Categories
Banks, Lenders & Investors Finance General

Predatory investors behaving like unscrupulous bankers

leopard with prey - a predatory investor?Ten years after the lending culture that resulted in the 2008 Great Depression it seems that the behaviour of some investors is no less predatory and unscrupulous than those of bankers 10 years ago.
Recently FanDuel, a fantasy sports site, was sold by its Private Equity investors to Paddy Power Betfair for $465 million. So far so good. However, despite the sale price the ordinary shareholders got absolutely nothing.
The background to the investment is that the business was regarded a Unicorn company (a privately-held start-up valued at more than $1 billion) with it having more than 6 million daily customers in America.
Two Private Equity investors, KKK and Shamrock Capital, provided funds, based on a valuation of at least $1 billion. However, I am sure that the actual investment was based on a mix of debt and equity with a tight agreement that included a drag-along provision that was binding on all shareholders and allowed them to force through the sale of 100% of the shares at the reduced valuation.
I speculate that despite investing in the equity at the higher valuation, the amount of equity was minimal and in any case the agreements provided for the shares having a preferential status and I am also sure provided for an uplift on the equity that ranked ahead of ordinary shareholders.
I am also sure that much of the investment was debt that will have ranked ahead of shareholders. Given the sophistication of the Private Equity investors I am sure they did well out of their pref. share uplift, fees and interest on the debt, albeit at the expense of the founders and other shareholders who will have created the $465 million value for which the company was sold.
Not surprisingly, the former owners and the ordinary shareholders are considering legal action on the grounds that the sale undervalued the business in the USA and ignored a US Supreme Court decision to relax sports gambling laws there. I don’t however believe they will be successful in pursuing a claim since I am sure that the Private Equity investors will have covered all the bases legally.
In my view this is similar to the ruthless, unethical behaviour that characterised lenders’ attitudes at the height of the lending crisis that led to the 2008 Great Recession.
The defence of such behaviour is that it is legal and one of ‘buyer beware’. Perhaps the ordinary shareholders should pursue their advisers who are culpable for leaving their clients so exposed to ruthless and unscrupulous investors.
Doubtless private equity companies, like banks, would argue that it is their job to maximise returns for themselves and their investors by whatever means, albeit within the law. However, the ethics of their behaviour and their reputation for fair dealing ought to be a concern if they are not to become regarded in the same way as bankers.
 

Categories
Business Development & Marketing General Turnaround

SMEs have an opportunity to outshine big business

There is a lot of scepticism and distrust among SMEs and consumers about the values and ethics of big corporations at the moment.
One of its most well known manifestations is the support for the Shop Local initiative that has been growing over the last few years.
This is the perfect time for SMEs to stand out and enhance their reputations by demonstrating what they give back to the community and outshine big business.
Often, people in SMEs just “get on with it”, whether by adopting a charity, improving work conditions in some small way, or even something as simple as giving up a couple of hours to help a young person to plan their route into work, or find out about an industry or profession that they think might appeal to them.
A new, nationwide initiative called Trading for Good has been set up to help them to publicise this. It is a non profit organisation and free to join. It offers SMEs the opportunity to register and document their good deeds. There are annual awards for five such good deeds in a year that can earn companies a badge and a certificate to display on their marketing literature.
For SMEs looking for new ways to promote themselves as more ethical and committed to their communities than some of the bigger businesses this is an initiative to consider adding to the marketing mix.