Members of the UK Parliament’s Treasury Select Committee, the government body currently scrutinising the private equity industry, would do well to bear in mind some of the industry’s successes in their own backyard.
In its first session, the Committee’s focus was directed by MP Angela Eagle on the 821 potential job losses at Burton’s, a Duke Street Capital-owned biscuit maker in her Wallasey constituency.
However, some of Eagle’s fellow MPs will have seen the benefits of private equity at close quarters. Birmingham MP Sion Simon may recall LDV, a Midlands-based commercial van business, which was only days away from collapse in December 2005 when Sun European Partners put together a reported £45 million rescue package for the 800-person company. It then spent seven months turning it around, bringing in a new chief executive, launching new vehicles and doubling year-on-year sales before selling it on to Russian group Gaz. The deal was even acclaimed by Tony Woodley of the Transport and General Workers Union, a long-time private equity critic.
Equally, Leeds MP George Mudie will no doubt be aware of Paramount Hotels, a Leeds-headquartered four star hotel chain. Jon Moulton’s Alchemy Partners bought the business in 1998, investing £27 million of equity in the original £77 million deal. Over the next six years, Alchemy invested a further £50 million, allowing the chain to add a further 11 hotels to its portfolio across the UK and boost profits to £22 million, on revenues of £67 million.
Jim Cousins, Labour MP for Newcastle-upon-Tyne is bound to be familiar with European heating group Caradon Plumbing, for which Warburg Pincus paid rival Montagu Private Equity £227 million ($430 million; €334 million) in 2005. At the time, a spokesman for the firm told PEO that Warburg Pincus had been attracted to the company by the combination of a strong and committed management team, a proven track record, and a favourable position in the UK boiler market due to the current shift towards high efficiency products. The firm planned to keep the existing management team in place, and hoped to benefit from the ongoing consolidation of the sector.
The same sector is also proving to be a strong growth story not far from the home turf of Mark Todd, Labour MP for South Derbyshire. In 2004 BC Partners bought Derby-based Baxi Group, a heating product manufacturer, from a consortium led by Candover, with Electra rolling over its investment. At the time Baxi Group chief executive Mark Edwards said: “I would also pay tribute to our previous shareholders, especially Candover, Kidde and NIB Capital who have supported us from the time of the original Newmond buyout in 1996. We now look forward to a new and exciting period of growth for Baxi.”
According to Electra’s investment trust website, Baxi continued to make good progress in the year ended December 2005 and reported sales of £769 million up from £709 million the year before. It faced tougher trading in 2006 in the UK, but made good progress elsewhere.
NB. Deal locations as classified by the Centre for Management Buyout Research
(Additional reporting by James Taylor)