Welcome to the world of private equity, also known as the “billionaires factory,” where already super-rich companies have used low interest rates and considerable financial strength to launch a billion-dollar spending spree this year.
Ordinary mortals got a rare glimpse this week into the money-throwing and highly secretive private equity industry – which buys companies, often uses more debt than stock market investors would tolerate, then puts them back on the stock market or resells them – like the London firm Bridgepoint to the Brought stock exchange.
The float left 166 Bridgepoint employees on a combined profit of £ 2.5 billion. The company’s chairman, William Jackson, sold shares worth £ 7.8 million and held on to a stake worth approximately £ 42 million. Frédéric Pescatori, the head of Bridgepoint in France and Southern Europe, cashed around £ 16.5 million and still had nearly £ 85 million worth of shares. CFO Adam Jones sold £ 4 million but retained £ 22.8 million worth of shares after the stock rose 29% on its debut on Wednesday.
Bridgepoint extended its generosity to well-known people from the city who were persuaded to join the board. Archie Norman, Chairman of Marks & Spencer, has received a fee of £ 1.75 million to become a Senior Independent Director (in addition to his annual fee of £ 200,000 for serving on the Board of Directors). Three other non-executives, including ITV executive Carolyn McCall, also received £ 500,000 to join the board.
Prem Sikka, Professor Emeritus of Accounting at the University of Essex and peer, said, “Fat cats. Marks & Spencer Chairman Archie Norman has received a fee of £ 1.75 million to join the board of directors of private equity firm Bridgepoint. It is time to limit the tax breaks for fat cats. “
Lord Sikka said private equity firms have “devoured Debenhams, Maplins, Toys R Us, Bernard Matthews, nursing homes and more,” adding that high leverage and aggressive tax planning are the most important tools in the industry.
Bridgepoint – best known for previously owning Pret A Manger and now the owner of Burger King UK and arts and crafts supplier Hobbycraft, and a minority stake in the grocery chain Itsu, one of dozens of private individuals under its 23 billion assets under management Equity firms around the world reporting record returns as cheap debt and lockdowns that have forced many companies to seek investment have created the perfect conditions for doing business.
“The great lockdown crisis has overturned many industry forecasts and trends, and has strengthened and accelerated others, including private equity, which has probably never seen a more favorable environment for deals,” said Dominick Mondesir, senior European private capital analyst at Private Equity Research Festes Pitchbook. “Deal activity has taken to unprecedented levels due to a combination of strong leveraged lending markets and an accelerated recovery in the European economy fueled by rising vaccination rates.”
Private equity firms have closed a record 6,298 deals worth $ 513 billion (£ 373 billion) so far this year – most since records began in 1980, according to data provider Refinitiv.
The UK is a particularly fertile hunting ground for US private equity firms as companies in the country are considered cheap due to the depreciation of the pound since the Brexit vote.
Morrisons supermarket, infrastructure firm John Laing, commercial real estate developer St. Modwen, UDG Healthcare and fund manager Sanne have all received private equity offers in recent months.
So far this year, PE firms have announced 124 deals for UK companies (both acquisitions and minority interests) valued at £ 41.5 billion, according to data firm Dealogic.
American firm Blackstone on Thursday reported a nearly doubling in distributable earnings in the second quarter to $ 1.1 billion, bringing its shares up 4.5% to a record market value of $ 131 billion.
Jonathan Gray, Multi-Billionaire President and Chief Operating Officer of Blackstone, said, “If we look at the second quarter, our private equity portfolio saw 98% of our companies grow revenue. We had a default with 2,000 borrowers in our credit area. “
Luke Hildyard, director of the High Pay Center, which promotes pay restraint for executives, said, “There are many examples of private equity firms that are doing very well based on recent economic developments, but it is important to ask if they are Society as a whole will benefit from this gold mine. “
Ludovic Phalippou, professor of finance economics at Oxford University’s Saïd Business School, sparked outrage in the industry when he published a paper accusing private equity chiefs of paying themselves high management fees.
In the paper, titled An Inconvenient Fact: Private Equity Returns & The Billionaire Factory, Phalippou said that private equity chiefs have paid around $ 230 billion in performance fees since 2006, even though, on average, they achieved about the same return as that a simple US stock market tracker.
“This asset transfer from several hundred million pension fund members to a few thousand people who work in private equity could be one of the largest in the history of modern finance,” said Phalippou.
He said the fees ultimately paid by investors in private equity funds such as annuities helped turn 19 more private equity bosses into billionaires since 2005, making the total number of private equity bosses nine Zero fortune increased to 22.
“The private equity industry may need to rethink its business model, cut costs and rethink how performance fees are paid in order to remain sustainable. However, this is likely to produce fewer billionaires, ”Phalippou noted.