Private equity has been rampaging through Britain’s listed companies for too long. So it is refreshing this week to see elements of resistance.
The reluctant decision of NHS and healthcare property provider Assura to throw in its lot with direct competitor Primary Health Properties was a victory for shareholder power, given an earlier decision by the board to opt for a deal with KKR.
In the lower reaches of the London market, Tritax Big Box and Warehouse Reit opted to merge in preference to the latter throwing in its lot with Blackstone.
The default position for many directors, faced with a private equity offer and good premium, is to take the money and run.
Senior executives march off with wodges of cash in the shape of salary and pensions. Options, which otherwise would take several years to mature, are immediately vested.
There is also a drumbeat of advice from investment bankers and City lawyers suggesting that to turn down deals would be a breach of fiduciary duty.
Fools gold: There are too few examples of British firms taking the private equity shilling coming back to the public market in durable shape
The reality is that many transactions should never have happened. The premium to market share prices has been inadequate given the discount at which many stocks sell on the London exchange.
If there were not a perceived shortfall in values the exodus to New York and decisions to seek initial public offerings across the Atlantic would be less frequent.
Nowhere has Britain been more sold short than in defence. Ever since the Berlin Wall came down in 1989, governments have been reaping a peace dividend.
Military budgets have been slashed, and this has had a material impact on prospects for Britain’s engineering and defence contractors.
Larger beasts such as BAE Systems and Rolls-Royce have been shielded by their scale of operations, sensitivity to national security, and the Government’s golden share.
It has been the second layer of firms, key players in global supply chains, which has been targeted.
Consequently, pioneering companies including flight refueller Cobham, submarine sonar firm Ultra Electronics, Meggitt, and several others were swallowed at premiums which must now appear bargains.
These deals were done when UK defence and security spending was barely more than 2 per cent or so.
The Government already has pencilled in a 2.5 per cent of GDP defence spending target, with a goal of 3 per cent. Nato has gone further with a 5 per cent aspiration.
That represents a huge lift in prospects for defence and aerospace stocks, which for many years were investment outcasts because of politically correct antipathy to arms spending.
Firms sold off for depressed prices would be soaring in value if the titans of industry, such as Sir Nigel Rudd at Meggitt, had shown greater resistance.
Sell-out boards did a poor job for shareholders, weakened the UK’s military supply chain, research and development, innovation, and defence of the realm.
The loss of proprietary technology, supported by R&D tax breaks and coming out of state-funded universities, is shameful. Poppy Gustafsson offloaded cyber-
security developer Darktrace to the private equity firm Thoma Bravo. Now she is a Treasury minister who is seeking to encourage investment.
Shares in submarine specialist Babcock have rocketed 129 per cent this year, making it the best performer in the FTSE 100.
It demonstrates what might have been. The latest jump in the stock followed an upbeat result for the latest 12 months, with revenues up by 11 per cent to £4.8billion, a jump in operating profits, and 30 per cent lift in the dividend.
There are too few examples of British companies taking the private equity shilling coming back to the public market in durable shape.
Payments group Worldpay is among the successes, but quickly decamped to New York in a merger and is now out of sight after a succession of deals.
Pets at Home returned to the stockmarket, but Britain’s devoted animal owners must put up with unnecessarily inflated prices.
Private equity has burrowed its way deeply into the foundations of almost every sector of Britain’s economy, damaging jobs, innovation and London as a centre for share trading.
At last, this week, shareholders and boards demonstrated that there are other choices of ownership, command and control.
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