Let's be clear how private equity works.
It buys companies using debt finance. The private equity investor usually has little of their own m0ney in any deal in which they are involved.
The debt finance is usually arranged through tax havens.
When the deal is done the debt is piled on the company that has been acquired: it has to then pay for its own acquisition out of its own profits.
The interest paid goes to the tax haven.
UK tax is not paid on that interest charge.
That interest charge does reduce UK profits.
Less UK corporation tax is paid as a result.
And it is commonplace (although all these things vary from case to case) for many other activities relating to the acquired company to move offshore. Brands, insurance, purchasing management and other activities are often in line for this relocation, which also shifts profit out of the UK.
The private equity company then strips the company it has acquired of assets - and most especially land and buildings. These are usually sold, and then leased back leaving no assets and just long term liabilities in place: hence the term 'asset stripping'.
The pension fund is often left exposed (I say often, not always).
And the denuded entity is then sold, with the small stake the prove equity operator has having been massively increased in value, even though the stripped company is but a shell of its former self.
The aim is exploitation. Of the debt financiers. Of the state when it comes to tax. Often of employees. Always of the eventual owner who will buy the hollowed-out entity that it is hoped will survive this process.
Are these private equity operators the people we want running put food supply chains on which we are all utterly dependent? When their only aim is the exploitation of others are they who we want to trust our food security to?
Really?
Why aren't ministers intervening to stop this? Is our wellbeing of no concern to them?
And is UK tax revenue also of no concern?
Why are they failing us so badly?
They've already prejudiced our food security with Brexit. Are they really going to do it all over again?
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I used to work in the super market industry for Tesco, when they were chasing the top spot with M&S.
Over the years both Sainsburys and Tesco and others have been stripping jobs out of the sector. When I joined Tesco in the 90’s it was about stakeholder capitalism and the staff were treated very well. M&S staff were seen as top of the line in terms of job perks. And what about the John Lewis partnership?
All I see now at my local Sainsburys is the staff running the shop, taking on duties that those more higher paid used to do, and less management and supervisors.
If people want to asset strip the sector now, costs must be so low, now is the time to do it.
Morrisons however is interesting, it has a culture of customer service that needs more people – as you say, I can see jobs being lost there.
It shows that we still don’t give a fig for industry of any kind in this country – its just about raking in money anyway possible, despite the consequences.
Coal might not be needed , shipbuilding neither but for goodness sake we’ll always need food.
Pilgrim Slight Return,
Given that we are an Island the collapse of the UK Shipbuilding and Shipping industry should worry us all. Even Switzerland has a small merchant fleet so that if needed it can shift its own cargo’s.
But yes first Morrisons then Sainsburys falling into he hands of private equity is a disaster
As Morrison’s pushes to 300 pence per share (I still consider that as undervalued in terms of the long term) it is clear that the initial bid ‘accepted’ by the board was woefully misleading their shareholders (of which I am a long termer).
Why aren’t they being cited for gross negligence at least?
Isn’t it the legal responsibility of these Executives to get a accurate valuation of the assets? If they were made personally liable, rather than selling of the business to their mates , pocketing whatever bonuses, and future prospects with these new owners at the expense of current and future shareholders of the hollowed out entity – then we may get better diligence.
The accountants must have a legal role to play in that too surely?
Also the promises not to load up the business with debt the buyers make today should be enforceable tomorrow, for at least the medium term. 3+ years say. “No you can’t sell and leaseback – you promised you wouldn’t!)
It is the incentive to plunder that has seen our national institutions, services and businesses being sold off to mostly foreign funds for decades now. The neoconmen and women are pulling the wool over our eyes as they do their masters bidding.
Valuing shares is like guessing the length of a ounce of string
And I have done it professionally
I just admit the truth
Private equity is at the worst end of financialisation and wealth extraction. Vulture capitalism at its worst.
So what specific regulation and tax changes would stop it in its tracks?
Re tax, stop the deduction for interest paid to acquire a company
Re regulation, strong competition policy
Let’s face it, it’s just legalised plunder – that’s all.
Greedy people making their own reality.
I heard on this morning’s early radio that Sainsbury’s stores in the South East are basically sitting on huge tracts of land which are more valuable than the business!!!
Land for development (stores are now seen as old hat because of the internet) for yet more overly expensive houses in already over heated market.
That seems to be the prize then.
The comment about the site values of the Sainsburys Stores highlights how out of touch with reality land values have become.
But its a problem for many business’s its more attractive to sell the sites than to trade.
Richard
Think we know the answer and that the starting point was 70’s or earlier with steel, rail etc. Most manufvhas gone so service sector is target as some assets to cherry pick. Your comments are spot on and only disappointment that main stream media do not focus. Something to do with advertising spend methinks as well as political influence.
Well said and keep up the good work.