Friday Letter: We're a public company – get us out of here

Ah, the beauty of private equity. Acres of column space have been filled with analysis of the allure of corporate life away from the obsessive short-termism of the public markets.  

Senior managers of listed companies lament their shareholders’ insistence on immediate performance when the business plan they are trying to implement is going to take years – they say – to yield results. Regulatory hassle is only adding to these CEOs’ frustration, and as they compare their lot with that of peers at the helm of privately owned businesses, many heads at PLCs are clearly struggling to see much upside in their current situation.

Take Richard Lapthorne, chairman of UK telecom Cable and Wireless. Comments attributed to him in UK newspapers this week made it sound as though he really couldn’t wait for the company to be put out of its public market misery by way of an LBO. “I don’t know for a fact but it is almost a certainty that people are doing their numbers on us,” he was quoted as saying in the Financial Times on Wednesday. Those people were of course financial buyers. And in case anyone missed where his affections lay, Lapthorne went on to say: “I think the market complains about private equity buyers when they only have themselves to blame.”

C&W is underperforming against forecast, and shareholders have been told that it will take until 2009 to evidence the planned recovery. Judging by the share price, which dropped by 35 pence from 142 pence after a trading update in October and has only partially recovered since, investors aren’t tickled at the prospect.

That is hardly surprising: a four-year game plan really does require the sort of patience that many public market investors find difficult to muster. Needless to say that from a private equity point of view, C&W’s timeframe looks very different: it’s the kind of schedule they would expect for the task at hand.

Whether or not Lapthorne is right in saying that his company is on private equity firms’ shopping lists is a moot point. But his comments highlight an important trend: financial buyers used to be viewed skeptically, in part because of their need to exit investments after just a few years. Today, ironically, their time horizon often seems as long-term as outlooks come in modern-day market economies. Public investors live by quarterly, and make their minds up on annual, results it seems.

This is one of the main reasons why private equity has grown so dramatically in recent years. Even a decade ago, the notion of FTSE 100 companies longing for a break from the nasty, brutish and unforgiving stock markets in the comparatively cozy world of private equity would have struck many as unlikely. Nowadays, this is exactly where many senior people inside FTSE 100 companies want to be – and if a public-to-private of their group just isn’t on, they may well decide that it is time for a move into a privately owned entity instead.

Good thinking, say the private equity investors. For their industry, managerial aspirations could hardly be evolving in a more encouraging way. Given this fundamental shift, it is difficult to see how private equity could fail to hold on to its current level of influence.

As for public market investors angsting about LBO shops acquiring assets off them cheaply only to sell them back at a big premium a few years later: perhaps they should think about how to appropriate some of the principles that have made private equity the happy place that it is at the moment.