Doubts cast over chances of first FTSE100 buyout

Doubts have been cast over the chances that 2006 will see the first private
equity buyout of a FTSE100 company, after two batches of research indicated that
private equity players were not enjoying the bumper pay outs of previous years.

Research firm Private Equity Intelligence estimated that the sector will
raise $280bn (£159.5bn) in funds this year, which combined with debt will
provide firms with an $850bn war chest.

Struggling pest controller Rentokil Initial, caterer Compass and gaming giant
Ladbrokes have already been identified as potential targets.

Research by the Centre for Management Buy-Out Research and Standard &
Poor’s, however, may have cooled market enthusiasm for deals of this size.

The CMBOR found that, in deals worth more than £100m, ‘higher gearing is very
strongly associated with lower returns’ – a major concern for an industry that
typically funds at least two-thirds of its deals with debt in order to deliver
higher profits.

Standard & Poor’s, meanwhile, warned that banking covenant breaches in
European leveraged buyouts were on the increase, posing a risk to the private
equity sector.

The credit rating agency analysed 19 highly geared transactions that had
experienced covenant problems, and found that almost 50% required some form of
waiver, or had to reset their covenants within two years of financing. Over a
third of the deals required covenant action less than one year into the

‘With higher opening leverage, and weaker trading resulting in slower
deleveraging, the flow of refinancing structured to return cash to shareholders
would seem likely to slow,’ said S&P analyst Marc Lewis.


paid £674m in taxes to the government in 2005. The company, which
announced the highest-ever profits earned in the UK last week, paid twice as
much in tax as it had done the previous year. Soaring oil and gas prices saw
Shell gain profits of $22.94bn (£13.12bn) this year. Rises in the cost of crude
oil were a big factor, as the price per barrel increased from $45 to $70.

Anglo-Dutch consumer products group Unilever releases its
results for 2005 today. Investors will be keeping an eye out for further news on
the impact of IFRS on the company’s accounts. Analysts have been concerned for
some time that the new standards have made the group’s figures more complicated
and difficult to interpret.

Smith & Nephew’s FD of 15 years, Peter Hooley, will step
down this year, the company said last week. Adrian Hennah, currently CFO at
Invensys, will replace him in June, but Invensys has not yet lined up a
replacement for its CFO. Smith & Nephew’s group chief executive Chris
O’Donnell said: ‘Hooley’s wise counsel and deep understanding of the business
have played a major part in growing Smith & Nephew into a worldwide leader
in the medical devices sector.’

The finance director of struggling telecom operator Cable &
, Charles Herlinger, could step down at the end of this month,
following the company’s second profit warning in three months and growing
concerns about the group’s financial controls. Cable & Wireless announced
that previously undisclosed non-recurring items of £70m would make up half its
earnings for the year to March. Some forecasts anticipated earnings to be twice
as much as they may now turn out to be.

Former British Airways chief Bob Ayling has been shortlisted to
become non-executive chairman of troubled music label Sanctuary Group. Ayling is
said to havebeen interviewed, and is on a shortlist of two or three. Sanctuary
is on the brink of raising £110m through an equity financing led by Evolution
Securities after suffering a serious loss of capital, and has had a £35m debt
with the Bank of Scotland cancelled.

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