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Friday Letter: Industry fights back

Raise a glass to Damon Bufini, Permira’s managing partner, who in one radio broadcast and a splash on the front of the FT has done much to explain the business of buyouts.  

Has he done enough? Probably not for the GMB, the UK union, which is now weighing a class action against the AA, a Permira portfolio company, and its staff association. But it was never going to be enough for a union that this week told PEO it would carry on attacking private equity owners if its members were suffering.

Yet we should raise a glass too to the GMB, whose publicity stunts on behalf of its members (so rare is the worker these days that is prepared to forego his wages for an actual strike) against Buffini have given him an opportunity and airtime to make a case.

There was never going to be any gain without pain and if the union noise has been an irritant, it has at least roused the industry to begin making its case more forcefully.

Buffini most assuredly won the radio non-debate (his interview was recorded and the GMB spoke live later in the programme).

He pushed the usual buttons: “We’re in the business of creating strong long-term competitive businesses…that’s in the best interests of all stakeholders, especially employees. In a global economy, there’s no job security unless a business is profitable and sustainable – and that’s what we’re doing.”

While conceding this could mean job cuts: “Sometimes you have to take one step backwards to take two steps forwards.”

But crucially, Buffini did not wheel out industry studies showing an abstract economic benefit, against which union tales of job losses in the real world play so well.

Instead he cited two Permira growth stories – UK retailer New Look, which he said had added a million square feet of extra retail space under the firm’s ownership, and Travelodge, which opened 100 new hotels.

“These are now strong businesses that employ thousands more people,” he said.

As we argued last week: concrete details about real businesses preferably espoused by the managers themselves will do more for the industry than anonymous surveys alone.

It should secure the industry’s case with the policy makers and ensure the union’s discord does not spread contagiously into the tax regime.

But once that battle is won, then the war begins in earnest. How much do Damon Buffini and his team earn?

As one fund of funds manager told PEO recently: the one thing stopping all these guys from floating like Fortress, is they cannot afford to show how truly lucrative this business’s fee structure is. The mega fund managers are heading into uncharted water: up to $300 million a year for the life of the fund.

Investors can earn a discount on the management fee by making repeat purchases with a manager. But perhaps they deserve a lot more than that.