The menace of private equity takeovers of British listed firms has been evident for many years: the collapse of Debenhams, the defenestration of aerospace innovator Cobham and more recently the hollowing out of The Body Shop.
Elsewhere, Morrisons is only now escaping from a three-year decline under debt-fuelled buyout ownership, and Asda is losing market share.
As for the sewage-spewing water companies, they are beyond the pale.
Meanwhile private equity is as active, if not more active than ever.
Away from these shores UBS has just sold a Credit Suisse (CS) loan book to private capital concern Apollo as the Swiss rescuer runs down the investment banking arm of CS.
Concerns: The Bank of England’s Financial Policy Committee has unsheathed some withering criticism of buyouts and is now launching a deeper study
Amid all of this, the rear view specialists on the Bank of England’s Financial Policy Committee (FPC), charged with maintaining stability in the City, have unsheathed some withering criticism of buyouts.
The FPC highlights concerns about the levels of leverage – City-speak for borrowings – transparency and valuations.
Executives working in private equity often argue that being outside the glare of quoted ownership empowers them to take the far-reaching decisions impossible under the pressure of quarterly reporting.
As the recent competition report on private equity ownership of veterinary practices found, it has been enormously detrimental for animal lovers in terms of surging prices and choice.
The Bank’s main worry is that higher borrowing costs have increased risk.
Default rates on private equity have increased. It also cautions that the complexity and connections in the sector – private equity firms often buy and sell to each other – makes it hard to detect where the threat stability sits.
There are precedents for disaster in debt-fuelled deals. The collapse into bankruptcy of Michael Milken’s Drexel Burnham Lambert in 1990 offers a graphic example of how leverage can bring down the house of cards.
Package deal
Fittingly, both bids for British packaging giant DS Smith are paper offerings.
Mondi, a spin-out from mining giant Anglo-American, is offering a deal which values the UK firm at £5.1billion.
The second bidder, International Paper, is putting £5.7billion on the table.
At a time when the world of paper and packaging is consolidating, DS Smith is attractive.
The enthusiasm of chief executive Miles Roberts is infectious and he demonstrated how, with creative thinking, what began as a waste removal business picking up cardboard cartons from supermarkets could be transforming.
Its use of 21st century tech and embrace of climate change enabled it to become a prime supplier to Amazon and other online delivery firms seeking bespoke packaging.
Its strength across Europe (although Brexit made life more difficult) is seen as desirable.
The assumption is that with two bidders in the ring, DS Smith is there for the taking. As was seen at Direct Line and Currys, that is not a given.
In Geoff Drabble, who did a terrific job at global plant hire group Ashtead, Smith has a robust chairman. It also has UK-based funds Aviva, with 5.5 per cent, Columbia Threadneedle and Janus Henderson among top investors who could support a public interest defence.
International Paper is ready to concede a UK headquarters staffed by DS Smith executives and a secondary quote in London if that helps to get it across the finish line.
We should be thankful for small, if unwanted, mercies.
Higher authority
British financial justice is not known for its speed or robustness.
This could be one of the reasons why Autonomy founder Mike Lynch fought so long to have any case against him heard in the UK rather than the US.
Tom Hayes, the first banker to have been convicted of fraud over fixing the Libor interest rate, has been on a ten-year journey to clear his name.
After a three-day hearing the Court of Appeal rejected his application.
Hayes insisted outside court that he is ‘not a quitter’ and one supposes there are higher courts to go to – the Supreme Court in the UK and even European benches – which might take the case.
As the Yankees baseball coach Yogi Berra once noted: ‘It ain’t over till it’s over.’
