The customers’ yachts

Permira is buying luxury yachts company Ferretti for E674m and Ferretti's management team which have pledged to tender their shares, will be ploughing E124m back into the bid vehicle. But another Permira fund had previously bought a 60% stake in Ferretti and then floated most of that stake in an IPO in 2000. The flotation valued the company at E382m. Breakingviews wonders going on.

It's deja vu all over again. Permira, the private equity firm formerly known as Schroder Ventures Europe, is buying Italian luxury yacht company Ferretti – for the second time and less than a year after selling its stake down to scratch. Even odder, the takeover offer is priced at a premium of 76% to the IPO price only two years ago. Is the private equity firm going batty?

Perhaps not. After all, Permira has constraints of its own to worry about. In common with the rest of its industry, it raises funds with finite lifetimes and has to be able to exit its investments. And it would be a reckless fund indeed which would hang about when it could get out via an IPO and show stellar returns – especially towards the end of the fund's life. Ferretti has now been bought by a new Permira fund, which is making a long-term investment. It expects returns within five to seven years, by which time the fund that made the original investment will be long closed.

It is slightly harder to see why Permira should want another bite of the cherry. It looks unlikely that the second investment will be as blessed as the first. However, coming in again offers Permira the change to re-leverage the company, which now has very little debt. Added to this, Ferretti's management will be stumping up E124m of cash, which suggests Permira may not have to put in much equity.

Permira could perhaps have got round its constraints by having the first fund sell Ferretti on to the second. At the IPO price, the second fund would have got a cheaper deal and have had the chance to re-leverage the company as well. But this sort of thing is frowned upon. Passing the baton between two funds means that the general partner is on both sides of the transaction. And if the first fund's returns weren't going to be matched by the second fund, as looks likely, Permira would have laid itself open to the second lot of investors baying for its blood.