Friday Letter: Flying the flag for private equity

Question for the GPs out there: how many people – outside of your comfortable private equity inner circle – really understand your job? How many people know that your efforts with portfolio companies lead to job creation and economic growth? How many people are aware that the returns you generate are beneficial for pension funds in which you and I lock up our savings. The answer is likely to be ’not that many’.

That’s why it was disappointing to hear this week that Egeria, a Dutch private equity firm, has turned down an invitation to take part in a roundtable discussion about private equity that will take place in the Dutch parliament next week.

In a statement, Egeria said it believes a 50-minute debate will be “insufficient to give a good insight into private equity and into our firm in particular.” Instead of attending the public hearing, Egeria – which declined to comment further – has invited Dutch MPs to come to its office for a private meeting.

The roundtable, which is actually scheduled to last three hours, was suggested by Henk Nijboer, a member of the Dutch Labour Party (PvdA), one of the governing parties in the Netherlands, in a bid to give parliament a better understanding of the private equity sector. The initiative came after Dutch department store Vroom & Dreesman, which is owned by Sun European Partners, got into difficulties earlier this year.

While the Dutch Labour Party believes private equity can be useful for start-ups, or mid-sized and family businesses with a succession problem, it has ratcheted up the rhetoric more recently, with warnings over excesses in the sector. Nijboer recently commented that Anglo-Saxon private equity firms are particularly equipped “to strip companies using ingenious legal and fiscal constructions”, naming NRC Media, Estro, Hema and Van Gansewinkel as examples.

One possible reason why Egeria is not attending is the fact that a representative from NRC Media, a Dutch national newspaper that was formerly owned by Egeria, will be there. Egeria has been under fire in for its investment in NRC because the firm took out a dividend of €12.5 million when 30 people were made redundant back in 2013. It is easy to see how this very public meeting could turn into one that publically bashes Egeria for this investment.

But not turning up plays into the hands of private equity’s detractors – Egeria is now being criticised for staying away. The firm’s decision not to participate “will only lead to an increase in support for further regulation on private equity,” Nijboer said.

The firm’s absence will also deter attention from the fact that PGGM, 3i Group and KKR have accepted the invitation. Because private equity has grown into an important investor in the Dutch economy in recent decades, it is it important to have a dialogue with stakeholders, a KKR spokesperson told PEI.

Needless to say, there are success stories out there that illustrate the value that private equity can bring to businesses. One LP told PEI recently that he was very excited by 3i’s investment in Basic-Fit, a Dutch discount gym, which is rapidly being expanded by the London-listed group. This is an investment that 3i will no doubt want to talk about at the meeting next week.

Unfortunately, the success stories are likely to be overshadowed by comments made by the representative of NRC Media, as well as by Egeria’s absence. In the statement on its website, Egeria wrote that under its ownership, NRC Media became an independent company and reduced its debts. It also said circulation went up as well as revenues and jobs.

Surely the way to silence the critic is by hitting them with facts and figures that show what actually has been achieved – a point that was also reiterated by EQT’s Thomas von Koch at PEI’s recent Operating Partners Forum.

For every negative headline that appears about the industry, there’s a positive story to tell also. So be proud and tell people what value you created. It may be tiring having to do that over and over again, but GPs have a responsibility to fly the flag for private equity – not just for their own image – but for the reputation of the entire industry.