Michael Moore’s Outlook on making private more public
The clue is in the name, as the old cliché has it. Private equity means equity that is private. Simple.
And yet, not so. The growth of private capital has been one of the key trends to emerge in developed countries over recent decades. Private equity is now firmly in the mainstream and owns larger and larger slices of the economies of north America, Europe and elsewhere.
Unsurprisingly, the industry’s success has brought the businesses owned by the funds into public view, along with the firms who manage them. There is a growing appetite to understand what happens to enterprises when they are under private equity ownership and with that comes increasing public scrutiny.
I never doubted that, but the point was rather neatly underlined for me when I was sitting in front of a select committee in early January. Specifically, the committee of MPs in the House of Commons who scrutinise the policies and issues which are the responsibility of the UK government’s business and trade department.
On this occasion their inquiries were focused on the role of private equity in retail. But they had broader questions about how opaque or otherwise the industry is, not least when the businesses have a significant footprint in communities and local economies across the UK.
It was a focused session, and challenging in many respects, but it allowed a constructive consideration of the issues and a very useful opportunity for the industry to show how transparent it is. This was the first industry-specific committee session in many years, and a timely reminder of the expectations parliamentarians have of us.
Back in 2006 there was a flare up in public concern and a parliamentary inquiry into the industry. The heightened attention faded with time, but the public desire to keep tabs on the large enterprises, and to know more about their owners, remained strong. And understandably so.
The reduction in the temperature of the debate followed the industry’s commitment to greater transparency and the establishment of the ‘Walker Guidelines’, which addressed external stakeholders’ concerns by pegging ongoing disclosure levels to those required of companies on the FTSE 250.
And by capturing businesses with an enterprise value of just over £200 million at the time of a ‘take private’ transaction, with 50% of revenues or over a thousand employees in the UK, the demands were placed on businesses nobody could argue were insignificant.
As someone with vast experience in the City, Sir David Walker had the credibility to strike the right balance in setting the new industry-regulated standards – fit for users’ purposes (for instance requiring mid year reports, details of leverage and other PE-specific characteristics of the ongoing business) without being overly-burdensome.
Keeping them relevant by benchmarking the requirements regularly has maintained the credibility of the process over the years. To this day the industry leads the process under the guidance of the independent Private Equity Reporting Group.
A week after my House of Commons committee appearance, PERG published its latest reports, which set out its assessment of the portfolio company reports reviewed by them and offered a view on the degree and spirit of compliance they had found. Candidly, the picture was mixed.
In terms of engagement in the process, I was delighted that all the BVCA’s members who were in scope satisfied the core requirements. 70 of 81 portfolio companies in the population met the threshold standards, and within that a number were recognised for compliance that goes beyond the set standard.
Not that we can be complacent. The 11 missing businesses were put in the spotlight by those who attended the PERG media conference where the reports were launched. The inconsistencies in disclosure trends across the sample were also noted. The truth is standards keep rising and expectations with them. So these are areas to which we know PERG, the media and political stakeholders will return.
In fact, sooner, and with greater intensity, than some may be expecting. This coming year, the guidelines will be subject to the first major overhaul in a decade. The incremental approach from year to year keeps things current, but we anticipate that PERG will go back to first principles and do a deep analysis of the ‘value add’ expectations of what information and analysis the industry’s stakeholders demand. We will embrace the process constructively.
The parliamentary inquiry of a generation ago was not at all comfortable for the industry. Through constructive engagement and serious effort over the intervening period, private equity has kept its side of the bargain regarding openness. My visit to Parliament last month was a reminder that we must not be complacent or wrong-foot ourselves.
Michael Moore
Chief Executive, BVCA
This article was originally published on 15 February 2024 on the Private Equity News website here.
