Should we be worried?
Two big takeover battles in the UK are a sign of the times: supermarket chain Wm Morrisons and respiratory medicines group Vectura are both the subject of bids in the billions of pounds by private equity firms. In the case of Vectura, Carlyle Group is battling it out with Marlboro cigarette giant Altria, while different private equity suitors are competing to land Morrisons.
It comes as private-equity buyouts of London-listed companies are their highest in 20 years, contributing to takeover deals worth £156b in 2021 to date. Big deals include aerospace firm Meggitt (bought by Parker-Hannifin for £6.3b), Signature Aviation (bought by a consortium led by Blackstone for £3.5b) and another supermarket chain, Asda (TDR Capital and the English billionaire Issa brothers for £7b).
Private equity firms have also bought motoring support group the AA in recent months, marking its second stint in private-equity ownership and a 10% stake in Liverpool football club (whose majority owner, Fenway Sports Group, is essentially a specialist private equity firm anyway). With the exception of Asda’s private-equity owner, which is based in London, these buyers are all American.
Private equity firms are investment vehicles that are not listed on the stock market. Their objectives are no different to listed investment companies, namely increasing profitability by making businesses more efficient. But private equity has long had a reputation for cost-cutting, job losses, hiking product prices and loading acquisitions with heavy debts, so a big influx of takeovers is always going to raise eyebrows. So, why the surge and what are the implications?
