Lewis Moonie, the UK defense minister, said yesterday the government was looking for a “strategic partner” to take a significant stake in QinetiQ, the research business spun out of the Ministry Defence.
Moonie said that following an extensive review of all available options, the government had concluded that a floatation of the business under current market conditions would not produce best value for the taxpayer. The government had hoped to raise around £250m by way of an IPO, but conversations with City institutions made clear that this was not a tangible figure.
“We have therefore decided that the strategic partner route offers the best potential for a transaction within 2002 […] and meets our objective of a successful Public Private Partnership”, said Moonie. The government is understood to be keen to retain between 25 and 51 per cent of the company’s equity.
The news opens the door for private equity investors, a number of which are believed to be looking at QinetiQ with interest. Recent reports have linked 3i, Legal & General Ventures and The Carlyle Group to the business, which is advised by NM Rothschild and Herbert Smith, the law firm.
Last night Edmund Truell, chief executive of Duke Street Capital and chairman of the British Venture Capital Association, told a gathering of journalists and government officials at a dinner in London that the UK private equity industry was prepared to play a part in public private partnerships.
“Politicians across the board now accept that the private sector can help the public sector. And we, in the private sector, want to invest”, Truell commented, adding that the public sector should put its political capital where the private equity industry deploys its financial resources.
For this to work, a relationship of trust between the two sides would be needed, as well as a governmental approach giving financial buyers “the freedom to manage, sure-footed but light-handed regulation and mutual trust.”
Truell said he recognised the difficulties facing these ideas at present, particularly within the private sector. “Recent events with Railtrack have had at least one serious adverse affect. The financial world is now putting a risk premium on deals with the government. This is really counterproductive.”
Following the MoD’s change of plan, QinetiQ, which has a portfolio of 4,000 patents and annual turnover of £800m, looks set to become a test case for private equity’s appetite for assets that are partly owned by the government.