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Private Equity and the Governance Landscape

Boards of quoted companies are looking over their respective shoulders. Deep pocketed Private Equity (PE) may have held back during the pandemic but no longer and we are seeing considerable fire power being deployed to acquire undervalued assets. Most recently in the UK, the Board of supermarket chain Morrisons has recommended that shareholders accept the offer of a Private Equity consortium led by Fortress, though competing bids remain possible. Similar trends are visible globally: Carlyle is reporting accelerating activity in Japan, as is KKR. The same is true in other markets.

Much has been written about a playing field that is far from level: PE operates under a much lower level of disclosure with all the advantages this brings.

However, through our Evaluation, Development and Search assignments, Fidelio is seeing a much more nuanced picture. The current focus on ESG factors is symptomatic of changing societal and political expectations for all businesses, including those not historically in the public gaze.

This is leading to increased scrutiny for PE. It is worth noting that the UK White Paper, ‘Restoring trust in audit and corporate governance: proposals on reforms’, proposes to bring the Boards of Public Interest Entities, including PE backed companies, under the remit of the new Audit Reporting and Governance Authority.

Perhaps most importantly, investors in PE are also increasingly applying an ESG filter. This creates upside for PE firms able to evidence ESG commitment at platform and portfolio company level, and has clear implications for fundraising and valuation.

Quoted Boards still need to be looking over their shoulders if undervalued. However, the old dichotomy between listed companies (held to account) and PE (operating under the radar) is becoming less pronounced. And the PE firms which understand and respond to ESG will be formidable competitors but potentially also significant drivers of value.

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Gillian - Karran Cumberlege

Head of

Board Advisory

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