At the height of the Covid pandemic, you could be forgiven for feeling a touch sentimental towards Britain’s supermarkets. As we queued patiently for our rations, and applauded the shelf-stackers and delivery drivers, companies like Tesco, Sainsbury’s, Asda and Morrisons seemed to be a vital part of the collective effort.
But they are corporate businesses all the same, and their virtues have not gone unnoticed in booming world of private equity — at the more rapacious end of the world of finance.
Last week Morrisons called for a special auction to decide its future ownership following a bidding-war between two U.S.-based private equity firms. Asda was taken over back in February, and there is speculation that, before long, all the major British supermarkets may be in private hands.
As suggested by the fate of Debenhams — whose bankruptcy last year almost certainly had something to do with an earlier kneecapping by private equity — this is by no means good news for people who shop or work at these stores.
In theory, private equity firms want to make companies more profitable so as to ultimately sell them on, while pocketing a few extras along the way. In practice, private equity has a whole suitcase of dirty tricks for extracting quick profits out of companies, leaving them severely weakened in the process.
To begin with, there’s the ‘leveraged buyout’, which means that a company is bought almost entirely with borrowed money — debt which is then transferred onto the company’s own books. To help handle this debt, the business is streamlined, which inevitably entails cutting back on wages and sacking lots of staff.
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