PE a 'force for good' but must focus on social issues

Kimberly Romaine and Greg Gille
13 October 2011

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Four years on, European private equityтs largest catch is still happy with its owners. unquoteт reports from the BVCA Summit in London.

"Teaming up with PE was really the right decision," said Stefano Pessina, executive chairman of Alliance Boots. "The volatility of the past few years would have constrained us because we would have had to focus on our share price and so would not have expanded as much."

He is not a pure PE cheerleader, however. "I do not believe that private ownership is better than public; it depends on the circumstances. This is definitely a point for us when it makes sense to be private."

Indeed Europe's GPs have much to be proud of, according to Peter G. Wilson, managing director of HarbourVest Partners. "Europe is a low growth environment," he said. "But despite this, European buyout fund managers have been able to consistently deliver top-quartile returns," he added, referring to LP sentiment surveys that put the asset top of wish lists.

Global buyout houses are taking note. Said Lionel Assant, senior managing director of Blackstone Group: "Since 2009 we have done five transactions in Europe, as opposed to just one in the US. This is because we think value is switching back to Europe." This stands in marked contrast to the period between 2001 and 2006, when the buyout giant's focus was more firmly in the US.

This success is down to a number of factors. Ernst & Young's Harry Nicholson highlighted that leverage still matters in terms of returns - accounting for 33-40% of gross IRR in a sample of European PE deals studied by the advisory group. Nevertheless, he stressed that value creation in terms of organic growth outweighs the effects of leverage and good market timing. Profit growth is the strongest driver here, and is significantly stronger in PE-owned businesses than their publicly owned counterparts - which is especially important at a time when multiples are unlikely to significantly change over the course of the investment.

But following a decade of positive financial gain, it is crucial the industry looks outward to channel some of its success towards the wider community, according to Sir Ronald Cohen, chairman of the Portland Trust and Bridges Ventures. He cited examples of Bridges' success with entrepreneurs in Britain's most deprived areas. "Individuals in poor areas are very price sensitive. They are very motivated, probably more so than anyone in this room. Entrepreneurial skills know no economic, social or political boundaries." As London recovers from its summer riots, and as Wall Street continues to be full of protesters, he warned: "We are on the brink of a revolution and must reconsider how we deal with social issues."

His sentiment was echoed by Pessina: "Private equity is a force for good, but it must be used in the right way." BVCA chief executive Mark Florman concurred and urged delegates to "be part of the wider society. We must show that within our world we are responsible investors."