How lucrative is the living in the world of private equity? Prepare for a glimpse inside the machine because Bridgepoint, one such buyout firm, is taking the rare step of listing its shares in London. Back-of-the-envelope arithmetic suggests some large individual fortunes will be revealed.
Bridgepoint, with €27bn under management, is expected to be valued at roughly £2bn, though it’s unclear if that is before or after it has raised the £300m it is seeking to fund expansion. Even at £1.7bn, though, the numbers will be big because only 20% of the firm is currently owned by an outside investor, Dyal Capital. The rest is owned by the staff, and one can assume the 170 “investment professionals” will own the bulk of that. So call the average shareholding £8m among that large crew. Not bad.
In practice, the partnership won’t be equal. The 43 investment partners and the executive chairman, William Jackson, will have the lion’s share, as the prospectus will confirm when it comes. Yes, the value of their shares (not to be confused with the “carried interest” bonuses on investment gains) is the fruit of 20-odd years’ work since Bridgepoint was spun out of NatWest via a management buyout. But you get the picture: from the point of view of the practitioners, private equity is a very nice business.
Naturally, investors in the funds also have to enjoy good returns to keep the show going, and to keep attracting capital. That goes without saying. But also remember that Bridgepoint isn’t even in the super-league of buyout firms. It fishes in the “middle market” pool of companies, meaning those worth £500m-£1bn. For the really big bucks, quoted US firms such as Blackstone and KKR are the place to look.
Bridgepoint insiders will collectively sell £200m-ish of their shares in the float, which ought to be good for prices of second homes in the Cotswolds. Whether a public listing is also a top-of-the-cycle signal for the private equity sector remains to be seen, but the answer is: not necessarily, or not permanently. Pension fund money continues to pile. The rewards for the managers remain astonishing, just as they have been for 20 years at least.
UDG shareholders fight off undervaluation where board failed
Still, at least shareholders in public companies are occasionally putting up a fight against low-ball buyout bids. Clayton, Dubilier & Rice was forced to bid against itself on Tuesday at private healthcare firm UDG Healthcare, adding 5.6% to a £2.6bn offer that had already been recommended by the target’s board.
Something similar happened at St Modwen Properties last week when Blackstone had to bump its bid by 3.3% to £1.3bn to try to persuade refusenik shareholders to sign up, even after the board had capitulated at the lower level.
The rise of revolting shareholders, prepared to shout about undervaluation, is very welcome. UDG’s board, led by chairman Shane Cooke, ought to be particularly embarrassed because 5.6% says CD&R simply wasn’t pushed hard enough in the original negotiation.
The last defence of an embarrassed board is to point to the “fair and reasonable” verdict from the advisers – Goldman Sachs and Rothschild, in UDG’s case. It can only be a plea in mitigation because the buck stops with the directors, but there is half a point there. It’s hardly a revelation that investment bankers like doing deals (and get paid more for the ones that happen), but they are also meant to have a vague grasp of what the big investors will accept. Do the homework.
Covid loan losses were expected, but fraud element is unacceptable
The figures aren’t news, but they are worth repeating. This is the public accounts committee’s estimate of the losses on one of the Treasury’s main Covid lending schemes: “Between 35% and 60%, equivalent to £16bn to £27bn of loans issued through the bounce-back loan scheme may never be repaid due to fraud or credit risk.”
We also know the reason. Under the pressure of the pandemic, the priority was to get money to small businesses. Banks were given a 100% guarantee and ID checks were downgraded from normal standards. So, yes, high loss rates were part of the bargain.
But the fraud element, still unclear, is the unacceptable part; it’s a different category of loss from a commercial default. The odd billion is not small change, so you’d think the Treasury would say more on its efforts to chase the sums. There’s been barely a squeak.