Transparently Wrong

The Guidelines Monitoring Group, set up to review private equity’s compliance with the Walker Report, published its first report this week and was broadly positive on the industry’s first attempts at transparency and self-regulation. Not that you would know it from the press reaction.

The Independent claimed that “just half of the private equity firms in the UK were complying with the rules laid down in the Walker report.” To repeat, not ‘half of the private equity firms in the UK that the Walker report is relevant to’ but ‘half of all private equity firms in the UK’. Dan Roberts’ business blog in The Guardian (“Private equity, public shame”) adds that “it was only a small fraction of the private equity industry that agreed to sign up to these watered down guidelines in the first place”.

As reported by sister title, IFR Buyouts Europe, what the report actually meant was this: “While only half of the 32 private equity firms signed up to the guidelines initially met their disclosure requirements, the majority of the 54 portfolio companies made “good or acceptable disclosures.”

Here’s the criteria for the Walker guidelines, as set out by the GMG: “The Guidelines require additional disclosure and communication by private equity firms and their portfolio companies where such portfolio companies had more than 1,000 UK employees, generate more than 50% of their revenues in the UK and either had an enterprise value of more than £500 million when acquired by one or more private equity firms or, in the case of a public to private transaction, had a market capitalisation together with premium for acquisition of control of more than £300 million.”

There are hundreds of private equity firms that don’t operate within the reach of the Walker Report or the awareness of the national press. Hundreds that would be crippled by the costs and time incurred from such reporting. So, does this apply to NBGI Private Equity, whose entire fund is just £100m and typically writes equity cheques of up to £15m?

This is NBGI Private Equity, which was involved in the aftermath of Permira’s AA buyout (Nationwide Autocentres) and won lower mid-market awards from almost every industry title going last year, including our very own Acquisitions Monthly (this year’s awards are next Tuesday, black tie event fans). The NBGI Private Equity which has never appeared in The Independent and garnered just three sentences in the past two years in The Guardian.

The company has appeared briefly on several occasions in the Times, most recently, and perhaps ironically, as the buyer of a number of outlets owned by the Food & Drink Group, which went into administration last Autumn. According to FDG, the sale has “secured the jobs of 300 of the group’s employees”. That’s private equity saving jobs. Imagine that.

IFRBE also pointed out that those firms which didn’t meet the disclosure hurdles at the first try have since consulted with the GMG and have made amendments or committed to do so in their next annual accounts.

That this is above and beyond what publicly-listed companies are required to do – the guidelines required adoption of the Enhanced Business Review of 2006’s Companies Act a year before listed firms – also conveniently missed the press boat.

According to The Times, the GMG also “disappointed observers of the private equity industry by declining to call publicly on individual private equity-type investors, such as sovereign wealth funds, to adopt the code voluntarily”.

Who, precisely, are ‘observers of the private equity industry’ and why are they neither referred to or quoted? Could this be that old press chestnut of passing off your own thoughts by referring to anonymous ‘critics/observers’? Some observers of the press think that this is lazy and uninformed.

Roberts in the Guardian also says that “private equity’s shortcomings have been overshadowed by a much wider crisis in the banking system. But it is no coincidence that many of the companies now going bust were left in such a precarious state by private equity owners who saddled them with too much debt. The critics have been proved right.” Which busts are those, Dan? Woolworths? Land of Leather?

The Times, at least, put it in context of the issue of transparency “gaining momentum because so many private equity-backed companies are facing bankruptcy”, which is not entirely true – yet. Of course, there are bound to be private equity defaults this year and possibly next. And leverage will be a significant factor. Private equity can’t be blamed, however, for current public and independently-owned company woes.

Private equity doesn’t need cheerleaders or apologists. But just as it needs to report fairly and accurately (where appropriate), it also needs to be reported on fairly and accurately.