikh Mohammed, Dubai's ruler. Maybe he – or a fellow Emirate ruler – will have another go?
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