Concerns are mounting over the increasing influence of private equity firms in the United Kingdom, with warnings that the sector's aggressive acquisition of business assets could be detrimental to the national economy and workforce.
One prominent example cited is the supermarket group Morrisons. Five years after its takeover by private equity firm CD&R, the company's workforce has reportedly shrunk by nearly 5,000 employees in the 12 months leading up to October last year. Additionally, Morrisons carries a substantial debt of over £7.5 billion, a figure that analysts suggest hinders its ability to invest and maintain competitive pricing, particularly during a cost-of-living crisis. The company reported losses of £629 million in its most recent financial period.
This situation mirrors that of rival supermarket Asda, which is also burdened by significant debt under its ownership by the Issa brothers and private equity firm TDR, and is reportedly underperforming.
A string of private equity deals, particularly around the time of the pandemic, have drawn criticism and prompted calls for greater regulation. While acknowledging that not all private equity ownership is destructive, the current trend is described as a "rampage" with limited public discourse. The involvement of private equity in strategically important sectors such as defense, with acquisitions of companies like Cobham and Ultra Electronics, has also been a point of contention.
Private equity's reach now extends into various everyday services, including dental and veterinary practices, nurseries, elderly care facilities, and even companies performing NHS eye operations and operating children's homes. Critics argue that the profit-driven model of private equity is ill-suited for these sensitive areas.
Recent significant deals highlight the sector's ongoing activity. These include a £5.7 billion takeover of budget airline EasyJet by US group Apollo, the sale of testing group Intertek for £9.4 billion to Swedish buyout group EQT, and KKR's purchase of energy distribution company DCC for £5.8 billion. Furthermore, a company owned by CD&R is acquiring the outsourcing group Mitie for £3.1 billion.
The acquisition of UK defense companies by foreign private equity is also a point of concern, especially in light of geopolitical uncertainties. Aerospace company Gooch & Housego has agreed to a £400 million deal with a US private equity firm, and defense player Senior is selling itself to two private equity buyers for £1.28 billion. Both these deals are subject to the National Security and Investment Act.
Analysts suggest that London's capital markets are being depleted as companies are acquired at potentially undervalued prices. There are also broader concerns about the health of the private equity industry itself, including the use of "continuation funds" and the closely linked private credit market.
There is a call for greater awareness among leaders, such as Andy Burnham, to address the risks associated with private equity stripping the country of its business assets. The concern is that without intervention, the trend could continue, leading to further economic consequences.