BDO: Private equity ‘rescues’ UK businesses

Private equity firms in the UK have recently filled a gap of investment in local companies left from strategic buyers that are conserving capital.

UK-based private equity firms that previously have been criticised for “stripping assets” have recently “come to the rescue” of local companies, according to accountancy and advisory house BDO.

“Within the UK, struggling private companies require investment across a range of asset classes,” partner at BDO Peter Hemington told Private Equity International. “Increasingly, merger or takeover activity is forming the solution.”

Private businesses in the UK, however, are increasingly conserving capital rather than pursuing acquisitions, Hemington added, while banks “are being discerning about what they are prepared to lend against due to limited capital.”

This shortage of capital for investment in distressed companies is contrasted by UK-based private equity firms that have recently “rescued” a number of local companies struggling under the weight of their own debt, according to BDO.

Terra Firma Capital Partners on Monday paid £825 million (€1 billion; $1.3 billion) for Four Seasons Health Care, the UK’s largest care home provider following the collapse of Southern Cross last year. The equity component of the deal is understood to be around £300 million, with about £525 million of new debt arranged by Goldman Sachs and Barclays. The deal represents Terra Firma’s largest investment since it lost control of iconic music publisher EMI last year.

“The former ‘Barbarians at the Gate’ have now become ‘White Knights’,” Hemington said. “This has been particularly prevalent in the retail industry where high street names have been rescued from the brink over recent weeks.”

Last month, Better Capital, the turnaround firm led by Jon Moulton acquired a 90 percent stake in UK fashion retailer Jaeger, as well as all of the company’s secured debt, for a total of £19.5 million.

“The brand name” was the reason for the investment, Moulton told Private Equity International. “It’s a company with history and with impact,” he added.

While the 96 UK-based private equity acquisitions during the first quarter of 2012 represents only a modest increase compared to the average of 87 buyouts per quarter during 2012, BDO is expecting “rescues by the private equity industry to continue…into the next quarter.”