PUBLIC IMAGE<br/>Benefiting from a bailout?

Private equity's battle with public opinion in the UK continues to rage. Back in the summer of 2006, that battle appeared to have reached its nadir when a camel was paraded outside the church frequented by Permira boss Damon Buffini in an unsubtle reference to the ability of rich men to enter the kingdom of heaven. A year later, a handful of private equity executives were brought before a Treasury select committee hearing in Parliament to answer accusations of unfair exploitation of the tax system.

Now, a new bone of contention has arisen in the form of private equity firm LDC's strong deal flow in 2009. The firm used the balance sheet of parent company Lloyds Banking Group to take advantage of low valuations and complete three times more deals in the UK market in the first nine months of the year than any of its rivals. The problem lies in that healthy balance sheet – healthy in large part due to a £17 billion (€18.9 billion; $28.4 billion) government bailout of the bank in the wake of the financial crisis (plus a further £5.7 billion pledged in November).

Because of this unusually direct and sensitive link between taxpayer money and the activities of a private equity firm, questions have been raised in press reports and by politicians about the appropriate use of bailout cash. “Was a private equity unit supposed to benefit from the bailout?” posed the headline of an article in the Times newspaper.

The response of LDC managing director Peter Brooks, in an interview with PEI, was that yes, a private equity unit should benefit if it means helping restore its parent company to health and, by extension, delivering a decent return on the government's current 43.5 percent stake in the bank. He said: “What we are doing fits absolutely with what the bank expects us to do, and presumably also what the government would expect us to do.” He pointed also to the firm's job creation at portfolio companies.

Regardless of this, UK private equity finds itself once more being examined in the court of public opinion. It's hard to draw lessons from this, other than that private equity firms – even those of the mid-market, growth capital variety – need to stay sharply focused on projecting a positive image. You may not be able to predict where the next line of criticism will come from (who could have predicted the camel?) – but it will surely come.