Private equity managers have responded to backlash to the sector after Morrisons accepted a £6.3bn offer from a set of private equity firms headed up by Fortress Investment Group.
The bidding war for Britain’s fourth-largest supermarket chain seems to have stoked antagonism between private and public markets. Before it was approached by Fortress, US private equity firm Clayton Dubilier & Rice put in a £5.5bn bid for the firm, which was rejected, and another US titan Apollo Global Management has also expressed interest in snapping up the supermarket.
Legal and General, which owns a 2.2% stake in Morrisons, has come out in opposition to the Fortress takeover, warning the supermarket chain could be bought too cheap, using debt that will cause harm to its creditworthiness.
“As the Morrisons situation evolves, it is leading to more questions than answers,” said Andrew Koch, senior fund manager at Legal & General Investment Management, in a statement.
“As responsible stewards of our client’s capital, it is important that the company isn’t taken over for the wrong reasons. If an acquirer makes strong returns this should come from making the company a better business. It should not come from buying its property portfolio too cheaply and levering the company up with debt.”
Koch goes on to explain that there are unanswered questions as to the value of Morrisons’ property, both retail and distribution, and in order to make an informed decision regarding their shareholdings, investors will require “detailed figures” on this.
See also: Blackrock and major hedge funds burned by Morrisons-led supermarket sweep
Private equity investors hail sector’s long-term approach
In response to criticism, investment company managers have hailed the benefits of private equity ownership, highlighting the sector’s long-term approach to investment, as well as its ESG, technology and infrastructure capabilities.
Peter Von Lehe, lead manager of Neuberger Berman Private Equity Partners, told Portfolio Adviser: “Private equity investment provides businesses with expertise and oversight, levels of change which are often harder for listed company management to make, and therefore the opportunity to grow into bigger and better companies which attract a higher valuation.”
“Private equity has a strong track record of performance versus public markets. We feel that listed private equity investment companies represent just about the best value that there is in the private equity space,” he added.
‘Reality of private equity investment is a far cry from what is portrayed in the media’
The Association of Investment companies (AIC) gathered responses from various investment managers following the Morrisons backlash. When asked whether re-awakened private equity criticisms were justified, Helen Steers, partner at Pantheon, manager of Pantheon International, said: “In general the reality of private equity investment is a far cry from the image that is sometimes portrayed in the media.
“The private equity managers that we back take a hands-on, long-term approach with their investee businesses, working with the companies’ management teams to grow their businesses, and providing them with key operational and strategic expertise.”
The bid for Morrisons comes amid a swathe of private equity takeovers during the pandemic. In January, shareholders of roadside rescue company the AA agreed to a £218m takeover by private equity firms Towerbrook Capital and Warburgh Pincus.
One of the biggest deals last year came in October, as Asda announced its £6.8bn takeover by Issa Brothers and TDR Capital.
The first five months of 2021 saw private equity deal volume increase 21.9% compared with the same period last year, resulting in 2,346 deals, according to PwC.
