Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Private equity may have a mixed reputation but returns have been good
Private equity firms aren’t always viewed in the best light by investors. They are often considered to be tight when it comes to paying a fair price for a business, and then they load these companies with debt and deprive them of investment.
However, it would be wrong to say all private equity firms behave in this manner. Some are very supportive of businesses and invest to make them stronger.
London-based private equity firm Bridgepoint is considering a listing on the UK stock market, with a goal to raise up to £300 million from new investors to help fund its growth plans and pay down debt.
It will have to work hard to convince potential investors that it falls into the ‘good guy’ camp and is not all about buying a business and cutting as many jobs as possible.
In recent years Bridgepoint has backed Pret a Manger, Itsu and Deliveroo (ROO), among others, in what has been a bumper time for deals in the private equity space.
Such deals have intensified in the UK this year, prompting investors both professional and retail to ponder whether buyout firms are taking advantage of Covid-19 and Brexit to snap up companies on the cheap.
Supermarket chain Morrisons (MRW) is the latest big name to be targeted by private equity buyers when Clayton, Dubilier & Rice launched a £5.5 billion offer in late June, which was turned down on valuation grounds.
Bridgepoint looks to buy businesses that it believes are being undervalued by public markets, concentrating on mid-sized deals of up to about £1.5 billion. It has around £23 billion of assets under management across Europe, Asia and the US, including investments in cycle retailer Wiggle, and Burger King’s France and UK outlets.
Floating shares on a public stock market presents an opportunity for interested investors to get a foothold in a sector that is normally shrouded in secrecy and is typically run via a partnership structure.
Bridgepoint is expected to be tweak its ownership structure when it lists, with shareholders receiving fees from the funds it manages along with a share of profits made by realising investments.
Private equity firms typically prefer to do business behind closed doors, but the select few listed on a stock exchange have generated decent returns for investors in general.
For example, US listed private equity firm Blackstone has returned 305% over five years versus the S&P 500’s 104%. UK-listed private equity firm 3i (III) has rallied 109% over the same timeframe.