Seconds out… Round Three(2)

The UK private equity industry squares up to the Treasury Select Committee for a third time tomorrow, with supporters hoping that its four representatives – and the two external bodies with the biggest influence on the industry – will be able to continue the salvage operation begun by representatives of KKR, Carlyle, 3i and Permira last time around.

After the four buyout bosses fought out a low-scoring draw with the committee a fortnight ago, thus saving the industry some face after a disastrous performance by the BVCA at the first hearing, the industry has another chance to argue its case – although it is unlikely to find a receptive audience.

Four more buyout bosses will face a grilling from the committee at the House of Commons tomorrow, with CVC Capital Partners co-founder Donald McKenzie perhaps the most intriguing attendee. The notoriously media-shy McKenzie is being forced to make a rare public appearance following trade union opposition to his firm’s ownership of the AA. Until now, Permira has borne the brunt of the union’s ire, culminating in managing director Damon Buffini’s appearance before the committee two weeks ago.

The impact of the greater scrutiny of the AA is already being seen – over the weekend the two firms bowed to pressure to disclose more financial details of its recent merger with Saga, demonstrating that they had made a combined profit of more than £2.5 billion on the deal so far.

McKenzie is likely to be supported in defending the larger end of the market by David Blitzer, a senior managing director of The Blackstone Group in London, who is also set to appear after withdrawing from the previous hearing because of his firm’s forthcoming IPO. Blitzer’s firm has been one of the few to largely avoid the negative headlines of recent months, partly because of their IPO-induced quiet period.

There will also be a first appearance by a representative of the mid-market, courtesy of Duke Street Capital’s Peter Taylor. Although many in the mid-market have been suggesting a need to distinguish themselves from their large buyout colleagues, his appearance seems more by accident by design. Labour MP Angela Eagle has been the driving force, thanks to Duke Street’s closure of a factory in her Wallasey constituency.

Jon Moulton, founder of Alchemy Partners, will be the fourth industry representative on the panel. Moulton has been one of the few people to speak out openly in defence of the industry in recent weeks, and is likely to be a vocal and charismatic advocate of the cause.

Two other key speakers will also appear. The Financial Services Authority, which has been broadly positive towards the industry in the past, will make a submission.

So too will Sir David Walker, who is leading a BVCA-sponsored working group that is looking at greater disclosure within the industry. Walker’s contribution will be crucial, as the industry seems to be pinning its defence against these charges of non-transparency entirely on the results of his enquiry. If he fails to present the committee with a compelling argument, the knock-on effects will be significant. Walker is likely to present some preliminary findings of his working group, even if he is not yet ready to publish its recommendations in full.

With such a range of different interests at stake, it is difficult to see what the committee is likely to achieve tomorrow from its questioning of the four buyout bosses. Eagle will hope to get to grips with Duke Street over the job losses at Burton’s, while Moulton could also face questioning over his putative interest in Jaguar, Ford’s luxury UK car marque. However, he is likely to counter any critcism by citing the example of UK car-maker Rover – since his offer to buy the ailing business was rebuffed in favour of an offer from a group of Chinese investors, Rover has continued to decline.

At the larger end of the scale, Blitzer and McKenzie could face many of the same questions as the panel from a fortnight ago, meaning that some time could be wasted rehearsing the same issues again. And with few financial specialists on the committee, it could prove difficult to trip the pair up.

All this means that the most telling contributions are likely to come from Walker and the FSA – if the latter maintains that the industry poses no systemic risk to the UK economy, and if the former can come up with a convincing road-map towards greater transparency, there is still a chance that UK private equity could escape from this chastening political scrutiny without too much damage.

Battle will be re-joined tomorrow – stay tuned to PEO for all the developments as they happen.