As the final issue of IFR Buyouts for 2006 it is time to take stock of the last twelve months. In what has without a doubt been a hugely successful year for private equity the question as we go into 2007 is – can this be sustained and is the industry learning to face it demons?
The two major themes this year have of course been continuing liquidity which many argue has lead to over leveraging and unprecedented valuations. The other has been increased public scrutiny and criticism of the industry, with which comes the threat of a regulatory reaction.
In March the need for greater transparency in the industry was highlighted at an
“..With the popularity of private equity comes hubris..the belief that everything you touch can turn to gold. Inevitably, reality sets in – and when investors start demanding those high returns, hubris often transforms into desperation which then leads to unethical actions. Already there are signs of this – bribing pension fund officials for investments, excruciating dividend recaps, extraordinary fees charged to portfolio companies. Add to that the governmental interest in burgeoning sectors of success and power, and one can see how an angry public can provoke a regulatory reaction”.
Since then the debate has raged and we have already seen the beginning of this scrutiny and the demand for more transparency. In the USA the DOJ is investigating price fixing among consortia and in the UK the FSA has just published its first review of the industry. This increased scrutiny has spread a certain amount of nervousness.
One senior private equity player said: “I worry about it daily. I know it won’t get to the point that people will hug me in the street but we have to get the message across that there are certain good things which we, the private equity industry, do”.
But although there is much talk around the problem is the industry actually confronting it? In the UK it has to a certain extent been fighting back. Last week Rod Selkirk, chairman of the
Although the BVCA and the EVCA have taken up the mantle and is doing an admirable job of lobbying the industry private equity firms across Europe do not seem to be doing the same? In Spain Apax owned Panrico has hit the headlines after a spate of redundancies and there has been a predictable public backlash. But according to insiders the industry is not addressing this problem, with a more immature private equity landscape in Spain there are bigger problems to address. It seems the message is not being spread.