Private equity's biggest scandals

Horsemeat
Lion Capital-backed Findus had been hoping to take frozen food upmarket, but these hopes have been dashed by the revelations that its microwave beef lasagne contained up to 100% horse meat. The scandal currently gripping Europe also claimed another victim, Comigel, which is backed by Céréa Capital following a 2007 buyout. The firm has been linked to slaughterhouses that were selling on horsemeat as beef.

Findus is known to have struggled financially under the weight of its debts, and many have criticised the private equity model for taking such large financial risks that it had compromised the ability of firms to make high quality products for consumers. Findus also appeared to be woefully underprepared to deal with the press storm that erupted, continuing to display the beef lasagne prominently on its website the following day and lacking a dedicated communications professional.

Formula One bribery
For many years, Formula One Group owner CVC has had to deal with the reputational damage stemming from a corruption case against one of the advisers who worked on the 2006 deal. Gerhard Gribkowsky was the chief risk officer at BayernLB at the time the deal took place and is thought to have received $50m from offshore accounts as an illegal commission for his role in securing the sale of Formula One. CVC has always denied any wrongdoing in relation to the deal and is currently in the process of exiting the business. However, the scandal has no doubt been bad press for the private equity investor.

The horsemeat scandal is the latest episode to deal a blow to private equity’s reputation

Care home catastrophes
Public perceptions of private equity as a ruthless and uncaring business model are made all the worse by a string of scandals in the care industry itself. There have been several such episodes in Europe, with the most recent seen in Sweden. Care homes business Carema, owned by KKR and Triton, faced a series of allegations including malnourished patients, insufficient supplies, high incidence of patient injury and even deaths caused by mistreatment. Some in the Swedish private equity business have said the response by Carema's owners, particularly super-secretive Triton, exacerbated the situation as newspapers made exaggerated claims with no one willing to speak out and set the record straight.

In the UK, the failure of Blackstone-backed Southern Cross led to a different kind of scandal. The care home business was left in a precarious financial situation after Blackstone opted to sell off all its real estate properties and rent them back, but when local government contributions were scaled back the business found it could no longer afford the rent and went into administration. The episode left many vulnerable elderly people in an uncertain situation and it was left to local government, landlords and families to find a solution, making Blackstone look highly irresponsible.

Habbo Hotel fails on child protection
Balderton and 3i-backed Habbo Hotel, an online game aimed at children, was found by a Channel 4 documentary last year to be a stalking ground for sexual predators. The website's owner, Finnish-based Sulake, had failed to properly police content on the site and was endangering the children that used it. Both 3i and Balderton were forced to dump their stakes in the business during the embarrassing episode.

Of course, scandal has followed the industry around for years, dating all the way back to the KKR buyout of RJR Nabisco (and its eventual failure) which was immortalised in the 1993 movie, Barbarians at the Gate. Unfortunately, for those GPs doing things right, these scandals continue to taint the public image of private equity, making it difficult to convince the public and investors that the private equity model can be good for business.

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• Topics
• Industry
• Top story
• KKR
• CVC Capital Partners
• Lion Capital
• Triton Partners
• 3i
• Céréa Capital