With widespread criticism still coming private equity's way, limited partners are getting more involved in the debate. In May, George Anson, a managing director of HarbourVest Partners, urged private equity groups to “stand up and be counted” or risk constraint by regulators and legislators.
Speaking at Private Equity International's 2007 European Investor Relations Forum in London, Anson said the conditions for financial markets were almost perfect, but for every investor pleased at the industry's success there was also envy.
He said the debate with trade unions in the UK and the US was triggered in part by excessive displays of wealth causing them to flex their muscles on behalf of their workers. Anson said: “The unions have come out publicly in recent months voicing their unease, and questioning the logic of employee pension funds investing in the very same groups that are putting their jobs at risk.”
The industry has to do a better job of explaining itself not only to its investors, but to the public at large, he said: “The private equity industry needs to be much more mindful of the impact their decisions will make to the broader community, and the political capital they will lose if they ignore this constituency.”
However, Anson said: “One of the biggest concerns over-arching all this is that with the massive fund economics and leverage at the disposal of the fund manager, the managers don't even have to be half-right in their investment decisions to become incredibly wealthy personally.”
As an investor, Anson has concerns that some of today's deals are being done at “eye-watering multiples, often above public market comparables”. He said the equity component was continuing to decrease, as credit markets are falling over themselves to lend to these very large transactions. This has increased both leverage levels and anxiety, Anson said.
According to Standard & Poors, the average leverage multiple on larger deals is 9.4 times EBITDA (earnings before interest and tax, depreciation and amortization) up from 7.0 times just three years ago. Commented Anson: “Of course the wise old sages in the business will tell you that this is still a long ways off from the days when 6 cents of equity was all that was required, but the trend and risk is still clear. Businesses have less and less room to manoeuvre if their trading suffers a downturn.”
DUKE STREET FOUNDER SELLS UP
Edmund Truell, co-founder of London-based Duke Street Capital, has sold a large part of his 30 percent stake in the mid-market firm. Truell will use the proceeds to finance the company that he recently founded, Pension Insurance Corporation, which insures pension schemes at buyout firms. The company aims to insure £20 billion (€29 billion, $40 billion) of assets. Pension schemes have become a substantial challenge in big buyouts – as illustrated in the failed CVC bid for Sainsbury's. Truell cofounded Duke Street, which has £2 billion under management, in 1988.
EUROPEAN CAPITAL OPENS IN FRANKFURT
American Capital Strategies affiliate European Capital has opened in Frankfurt and hired Robert von Finckenstein to head the office. Von Finckenstein was previously managing director and co-head of DAM Advisors in London. Before that, he was a director of global loan products in Dresdner Kleinwort Wasserstein's acquisition finance team in Frankfurt. Ira Wagner, president of European Capital, said: “We believe that [von Finckenstein's] considerable knowledge of the German market will enable European Capital to expand its pan European mezzanine activities significantly as we build relationships with both German private equity firms and directly with German companies.” Founded in 2005, European Capital has invested €1.6 billion ($2.2 billion) in 45 companies to date out of its existing offices in London and Paris.
TRAVERS SMITH PROMOTES PRIVATE EQUITY SPECIALIST
Ian Shawyer has become a private equity partner at UK law firm Travers Smith. Shawyer has been at the firm since he began training to be a lawyer in 1996. Travers Smith, which has a private equity and a corporate finance team, has made eight other internal promotions. The firm's private equity team is led by Charles Barter and was established in 1996. The firm recently advised UK mid-market investor ECI Partners on the sale of Nuaire, a manufacturer of ventilation systems, to rival firm Electra Partners.
GREEK GROUP EYES €5BN
The investment arm of Marfin, a Greek bank, is attempting to raise over €5 billion ($6.7 billion) for private equity investments in South-East Europe. Marfin Investment Group plans to raise the money via a rights issue to existing shareholders, with any unsubscribed shares sold through a private placement conducted by Deutsche Bank and Merrill Lynch. Trading is expected to begin in mid-July. Marfin plans to put the capital to work in Greece, Turkey, Hungary and surrounding countries as far north as Russia. Chief executive Dennis Malamatinas, a former chief executive of Burger King, said the group would target three large deals, about ten medium-sized transactions and several smaller deals. Malamatinas is an advisor to buyout
LION CAPITAL HIRES NEW PARTNER
UK mid-market firm Lion Capital has recruited Mary Minnick from Coca-Cola – shortly after The Carlyle Group poached the company's COO Patrick Siewert for its Asia team. Minnick worked at Coca-Cola for 23 years, and was most recently the company's executive vice president and president of marketing, strategy and innovation. Founded in 2005, Lion Capital has invested more than €2.5 billion in private equity assets. The firm recently sold Jimmy Choo to TowerBrook Capital Partners for £185 million (€270 million; $366 million), generating a return of 2.25 times its initial investment in November 2004.
CQS POACHES VETERAN BUYOUT FUNDRAISER
UK hedge fund CQS has hired Chris Cooker from Lehman Brothers' private equity business to head its investor relations activities. Cooke was previously a director at Goldman Sachs and London-listed private equity trust Electra. CQS, which stands for Convertible and Quantitative Strategies, was founded in 1999 by Michael Hintze and has offices in London and Hong Kong.
PRIVATE EQUITY FOUNDATION HIRES CEO
The Private Equity Foundation, the industry's recently launched charitable initiative, has hired Shaks Ghosh as CEO. Ghosh, the former head of UK homelessness charity Crisis, is a respected figure in the UK charity sector. She has also worked at the London Housing Federation and the National Housing Federation. The Private Equity Foundation, which has so far raised more than £5 million (€7.3 million, $9.9 million), has signed up more than 70 firms. Its board of trustees includes David Blitzer from The Blackstone Group and Stephen Peel from TPG. Ramez Sousou, managing director of the board, said the foundation aims to raise as much as £15 million each year for charity.