Wednesday 4 April 2007

Plus ça change, plus c’est la même chose

What do hand guns, radiator valves, lawn mowers and fondant fancies have in common? Those with long memories will recall that they were all products of the high-flying conglomerate Tomkins. Along with the likes of Hanson, Williams and BTR, it was one of the great British success stories of the 1980s and early 1990s. These were companies built on the belief that good managements could turn their hands to anything, and they made fortunes by snapping up undervalued businesses and turning them around.

Then a little over ten years ago conglomerates suddenly became horribly unfashionable. Investors wanted something called “focus”, so sell-offs and de-mergers became the order of the day. This left companies smaller, so the obvious answer was “sector consolidation” through acquisitions. It is not entirely clear whether all this corporate activity added any value for shareholders in the businesses concerned. But it certainly made a lot of money for City banks, brokers, accountants, lawyers and, yes, even financial PR consultants.

Today many of those focused and consolidated quoted companies are being circled by hungry sharks from the private equity sector, who believe that they can extract more value from their assets. Does this in any way sound curiously familiar? A cynic might even wonder exactly what the difference is between a fashionable private equity business, which believes that good management can turn its hand to anything, and a tired and discredited 1980s conglomerate.

The answer, stupid, is that key word “private”, meaning the avoidance of stock market scrutiny. But what’s this? Leading US private equity player Blackstone is looking at a flotation that will value it at $20 billion and presumably make it “the public private equity group”. Nothing like as much fun as “Tomkins, the buns to guns conglomerate”, a joke which by itself completely justified their acquisition of RHM. But nevertheless a valuable step towards enhancing the gaiety of the business pages.

If you’re tempted to invest in Blackstone, ask yourself the question you should apply in any flotation: “If the people who know this business best think its prospects are so terrific, why are they trying to sell it to me?” Then go and have a nice lie down.

Meanwhile Greg Hutchings, the genius who took Tomkins from a value of virtually nothing to £5 billion, is back on the acquisition trail with his vehicle Lupus Capital. That’s presumably Lupus as in the Latin for wolf, rather than the chronic, tubercular skin disease. Or maybe it’s another joke in the “buns to guns” mould. Either way: nice one, Greg. And the very best of British luck.

Keith Hann is a PR consultant who has always put jokes first.

Originally published in The Journal, Newcastle upon Tyne.

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