ALEX BRUMMER: Vodka meets its match in private equity’s financial muscle
Whoever knew that Stock Spirits, the vodka distiller beloved by boozers across Eastern Europe, is quoted in London?
It is among a bunch of firms from the newly-capitalist economies which saw the City as an attractive place to float.
They reckoned without the London discount, which has made the UK a honey-pot for private equity barons.
Feeding frenzy: London-listed vodka distiller Stock Spirits has become the latest target for the private equity barons
Hard on the heels of a bid for Czech-based cyber-security Group Avast by America’s Norton Life Lock, comes a £1billion offer by CVC for Stock with a decent 41 per cent-plus premium.
CVC is on a roll. It is involved in a messy battle in Spain for control of La Liga, but encountering resistance from its two most garlanded members, Real Madrid and Barcelona. It controls Formula One and did a strategic deal with Six Nations Rugby during the pandemic.
The words around CVC’s deal with Stock are familiar. CVC is going to be investing in its ‘strong track record of product innovation’ and tap into the popularity of its brands among millennials. In other words, getting a lot of young people drunk.
As wonderful as that may be for the directors and shareholders, they should consider downsides. Loading up companies with debt is never a good idea, especially in a turbulent pandemic age. And, as colleagues at Avast and Norton are learning, the easiest way to jump-start margins is to sack people.
In a report on the summer madness, broker Peel Hunt points out that 12 UK public companies have come under offer since July. The most high-profile is the botched bidding war for supermarket Morrisons.
The most vexing is the undermining of the UK’s aerospace capacity with the deals for Meggitt and Ultra Electronics.
And the least desirable is the offer for inhaler developer Vectura from Philip Morris. It has the medical establishment up in arms, including the Royal College of Physicians.
What also is clear from the Peel Hunt note is that private equity need have no fear of rejection as almost every deal is ‘recommended’.
The idea that ‘nodding dog’ independent directors should ever get in the way of grasping executives becoming instant multi-millionaires through share incentive plans is alien.
As strong results from investment banks Barclays and Goldman Sachs – along with professional services such as PwC – demonstrate, everyone in finance has an abiding interest in getting deals over the line.
The broader interest of stakeholders, employees, suppliers and consumers or the nation, doesn’t stand a chance against financial muscle.
No one could accuse Aviva boss Amanda Blanc of dragging her heels. In her 12 months in charge of the insurer, she has executed £7.5billion of disposals and is now dishing out the largesse with plans to give £4billion back to investors.
The first £750m is going on a share buyback. That will tidy up a sprawling equity base. But unless the company can find a winning formula to grow and to keep earnings and shares rising, then investors may feel cheated.
They will hope that as the rest of the cash is released over the next year, most of it will come as a special dividend. Aviva’s balance sheet clean-up, including paying down £2billion of debt, and £300million in cost reductions should go some way to keeping Swedish activist investor Cevian at bay.
Blanc’s next task will be making sure Aviva can keep growing in an increasingly digital sector. Disrupters such as newcomers Marshmallow pride themselves on undercutting incumbents.
The legacy of a strong advisers network also means Aviva is able to attract inflows into investment products. But the disruption of traditional channels by fintech upstarts could make that harder.
If the longer-term goal is a more progressive dividend, it might have been worth keeping some of the cash back for transformative, long-term investment in tech and marketing channels. That’s not on the activist agenda.
The Competition & Markets Authority (CMA) says it has no role in policing Britain’s food security at Morrisons. But it can’t resist poking the social media giants.
A preliminary ruling that Facebook’s acquisition of online image creator Giphy raises serious concerns is gutsy, since the target company has no direct presence in the UK.
Facebook control could potentially deprive other platforms of the right to access animated images known as GIFs.
A fascinating intervention, but couldn’t the CMA unleash its anti-trust enforcers closer to home?