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Private equity firms on hunt for more bargain UK companies

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Bargain hunt: Vindi Banga, partner in the London office of Morrisons owner Clayton Dubilier & Rice (CD&R), said private equity continue to target UK firms

Deal-making boom set to continue with private equity firms on hunt for more UK companies

Britain’s deal-making boom will continue as private equity firms keep picking off businesses, a buyout veteran has claimed.

Vindi Banga, partner in the London office of Morrisons owner Clayton Dubilier & Rice (CD&R), said private equity firms which have bought companies from the AA to Asda in recent years would sustain their vociferous hunting in the UK.

He argued that businesses were facing several areas of ‘transition’ prompted by climate change, digitalisation and the ‘new world order’ as the pandemic and the war in Ukraine cause companies to move their supply chains closer to home.

Bargain hunt: Vindi Banga, partner in the London office of Morrisons owner Clayton Dubilier & Rice (CD&R), said private equity continue to target UK firms

Bargain hunt: Vindi Banga, partner in the London office of Morrisons owner Clayton Dubilier & Rice (CD&R), said private equity continue to target UK firms

He said that to survive in this environment, companies would need to sell parts of their business or buy new bits. 

He argued that private equity firms like CD&R were ideally placed to either snap up the chunks they got rid of, or buy whole firms which needed extra money to reshape themselves.

Speaking at the World Economic Forum’s annual gathering of the business elite, held in the Swiss ski town of Davos, Banga said: ‘There will be lots of deal-making. There is uncertainty now so things have slowed down. But there’s some pretty big issues that businesses need to factor in.’

He highlighted trends such as shareholder activism, and change in leadership post-Covid, which were causing stock market-listed firms to reconsider whether they would be better off privately owned.

And he added that although CD&R had expected Brexit to harm its business, that had not happened. ‘We are seeing an enormous uptick in activity for private equity,’ he said.

Private equity firms use their wealthy investors’ money to buy companies, and sell them on five to ten years later for a profit.

Though some of these buyout houses can help companies grow and improve, many have slashed jobs, broken up businesses in ways which can leave them weaker down the line, and loaded firms with debt.

Last year saw record private equity activity in the UK, and buyout firms were accused of ‘pandemic plundering’ as they scooped up companies on the cheap amid the stresses of Covid. 

Looking at the UK, Banga argued that many businesses listed on the stock market were still ripe for picking by private equity because their current price did not reflect their ‘intrinsic value’.

Partly this was due to the way Britain’s capital markets are structured, he said – pension funds, which are some of the biggest investors, tend to be much smaller in the UK than in other countries.

This meant they were much more focused on investing in companies that churned out safe dividends, he said, rather than helping to fund riskier high-growth businesses.

Peter Orszag, chief executive of the financial advisory arm of investment bank Lazard, said that although rising interest rates would make it more expensive for private equity firms to borrow the money they needed to complete their deals, ‘rates are still not dramatically high. I still think there’s a lot of momentum behind mergers and acquisitions’.

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