PracticeConsultingThe business of the future: private affairs

The business of the future: private affairs

Tomorrow’s Company’s tenth birthday party was a good one

One individual remembered was Dick Onians – a venture capitalist of rare
imagination. He raised money from those with private wealth and invested it in
fledgling technology businesses to create and grow those with a big future.

But gradually conversation progressed to a different style of investment.
Private equity deals are getting bigger. Any quoted company, whatever its size,
is becoming a target. Just look at Blackstone’s £19.7bn buyout of Equity Office
Properties. Depending on who they are and what they are buying, these private
equity groups offer a package that lies somewhere between turnaround,
re-engineering, managing for cash and asset stripping.

Private equity experts tell me not to worry. It will only get a return if the
underlying business proposition is sound. People running businesses on sound
principles have nothing to fear. Private equity brings to bear an important
discipline: the need for an exit concentrates the minds of managers.

I certainly celebrate the richness of capitalism – the creative destruction
that goes with investment and the ultimate test of the market as the judge of
your contribution.

But have we got the balance right? This concern was aired by Sir Stuart
Hampson, retiring chairman of John Lewis, in a recent piece in the FT: ‘The
private equity funds have undoubtedly shown how money can be released and
companies can be restructured, but large question marks still hang over whether
such restructuring is a recipe for long-term survival.’

The first thing we need from the private equity industry is transparency. Let
them say what interest they have in the underlying business for which they are
bidding. What is their typical timetable? Do they intend to behave like owners?
How does a private equity company with a finite ownership horizon see its
contribution to climate change? Is it factoring carbon efficiency into the slide
rule that it runs over its targets?

Which brings us back to reporting. Exempting private companies from the
requirements of the OFR was always illogical. Whatever its shortcomings, the EU
business review makes no such distinction. What we need to know from each
private equity firm is not just how it will make money but how it sees the
world: then I have faith that, in time, the market will give it its appropriate
value.

Mark Goyder is director of Tomorrow’s Company

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