Taste the difference

Malthusian

letspretendforaminute wrote: »

Malthusian. My Local was touched by the poo stick that is private equity and the LLP that did so realised maximum value by sinking the business.

Of course they did. If bankruptcy is so profitable for the owners then as an owner of Sainsburys you should stand up at the AGM and ask the directors why they aren't driving Sainsburys bankrupt as well.

AnotherJoe

Alexland wrote: »

I don't think the OP will agree but putting so much concentrated risk in any single company is madness when there are so many better options.

I think it’s reasonable to make a punt on a single company but this one defies logic.

letspretendforaminute

Remind me to lend Mike Greene (rumoured net worth £50,000,000) if our paths ever cross.

Some companies are ripe for picking low hanging fruit. I could list a hundred maybe two hundred people who have wound up companies whilst trousering tens of millions via private equity. It’s unethical and I like well run businesses to stand the test of time and give something back to the community in which they serve.

jimjames

As well as competition like Lidl and Aldi there is also the threat of Amazon in the background. Tesco taking over Bookers may have an impact.

It certainly isn't a sure bet that they will be around in 25 years. You;'d never have thought that companies such as Woolworths, Blockbuster, HMV would disappear but it only takes one wrong step by management and things can go disastrously wrong. Argos may not be the saviour you think.

letspretendforaminute

Thank you jimjames for giving us a couple of good examples of two companies gone bad that were touched by... private equity. The third company was destined to fail - one other didn’t have a bright future either.

Debenhams - private equity, hollowed put plus escalating rent clauses.

Ocado - established but not terribly successful online retailer. Good luck Amazon.

Aldi/Lidl - here to stay but no longer cheaper or best value in many areas. Sainsbury’s are competitive like-for-like.

Argos isn’t a saviour at all. It’s just a perfect acquisition that compliment Sainsbury’s in a changing landscape.

The Tesco/booker deal should not have been passed as its anticompetitive for small independent retailers plus the supply chain into restaurants but I can’t see that being an issue for Sainsbury’s.

AnotherJoe

letspretendforaminute wrote: »

Ocado - established but not terribly successful online retailer. Good luck Amazon.
.

Nothing personal but if you can’t see the difference between Amazon and Ocado you shouldn’t be investing in the retail sector.

greendoor665

This is a pretty terrible idea.
Supermarkets, or at least a physical place where you go to buy food, will be around for a while yet but there is absolutely no guarantee that Sainsbury's will be one of them.

If they go bust that's a lot of pints you won't be drinking.

Prism

letspretendforaminute wrote: »

Redux. I have money in Fundsmiths already, plus a vanguard FTSE 250 one.

I would have a read up on why Fundsmith doesn't invest in supermarkets

bigadaj

Sainsburys are the food equivalent of marks and spencer.

Middle market is always going to suffer and it's probably worse for sainsburys than in most scenarios.

Many people moving to Aldo and lidl, tesco are far bigger so can drive bigger discounts, Asia have Walmart behind them.

And aspirational customers will be moving to Waitrose and ironically m & s.

The purchase of Argos is a stop gap but little more, their market will shrink like that of dixons as the amazons and specialist internet retailers gain scale and manage to discount costs.

bowlhead99

letspretendforaminute wrote: »

I’m not a Sainsbury’s employee. I work for an unlisted private equity company with no such scheme.

So you mean you work for a private equity company, as in a PE house / fund management firm? Or you work for a company owned by a private equity fund or one that's owned by a private individual or family?

I guess the latter; from your eclectic attitude to building an investment portfolio and low tax band you are probably not an investment professional, and from the anti-PE slurs in later posts you're perhaps someone who fears for his job when the backers of his employer's management team make strategic suggestions on how to run the business more effectively.

letspretendforaminute wrote: »

Malthusian. My Local was touched by the poo stick that is private equity and the LLP that did so realised maximum value by sinking the business. They have form for this comet and now monarch airlines.

All very different situations.

The backdrop for Comet for example is that it was part of what was Kingfisher for 20 years, the second half of which it had been part of the Kingfisher Electricals /KESA platform with Darty in Paris and a number of similar businesses around France, Belgium, NL, Spain etc. In the mid 2000s Comet was having a number of quarters of multi millions of losses as the online retailers started easily undercutting the big retail stores as people would look at the stuff in the stores but just go away and buy online from someone else.

Then the 2008 credit crunch hit very hard as 40-50% of what Comet sold was white goods and people stopped moving house at the same time as the market for credit/ finance dried up at the same time as Comet was trying to have a price war on big screen tellys with Curry's/ Dixons. A year or so later, the US electricals giant Best Buy came over to the UK and left with its tail between its legs having found a very difficult market over the year it tried.

The Kesa group was haemorrhaging cash through Comet stores which had a £90m annual rent bill and was losing £9m a year, dragging the rest of the group down. To avoid closing it they sold the two operating companies for £2 to a private equity specialist who hoped to revive its fortunes, while Kesa kept the pensions responsibilities which together with some working capital left in the business effectively cost it €50m to give Comet away - nobody wanted it. Unfortunately Opcapita couldn't turn around the lossmaking business.

But that's hardly private equity killing a business. It's a dead business that privately raised money couldn't save. And the LLP involved, OpCapita (which the same year rescued Game group out of administration, refocused it and got it back listed on the stock market again within two years with a market cap of £800m) are an entirely different firm from Greybull who had unsuccessfully backed uncompetitive Monarch.

letspretendforaminute wrote: »

Some companies are ripe for picking low hanging fruit. I could list a hundred maybe two hundred people who have wound up companies whilst trousering tens of millions via private equity. It’s unethical and I like well run businesses to stand the test of time and give something back to the community in which they serve.

There are 3000+ UK businesses owned by private equity with 400k+ employees, not an insignificant part of the economy.

The ownership structure lends itself to alignment of interest between the owners, management and other stakeholders as they are less concerned with the quarter end profits announcement to the market; they're not on a market. Some failures in private companies are inevitable just as they are in public companies. But you could just as easily name 200 people who had grown employment and revenues through their stewardship of an acquired business - if you could be bothered to look into it.

letspretendforaminute wrote: »

Thank you jimjames for giving us a couple of good examples of two companies gone bad that were touched by... private equity.

You could easily find others "touched", with better results.

Skyscanner had under £1m turnover when Scottish Equity Partners made its initial investment in 2007. SEP supported it's growth and strategic development until by 2015 it had £120m revenues, 60 million customers and employs 800 people worldwide. A Nasdaq listed travel company bought it for over a billion in 2016.

Go Outdoors had one store and 15 staff with £1m sales when YFM Equity Partners bought in during 1998. Thirteen years later when they did their first partial exit they had increased turnover 200x and growth staffing to 2000 across 49 stores

Advent International and Bain carved out Worldpay from RBS in 2010 as a solid first mover business in ecommerce but stuck as a non core activity in a basket-case bank which had needed a government bailout to stay afloat and didn't have the luxury of being able to develop Worldpays's potential while getting the banking business bank to profitability.

With a significant investment of private capital, redefined strategy and improvements in technology and customer offering, they created 2500 new jobs (including a 400% increase in engineering headcount) and developed it into a fully independent global payments business with decent compounding earnings growth, eventually being taken public in 2015 for a "4th largest London IPO ever" value of £4.8bn. The PE firms bought it for a great price originally, but were not too greedy, nor did they asset strip it - two years post IPO the market values Worldpay at £8bn.

There are literally hundreds such examples of private equity adding value.