00:00From supermarkets and roadside rescue to vets and care homes, private equity is brought into
00:07businesses people use every day. Asda, Morrison's Poundland and the AA are familiar names that have
00:14all had its backing. These funds pull money from investors to buy companies, aiming to sell them
00:21later for a profit. The Bank of England estimates the businesses they back employ more than two
00:27million people in the UK. That's roughly one in ten private sector workers.
00:33When we talk about private equity, what do we really mean? Well, I'll give a sort of
00:38potted definition. It's a sort of group of individuals who have particular expertise,
00:43although that sometimes seems questionable. But most particularly what they do have is the
00:48financial acumen and ability to access money to sort of to invest in other companies. And what
00:53they do then, of course, is to try and sort of reduce the sort of the costs in that organisation.
00:59So, of course, then, of course, it will run more profitably. So it seems same revenue,
01:05reduce costs. And of course, that increases the sort of the profitability. Sometimes, of course,
01:09the companies that they take over are running at loss. And they believe that by their abilities,
01:13they can sort of reduce that loss to sort of nothing or particularly to sort of to put it back
01:18into a profitable situation and sell the thing on. But of course, by sort of so-called increase in
01:23sort of the value, by reducing the costs, what often happens is staff lose out, you know,
01:29and staff headcount sort of diminishes, which, of course, reduces customer services. And people
01:35sort of say is that they make companies worse, not better. And indeed, we've sort of seen sort of
01:40in recent times, some spectacular sort of problems as a consequence of this. And if it goes badly wrong,
01:46then everyone loses out. And indeed, we look down our high street and, of course, we see
01:50sort of many of the once loved and trusted businesses, which, of course, have sort of
01:54gone through this this process and are no more. Many deals also involve loans, which the company
02:00itself must repay. Higher interest costs can squeeze money for staff, investments or the ability to lower
02:08prices. Owners may sell parts of a business or sell its premises and then rent them back.
02:15That raises cash, but leaves rent to pay. Poundland's sale to Gordon Brothers in 2025 left loans from
02:24previous owner Petco in place. Its turnaround plan involved store closures and rent cuts,
02:31alongside further financing from its buyer. Selling assets can help a company survive,
02:37but critics call it asset stripping when owners take money out and leave the business weaker. Homebase
02:45entered administration in 2024, six years after Hillco bought it. Its had already been struggling before
02:53that takeover. A change of owner is no guarantee of a successful rescue. So it's, if you like, it
03:00ostensibly is, it should be positive, but I fully accept the argument that what you're about
03:06is a sort of come back to a handful of individuals and their sort of their primary motivation is
03:12simply about sort of making money for themselves. So it's not about sort of, you know, putting it out
03:17into the wider sort of community. You know, that's not what they're about. And indeed they will say,
03:21why should they be? So there is a sort of a very good argument amongst many that somehow we should
03:27sort of control this. But the reality is the government never going to get involved in this because,
03:31of course, they have sort of bigger sort of problems to sort of be concerned with.
03:34So, you know, until we sort of change the law, and I don't see that sort of happening anytime soon,
03:38it's going to continue. But as I say, we then ask, who do these people answer to? And of course,
03:44the simple answer is they answer to the people that sort of put the money in the first place.
03:48In effect, you know, they borrowed the money, they take all the risks as they sort of put it.
03:52And of course, therefore, they should be sort of beholden to themselves. But they're sort of,
03:55they're not, you know, putting in lots of sort of debt, which of course, you know, it turns this
04:00company into sort of something which may have been sort of making profit before. And of course,
04:04it has to service that debt. So a lot of the profit, indeed, maybe all of it has to sort
04:09of go
04:09on that. And of course, it suddenly sort of goes into a loss making situation.
04:13You also get the sort of the circumstances whereby the sort of the assets of any high street business,
04:19which of course is the high street premises, they sell them to sort of to whoever it might be that
04:23it's willing to buy them. And of course, they take that money. And of course,
04:26it's a sale and lease back. So of course, they then got to sort of rent the premises
04:29that hitherto the sort of they actually own. Again, what you're taking is companies which,
04:35of course, you know, had a sort of fairly some decent sort of existence and making sufficient
04:40profit to cover all their costs and perhaps some sort of profit on top, which was then returned
04:44to the owners or the shareholders. But all of a sudden, of course, you've got these huge,
04:48the financial sort of costs, which are sort of being sort of laid down on the company,
04:52which, as I say, it creates a whole new dynamic and it's highly, highly problematic.
04:57Private equity can give British businesses the backing to grow, but heavy borrowing can make
05:03them more vulnerable when trading gets tough. With familiar names and millions of jobs involved,
05:09these takeovers have consequences far beyond the investors who arrange them.
