EC law will hamper private equity investment

The European Commission’s (EC’s) proposed legislation on the regulation of Alternative Investment Fund Managers will restrict the flow of much needed private equity investment in food and drink companies, according to industry commentators.

The EC has proposed​ a Directive on Alternative Investment Fund Managers, which is the first attempt to create a framework for the direct regulation and supervision in the alternative fund industry, including private equity.

It is believed, however, that the regulation will hamper investment in food and drink companies - especially those that are currently struggling with cash flow because of tighter lending and falling sales. “At a time of severe capital scarcity, any moves to hamper European businesses’ access to finance would be extremely misplaced,” Jonathan Russell said on behalf of the European Private Equity and Venture Capital Association (EVCA).

“These proposals merely heap unwarranted costs on value-creating parts of the economy at a time when these businesses are dealing with the effects of a severe economic downturn. They also impose rules on private-equity backed companies that will not be equally applied to their competitors owned by private investors falling outside the Directive,” added Russell.

Data released in April shows that private equity activity slowed during 2008 in response to widespread uncertainty across financial markets, according to data for 2008 from EVCA. The statistics show that private equity funds raised in 2008 totalled euro 65.3bn, a fall of 20% on the euro 81.4bn raised in 2007.

“If the current proposal is voted through, we believe it will hinder the free-flow of capital into a market that remains blocked,” commented Vincent Neate, private equity partner at advisory service KPMG.

John Cridland, Confederation of British Industry deputy director-general, added: “Business needs private equity to help lead investment out of recession - in fact, we need it now more than ever. Disproportionate regulatory burdens from Brussels will therefore be counter-productive.”

Conversely, it is felt by some, that private equity investments in the food and drink industry should adhere to stricter regulation. Unite, the union, claimed that because United Biscuits (UB) was bought out by private equity companies, “its [UB’s] only concern is money, which ultimately costs its employees dearly”

“UB’s private equity owners, Blackstone and PAI, have no interest other than in maximising the return on their investment; the loyalty and long service of the workforce means nothing to them,” said Unite national officer, Jennie Formby.

Unite has been campaigning​ to stop UB from going ahead with proposals to offshore its financial and administration department to India, which could result in the loss of around 170 jobs in the UK.

UB rejected the union’s comment that “its only concern is money”. UB said: “We constantly review our operations to ensure the business can continue to deliver excellent value to consumers.”