KEY POINTS:
Private-equity firms are acutely aware that they are about as popular with the public as a contagious disease. Unions and journalists remain particularly wary, probably because of bad experiences with asset strippers in the 80s.
In fact, notes former Kiwi academic Sue Newberry, most members of the public
probably couldn't even name a single private-equity firm.
"Because they have tended to be shadowy as far as the private-equity operators themselves are concerned, the public wouldn't necessarily know who they are."
Tim Sims, managing director of Australian private-equity firm Pacific Equity Partners (PEP), admits his frustration with "simplistic drive-by shootings from journalists" who aren't particularly interested in the reports commissioned by the industry which show private equity tends to increase employment and add value.
Sims notes that anyone who buys a firm from private equity does serious due diligence. Surely, he argues, they wouldn't pay high prices if they didn't think the company was worth it.
Yellow chief executive Bruce Cotterill has worked with private equity before, most notably as a member of the advisory board for the Australian branch of private-equity firm Gresham. One of the reasons why private-equity firms are able to extract so much value from their purchases, he says, is because they are run by analysts and bankers who really do their homework. "They're good to work with because they're informed. You flip to the other side of the ledger and there's nothing worse than sitting with a board that's not informed and not constructive. Before I got involved in private equity I spent all my time trying to speed people up. Once you get involved with them, you spend all your time trying to slow them down. But I'd rather it was that way."
Not everyone agrees with Cotterill's assessment. According to one well-connected player, the problem with New Zealand's private-equity scene is there are too few firms and not enough expertise.
"There are too many private-equity players who I would categorise as three investment bankers and a Rolodex," the person grumps. "You need to be able to bring more to bear than that."
Warehouse founder Stephen Tindall has got to know many of the big players in the international scene. He has contributed to several local private-equity funds and has also had personal dealings with private-equity firms through his extensive involvement in venture capital.
In 2006 Tindall announced plans to take The Warehouse private, with funding from PEP.
"My experience from watching them very closely in both the US, UK and here is they normally try to add value," he says. "I think it obviously varies from firm to firm, but I don't think they're anything like in the same mould as the old asset-stripper days, like the old Brierley."
Generally, companies that have received private-equity money have tended to do quite well, he says, mostly due to a hard-nosed focus on results.
"They tend to pick up companies that you would probably say have lazy balance sheets, and generally don't have a team that has performed, or they pick up a company that has performed really well but they believe there's a huge amount more mileage ... Private equity love to see things they can cookie cutter and really roll out a whole lot of volume."
Ironically, Tindall says he turned to PEP because of his disillusionment with the short-term focus of sharemarket investors. His plan was to make enough money to eventually buy out PEP and bring in another player.
"I have no doubt that had The Warehouse been private, and I controlled it, that we would still be in food, and we'd possibly still be in Australia, because I have an appetite for the longer term. My personal view is no start-up company really hits its straps for 15 years. If you buy something that's already a reasonably big size you can take some risks in the public markets and if they come off then you can roll it out. But generally public markets don't have an appetite for anything that underperforms."
In the end, Tindall's proposal went awry when grocery rivals Foodstuffs and Woolworths panicked at his plans to move into their market, and took blocking stakes in the company. The situation remains unresolved and may yet cost Foodstuffs and Woolworths millions, given that The Warehouse's share price has since tanked.
Which is a point several private- equity players are also keen to make.
Yes, investors and institutions who poured money into private-equity funds that invested at high multiples over the past few years have probably lost a fortune. "But you'd have to say," says one senior private equity executive, "the public markets aren't looking too crash hot, either."e
