Family Office Elite Spring_16

NEW GENERATION PRIVATE EQUITY
Leading the mega trend of European SME Acquisitions
dubbed the ‘greatest transfer of wealth in history’G
by Stephen Greenwood
A recently established ‘new-generation’ PE fund has
opened up to investors the prospect of high rewards
generated by combining the acquisition of profitable
SME businesses with employee ownership. This ethical
investment hybrid is the Acuity Private Equity Fund
and predicts 25% plus returns annually over the ten
year life span of the investment. One of the most successful
business models operating in current markets
is that based upon employee ownership. The best
known example of this is the John Lewis Partnership,
dubbed ‘the socialist on the High Street’. All 69,000
permanent employees are Partners who own John
Lewis department stores, Waitrose supermarkets, an
online and catalogue business, johnlewis.com and a
direct services company, Greenbee.com, with a turnover
of nearly £7bn last year.
Stephen Greenwood
Acuity Management Limited
According to research carried out by the Employee
Ownership Association, employee-owned companies
consistently outperform the FTSE All-Share, with a
9.9% boost to share value (Martin Conyan and Richard
Freeman, Shared Modes of Compensation and
Company Performance, National Bureau of Economic
Research, Working Paper 8448). Other research shows
that this model outperformed the FTSE-100 throughout
the post-credit crunch crisis, generating 174%
greater earnings per share (EPS). All very well, but how
can this include a return for external shareholders?
The principal architect of Acuity, Stephen Greenwood,
believes that an answer to this conundrum has now
been skilfully engineered. “This is the only fund in the
world that acquires the majority equity of between
60%-70%, for example and creates employee ownership
by allowing the employees and managers to own
30-40% and benefit from higher growth for investors
and co-ownership with employees ” he explains. Collaborating
in a Joint Venture with Close Brothers Merchant
Bank enables the Fund to use only small slices
of equity investment while still obtaining the majority
equity. The Fund is executing a strategy that directs
this ethical approach to acquisition towards the demographics
of the baby-boomers born between 1947
and 1957. Thousands of ‘grey entrepreneur’ business
owners across the EU are now turning 65 years old and
want to retire but wish to leave in such a way as to protect
their legacy and see their staff rewarded. This has
been called the ‘greatest transfer of wealth in history’
but the financial crisis of 2008 means that these businesses,
while established and profitable, are finding it
difficult to find buyers.
Many of these businesses now face the very real prospect
of disappearing, effectively wiping out decades of
dedicated work and destroying the livelihoods of their
employees, with the knock-on negative impact that this
will have on their local communities. Nearly a third of
all the 19.3 million SME’s in the EU are owner-managed
businesses (OMBs) set up by the post-war generation.
Many of these businesses would, pre-2008, have been
up for sale. According to the European Commission reports
on Succession there are 690,000 profitable trading
businesses that must find new owners each year for
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