GP: Industry reputation hurting deal flow

Private equity’s tainted reputation is affecting the supply of investment opportunities for GPs operating in the UK. 

That was the message Garry Wilson, a partner at UK-based turnaround firm Endless, had for delegates at the BVCA’s annual summit in London last week. 

“All of us make a difference to businesses… We protect jobs… [but] people are suspicious of us,” he said. 

He criticized some of his fellow GPs for not stepping up their efforts to explain the value-add of private equity ownership. “A lot of people don’t really care about it. To the PE houses saying that they don’t care about reputation, I would say: it’s depressing our deal flow.”

Firms should not just spend time gaining LPs’ trust but also focus on wider stakeholders, he suggested. “LPs send us checks of millions of pounds because they trust us. We need to tell the rest of the community that we are trustworthy people.” 

He cited an occasion whereby Endless had negotiated with a mid-market GP to acquire a struggling business, which had 2,000 employees. “The first thing they said was that they were worried about these jobs. [This firm] was about to lose money on the deal but the jobs were the first thing they mentioned to us. People don’t know about that, because we [generally] don’t talk about these things.”

Wilson’s words come after EQT’s Thomas von Koch made similar remarks in June, while speaking at the European Private Equity and Venture Capital Association (EVCA) conference in Vienna. 

“Frankly, we should all reflect on why the industry has such a bad reputation,” he said. “In this connected world, there’s nowhere to hide. Private equity wants to provide good returns to investors, but that’s not enough. The way we create returns is equally important.”

“In order to keep our license to operate, we need to move from being pure investors to being company owners [that contribute to] society as a whole. We need to further align our interest with our stakeholders. That will create sustainable superior [companies] and create trust,” he said. 

Firms that do not acknowledge their responsibility to society and the importance of doing good will disappear over time, he argued, because it’s “not sustainable”. 

“We need to explain how the companies we own are doing after five years,” Von Koch added. “Has it grown? Because that justifies our reasons to exist.”