Private equity under spotlight

30-07-2007

Private equity under spotlight
The current private equity buyout boom needs investigating by the government, a group of influential MPs have said.

An interim report from the Treasury select committee published today delivers mixed opinions on the concept of private equity buyouts, saying there are "benefits and potential problems" associated with both private equity and public limited company ownership.

But it does call for investigation into the increasing trend for private equity buyouts which are highly-leveraged – that is, those which are heavily financed through debt.

The committee asks the Bank of England to investigate the impact of a future economic downturn on the security of such borrowing and requests that the Treasury look into whether the tax treatment of such debt is creating what it calls "economic distortion".

Calls for greater transparency and a request for clarrification on government regulations controlling employment protection in private equity buyouts are also included in the report.

Welcoming the report as "balanced and fair", Daniel Godfrey, director-general of the Association of Investment Companies, said private equity had "added huge value to the UK".

"As private equity becomes responsible for high street brands, it is legitimate that a wider group of stakeholders should take an interest in the stewardship of those companies in the broadest sense.

"And it is in the interests of the private equity sector to respond to those stakeholders by engaging with them openly and willingly in so far as such engagement does not compromise their commercial objectives," he added.


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