UK public company executives recognise many of the key benefits of private equity ownership – yet the majority are unwilling to give up the kudos and autonomy of life in the public markets, according to a new report.
It is not that these executives have a rose-tinted view of life in the public markets. Ninety percent felt that regulation and red tape in the public markets had worsened in the last few years, while 64 percent believed that public scrutiny over issues like remuneration and corporate governance had also increased in recent years. Responses also suggested that executives felt they would be better remunerated under private ownership.
Self-preservation may be another motivating factor behind the distrust of private equity – for some executives, it could be a case of “better the devil you know”. Grainger said: “The world of private equity is unchartered water for them, and who’s to say there wouldn’t be even more third party interference under private ownership?”
He believes that despite the constraints of the public markets, FTSE 350 executives still believe they are capable of running their companies without external help. “Despite many respondents feeling they can’t achieve what they need to in the public markets, they’re still happy to stay public. They think they have the expertise and tenacity to do so.”
More than a third of respondents thought publicly owned companies were better equipped to take a long-term view, a perception that Grainger believes is incorrect. “For private equity groups, lack of public scrutiny means they can adopt longer-term strategies. For FTSE 350 directors to think otherwise means they’re either in denial or that private equity isn’t clearly spelling out the advantages of private ownership.”
Grainger said the increase in public-to-private deals was being driven by the decline in secondary deals. “Secondaries were the big thing a year to eighteen months ago, but the volume of churn in portfolios was so significant that the average portfolio company is now too young to sell. Give them another year to mature a bit and I expect secondaries to start coming back in.”
One thing seems beyond question, however. Respondents had no doubt that the recent glut of public-to-private deals would continue, with 95 percent suggesting the current volume will continue or even escalate.
So whether these chief executives like it or not, they are bound to find themselves in the firing line before too long – particularly if they do not take steps to protect their companies against this private equity interest by increasing their gearing.