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The private equity threat

The rise of private equity highlights the fact that, for an increasing number of companies, a stock market listing is the wrong form of ownership.
The private equity threat
  • Cheap money and low valuations don't explain why private equity firms are buying UK companies. Instead, it's happening because dispersed ownership is increasingly inappropriate.
  • With investment opportunities among quoted firms shrinking, investors should consider private equity funds.

Private equity buyers are swooping for UK companies. Morrisons is the subject of a bidding war which means it will soon follow erstwhile stock market stalwarts such as Meggitt, Aggreko and St Modwen into private hands. This trend should worry equity investors.

The conventional explanation for why this is happening is inadequate. It says that private equity firms are buying because of cheap money; because UK shares seem cheap; and, adds Chancellor Rishi Sunak, because of confidence in the UK economy. But this is only part of the story. These factors should attract all sorts of buyers, be they other listed companies or institutional or retail investors. What’s so special about private equity firms?

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