The proposed takeover of supermarket chain Morrisons, by American-based private equity firm Clayton, Dubilier & Rice, has raised questions as to the motivations of private equity firms who have bought up UK companies in record numbers throughout 2021 so far. The potential move has created concerns among some areas of the City that it could affect jobs, pensions, public services and companies’ futures.

Much of this concern arises from private equity’s increasingly negative image and reputation among firms but is that justified? And if so, are there any exceptions?

Luke Davis, CEO of IW Capital discusses the importance of private equity:

“Private equity has come into the minds of most consumers and especially investors over the last few years, with large firms taking stakes in the likes of Premiership Rugby and now potentially other household names such as Morrisons. There is a perception, perhaps, that private equity companies swoop in to buy up companies at bargain prices, without much concern for other areas of the business or its customers.

“This, to me, seems to miss the mark on what is a vital source of finance for businesses of all sizes. There are, of course, examples of where it has gone wrong in the past but there are many more examples of where it has allowed a firm to grow, transform or restructure without immediate pressure from public shareholders.

“More important even than that, however, is the role that private equity plays in helping a critically underfunded section of businesses in the SME sector. In 2020 small firms in the UK received nearly £9 billion worth of private investment, that otherwise would not have been available from other sources. This investment almost always comes with advice, guidance and an outside perspective that can prove invaluable to a business looking to grow, scale or simply survive (especially in 2020).

“SMEs make up 99.9% of private sector businesses and employ around 60% of the workforce and as such are vital to the UK economy and its growth. For example, one of the firms IW Capital invested in during 2020 was a paper packaging business that pivoted to produce plastic-free PPE, since the investment it has seen tremendous growth and has nearly doubled its workforce. This kind of example is indicative of the positive impact of private equity when it goes right.”