Private equity trade body in '£140bn' charm offensive
Thursday 14 February 2008
Private equity-backed companies have contributed £140bn in tax to the UK economy over the past five years, according to a new study commissioned by the industry trade body as part of its charm offensive to bring greater transparency to the market.
The report, commissioned by the British Private Equity and Venture Capital Association, showed that tax contributions totalled £35bn last year. The trade body added: "That's enough to pay for every nurse and police officer in the country."
Michael Snyder, chairman of the policy and resources committee for the City of London, said: "These days, private equity is a significant driver of the UK economy. In the past year, it has been in the political and media spotlight because the sector has grown hugely. The industry is working hard to be more transparent and should be seen as a force for good."
The traditionally secretive private equity companies have been hit by a public and political backlash over the past few years, which increased after household names including the AA and Alliance Boots, were taken private. The unions have slammed the companies as "asset strippers", and expressed concerns over the vast returns and a lack of accountability over job cuts.
Wol Kolade, chairman of the BVCA, said, as the debate over private equity has grown, "too many of the criticisms we have faced are based on fiction". He said this report, the ninth of its kind, is part of the BVCA's attempt to provide transparency in the sector.
Executives from some of the biggest buyout companies were hauled in front of a Treasury Select Committee in July to explain the business and why most only pay 10 per cent tax on multimillion-pound gains.
As a result, the BVCA asked Sir David Walker, the former chairman of Morgan Stanley, to draw up guidelines to provide greater transparency. This led to the creation of a committee to oversee a voluntary code of conduct for the industry, a move seen by some as designed to head off potential government interference. The BVCA announced the appointments to the group on Tuesday.
The private equity representation comes in the form of buyout heavyweights David Blitzer, senior managing director of Blackstone Group, and Robert Easton, managing director at The Carlyle Group. The independent members comprise Jeannie Drake, the retiring deputy general secretary of the Communication Workers Union, and Alan Thomson, group finance director of Smiths Group. The committee will be chaired by Sir Mike Rake, chairman of BT Group. This was designed so independents outnumbered industry members.
Last week, the BVCA also set up a global buyout committee to represent some of the largest private equity companies.
The UK private equity industry has invested more than £70bn in about 25,000 domestic businesses since 1984. The UK is second only to the US in the size of its private equity market and made up 57 per cent of the total European sector investment in 2006.
The BVCA report, released yesterday, estimated private equity-backed companies generated sales of £310bn last year, and exports of £60bn. The research also found in the five years to 2007, the number of people employed worldwide by UK private equity-backed groups grew by an average of 8 per cent per year, compared with 0.4 per cent at FTSE 100 companies. It estimated that companies that have received private equity funding account for around 3 million employees in the UK, about 21 per cent of private sector employees in the country.
With the onset of the credit crunch, the private equity industry has slowed markedly. Speaking at the launch of the report, Mr Easton said: "There is a lot of doom and gloom out there over bigger buyouts. We will struggle to get the multibillion-euro deals done until at least the end of the year."
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