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July 2004
Does it matter who owns you?
Is the public tide beginning to turn against buyouts and particularly secondary buyouts (SBOs), where one venture capitalist sells a business on to another?
Never mind the general state of the corporate market, which some argue is increasingly hedging against buyouts anyway as corporates begin to spend again. I ask the question in the wake of what appears to be some kind of mounting revolt against the practice of venture capitalists (VCs) playing pass the parcel.
Take the comments of Peter Hindley, chief executive of Midlands-based funerals business Dignity, whom we interview in this month's working lunch on page 20. Recalling the time earlier this year when he could have gone down the road of a SBO, Hindley told us: "Our business relies on stability, particularly from a staff's point of view. One option was to change from one VC to another and refinance the business, but every time you do that the staff think, "oh, not another change of ownership'. They get upset and it's not good."
The morning I wrote this I heard on my radio a very similar view for not selling on to a VC from none other than Jeremy Deedes, managing director of the Telegraph Group. Deedes was speaking after the group had just agreed to a £3665m offer from the Barclay brothers in preference to various VC-backed bids on the table.
As Deedes remarked, the brothers had "a great track record of nurturing, developing and investing in their acquisitions" and they "bought things for life". Besides, he added in so many words, staff wouldn't have favoured the group being sold on to someone who themselves would have just sold the business on a few years later.
I'm quite sure 3i and other private equity players who were hovering over the Telegraph would have been rather taken aback if they had heard Deedes' comments. But it did raise an interesting dimension to the whole debate - do staff really care when a business is sold on? And, for that matter, do they really understand the mechanics of a buyout well enough to offer a sensible opinion in the first place?
Hindley and Deedes clearly think so, and given how intellectual those chaps are at the Telegraph one has no reason to doubt that. But in most businesses I would guess that staff would be very unclear (and certainly not privy) to what was really going on. Talk of workers being somehow informed enough to influence the decisions of senior executives when it comes to a sale process is patently absurd.
When all is said and done, it's the bottom line that counts, and, in the Telegraph's case at least, the Barclays had the deepest pockets. For Dignity, the time and price were right for a public listing.
And are staff always better served when there is no VC involvement? It invariably makes no difference. Just look at another recent Barclays investment - the acquisition of mail order giants Littlewoods and GUS. The result? Already more than a thousand job losses as the new owners make all those nice economies of scale by merging the businesses. Hardly a great deal for staff but exactly what any VC would do too.
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