How private equity barons wrought havoc in British buy-ups

Ten deals to make your blood boil: Care homes in crisis, defence firms stripped, and even vet bills sent soaring. How the private equity barons wrought havoc in British buy-ups

From care homes to high street shops, the steel industry and even vital defence firms, no corner of British business is safe from private equity raiders.

While the rest of the country has been battling the threat of Covid-19, buyout barons have been having a field day.

They have picked off household names at bargain prices and piled yet more money into their bulging coffers. This month alone, private equity predators have targeted four FTSE 250 firms in a £7billion assault.

The targets include property firm St Modwen and infrastructure group John Laing. Even before the pandemic, corporate Britain was littered with the corpses of once-proud companies that ended up as hollow husks after stints in private equity hands. The virus proved the last straw for some big names, including Debenhams.

The deals and the dangers they bring for jobs and the economy, have largely gone unnoticed.

There are examples of success but plenty of takeovers have gone horribly awry. Here are ten deals to make your blood boil:

 BRITISH STEEL: COLLAPSE OF FLAGSHIP MANUFACTURER

The collapse of British Steel in 2019 cost taxpayers nearly £600million and resulted in the flagship UK manufacturer falling into Chinese hands.

It came after three years of ownership by private equity firm Greybull Capital ended in disaster. It bought British Steel from India’s Tata Steel in 2016 for a token sum of £1. The buyout barons promised to invest and revive the brand, but were criticised for extracting millions of pounds of ‘management fees’.

Greybull blamed the liquidation on a drop in exports after Brexit and a slump in the pound.

The collapse of British Steel in 2019 cost taxpayers nearly £600million and resulted in the flagship UK manufacturer falling into Chinese hands (file image)

DEBENHAMS: HIGH ST JOB LOSSES

Tens of thousands of jobs have been lost in store chains, restaurants and pubs that have been in private equity ownership – and there is no more damning example than Debenhams.

The former jewel of the high street boasted a proud history stretching all the way back to 1778 before it collapsed this year with the loss of 12,000 jobs. Experts have pointed to the years the firm spent in private equity ownership as the root of its troubles. As well as losing their jobs, staff have been left nursing cuts of 10 per cent to their retirement pots.

Debenhams was taken over in a £1.9billion deal in 2003. TPG, CVC Capital and Merrill Lynch all made huge returns, despite owning the firm for less than three years, pocketing £1.2billion in dividends.

Debenhams was taken over in a £1.9billion deal in 2003. TPG, CVC Capital and Merrill Lynch all made huge returns, despite owning the firm for less than three years, pocketing £1.2billion in dividends

MONARCH AIRLINES: HARD LANDING

Greybull, set up by brothers Nathaniel and Marc Meyohas, bought Monarch Airlines in 2014, only for the carrier to collapse three years later.

This triggered 1,900 job losses and a huge national effort to repatriate 110,000 holidaymakers left stranded abroad, at an estimated cost to the taxpayer of £41million.

Greybull ploughed £125million into Monarch when it bought its majority stake in 2014, and invested more cash two years later. 

When the airline went bust it was still handed £70million from the sell-off of assets.

Greybull, set up by brothers Nathaniel and Marc Meyohas, bought Monarch Airlines in 2014, only for the carrier to collapse three years later (file image) 

THE AA: DEBT PILE-UP

The roadside recovery and driving school relied upon by millions of Britons has just lurched back into private equity ownership after a previous stint put it on the road to ruinous debt.

In 2004, the AA was bought by private equity firms CVC and Permira. They immediately set about slashing jobs. It returned to the stock market in 2014, valued at £1.4billion, but saddled with £3billion of borrowings.

At risk of defaulting on its debts it had to accept a bid last year from private equity firms, Towerbrook Capital and Warburg Pincus. This valued the business at just £218million, a huge loss of value over 16 years.

The roadside recovery and driving school relied upon by millions of Britons has just lurched back into private equity ownership after a previous stint put it on the road to ruinous debt (file image) 

McCARTHY & STONE: RETIREMENT FLATS SQUEEZE

Retirement home builder McCarthy & Stone has been taken over by a private equity buyer, US-based Lone Star, in a £630million deal.

But critics have misgivings over whether private equity is a suitable form of ownership for such a sensitive sector because of its debt-heavy, short-term business model. 

They say the interests of older homebuyers should be paramount, not profits. 

This is the second stint in private equity ownership for McCarthy & Stone, the first left it with huge debts that were an albatross during the financial crisis.

Baroness Altmann, a former pensions minister, warned that deals laden with debt had led to poor value for homebuyers.

Retirement home builder McCarthy & Stone has been taken over by a private equity buyer, US-based Lone Star, in a £630million deal

SOUTHERN CROSS: CARE HOME COLLAPSE

Care homes should be sanctuaries for our elderly but they have also been a hunting ground for private equity. 

That includes US giant Blackstone, which made £600million in just a couple of years from its ownership of the Southern Cross chain and a sister property business.

Founded in 1996, Southern Cross had been taken over by the private equity arm of German bank West LB before being bought by Blackstone in a £162million deal in 2004. 

The chain floated on the stock market in 2006, allowing Blackstone to make a lucrative exit. Southern Cross struggled following the credit crisis and collapsed in 2012, creating huge uncertainty for 31,000 residents.

Blackstone insisted the firm had been in good order when it sold. Many former Southern Cross homes are now owned by another private equity-backed group.

Founded in 1996, Southern Cross had been taken over by the private equity arm of German bank West LB before being bought by Blackstone in a £162million deal in 2004 (file image)

LV: MUTUAL VALUES LOST

For 178 years, LV prided itself on being a mutual, owned by and run in the interests of members, and not those of City or Wall Street investors.

But that proud heritage is in jeopardy as a result of a £530million takeover bid by American private equity giant Bain Capital.

If successful, Bain could ditch LV’s mutual values that have served policyholders well for nearly two centuries. Private equity’s single-minded focus on profit is at odds with the culture at LV, which was known as Liverpool Victoria and set up in 1843 to help the poor of that city pay for burials.

Even today, LV devotes itself to providing good value policies for ordinary families. The prospect of private equity ownership has prompted concerns from MPs and campaigners.

They fear that Bain will not be a long-term steward of the company and that the premiums charged on policies may rise and service standards fall. LV members will get a chance to vote on the deal, which will also need approval from regulators.

For 178 years, LV prided itself on being a mutual, owned by and run in the interests of members, and not those of City or Wall Street investors

SILENTNIGHT: STAFF BETRAYED

The US private equity group that owns mattress maker Silentnight has been forced to pay £25million into its retirement fund by watchdogs.

It was accused of trying to slough off its responsibilities to pensioners at the formerly family-owned firm.

HIG Capital handed over the money after a long-running battle with the Pensions Regulator, which said it had deliberately engineered ‘the unnecessary insolvency’ of Silentnight.

That enabled HIG to buy the British firm in 2011 cheaply, and without having to shoulder any obligations to its retirement scheme, which had a £100million shortfall. 

But the £25million payout is insufficient and 1,200 staff and pensioners will see cuts to their retirement pots.

Nicola Parish, an executive director at the regulator, described HIG’s behaviour as ‘unacceptable’ and added that ‘it was vital we acted, in part as a deterrent against this type of behaviour in future’.

HIG disputed the case and did not admit liability.

The US private equity group that owns mattress maker Silentnight has been forced to pay £25million into its retirement fund by watchdogs (pictured: Myleene Klass celebrating Silentnight’s 60th anniversary, 2006)

COBHAM: DEFENCE FIRM DISMANTLED BY US RAIDER

Founded in 1934, the Dorset-based business makes crucial components used in Airbus planes, F-35 fighter jets and spacecraft. Yet despite its national strategic importance, it was sold off to US private equity for £4billion last year.

Advent International promised to be a long-term investor in the pioneering aerospace and defence company. 

But it is already selling off chunks of the business including the jewel in the crown, its air-to-air refuelling business, which was flogged off to an American buyer, Eaton Corporation, for £2billion. 

Critics say this raises national security concerns if jobs and factories go abroad.

Advent insists that it is investing in research and development and that staff headcounts globally are rising.

Advent insists that it is investing in research and development and that staff headcounts globally are rising

VETS: SOARING BILLS FOR POORLY PETS

If you have wondered why vet bills have spiralled upwards in recent years, one reason, critics say, is private equity.

More than half of practices in the UK are now controlled by just six companies – three of which are private equity owned – according to the Royal College of Veterinary Surgeons.

Official figures show that from 2015 to 2020, the price of vet and other pet services rocketed by 17 per cent – compared with a 9 per cent rise in inflation. The average cost of an MRI for dogs and cats has risen to £2,500 – 31 per cent up on 2018.

That compares with just £440 for the average cost of a human scan, according to Nuffield Health.

The worry is that private equity firms will aim to squeeze more money out of pet owners, exploiting their devotion to their animal companions.

One firm, Inflexion, that owns hundreds of practices described them as ‘cash-generating units’ in company accounts, which is not a phrase that will warm the hearts of animal lovers.

And another, IVC, owned by Swedish private equity giant EQT, has gone on a debt-funded shopping spree, snapping up hundreds of small and independent vets.

The firm now operates almost 1,000 sites in the UK. When it takes over a vet, back-office work is outsourced to a central office and tough financial targets are set. IVC says it provides the ‘highest quality care’ in a ‘very competitive market’.

More than half of practices in the UK are now controlled by just six companies – three of which are private equity owned – according to the Royal College of Veterinary Surgeons (file image)

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