Bloomberg Markets

36 June 2006 C O V E R S T O RY

The
CROWN
PRINCE
of BUYOUTS By Simon Clark and Edward Evans

The U.K.’s Permira ‚In July 2004, U.K. private equity giant Permira Holdings Ltd. teamed
up with CVC Capital Partners Ltd. to buy the Automobile Association

is raking in profits Ltd., a for-profit company that 15 million British motorists rely on for
roadside help when their cars break down. The price was 1.75 billion
as LBOs boom. pounds ($3 billion), £1.3 billion of which was borrowed and secured
against the AA’s revenues. Permira and CVC installed new management
Managing Partner and, within two years, had slashed a third of the AA’s 10,500-strong
workforce, including at least 500 of its roadside mechanics, whose yel-
Damon Buffini’s big low vans and jackets are instantly recognizable to British drivers.
Buyouts like the AA sale are booming from New York to London, to
challenges are fending Madrid. In 2005, private equity firms racked up an unprecedented $255
billion of announced takeovers worldwide, 34 percent more than in
off political attacks 2004, according to data compiled by Bloomberg. The center of the pri-
vate equity universe these days is Europe, and Permira, which is seeking
and an invasion of to raise as much as 10 billion euros ($12.3 billion) for Europe’s biggest
buyout fund, is in the thick of it. Its partners are getting rich buying and
Europe by U.S. firms. selling companies, and its deals are attracting controversy. The AA take-
over is a prime example. The U.K.’s GMB union, which represents
596,000 workers, including 2,000 AA employees, reacted to the job cuts

PHOTOGRAPH BY ALAN WELLER/BLOOMBERG NEWS

B l o o m b e r g M a r ke t s
Month 2006 TK

Buffini out on the town

in London. Permira’s
managing director shuns
most publicity.
 Bloomberg Markets
38 June 2006
with an unusually intense public campaign. In March, the
union picketed AA offices in five cities. “It’s asset stripping of
the worst kind,” says Gwyn Prosser, a Labour member of Parlia-
ment who also belongs to the GMB. “You could describe it as
theft masquerading as financial engineering,” he says, referring
to the traditional buyout method of paying for takeover loans
with the target’s revenue. Prosser says he will sponsor a petition
in Parliament slamming Permira and CVC’s cost cutting at the
AA. He expects about 65 of the 646 MPs to support him. What
Prosser, 63, and others want is a parliamentary review of how
buyout firms operate, with more disclosure of their plans for
‘You could describe it as theft masquerading as financial
engineering,’ a U.K. MP says of private equity.
the businesses they buy, a review of tax rules that benefit them
and more reporting on their investors and profits.
The political storm may only increase as buyout firms
raise record funds to target bigger and better-known com-
panies. A dozen buyout partnerships are raising new,
multibillion-dollar funds and may go toe-to-toe with Permira
when it attempts an acquisition. Among Permira’s fiercest
competitors are U.S. firms trying to widen their European
footprint, including Blackstone Group LP, Carlyle Group and
Kohlberg Kravis Roberts & Co.
Meanwhile, the aging founders of the private equity in-
dustry are giving way to a younger generation of leaders. The
biggest names from the first buyout boom in the 1980s are
now in their 60s—men like Ted Forstmann, Thomas Hicks,
Henry Kravis and Thomas Lee. They’re being supplanted by
people in their 40s who
have moved up the lad-
der and are hungry to
take charge.
In Europe, the leader
of that new generation is
The AA at work: The GMB union says service has declined.
C O V E R S T O RY : P E R M I R A ’ S P R I N C E O F L B O s
Permira Managing Partner Damon Buffini. He shuns most
publicity, and he declined to be interviewed for this article. Yet
greater scrutiny is an inevitable consequence of Buffini’s own
success and the new prominence of buyout firms.
Buffini, 44, is the Cambridge- and Harvard-educated son
of an American soldier and a British gas company clerk. Busi-
ness partners say he rose to the top through a combination of
charm, grit and financial savvy. “Damon Buffini and his part-
ners are taking Permira from being a leading European pri-
vate equity firm to a world leader,” says Peter Bacon, the
former head of Credit Suisse Group’s private equity advisory
team in Europe. Bacon, 44, this year became head of Euro-
pean operations for New York–based investment firm GSO
Capital Partners LP.
After proving his mettle in dozens of deals, Buffini has at-
tracted a long chain of admirers. “He’s your original self-
made man,” says Leon Allen, 67, a friend who was chairman
of Tetley Group Plc, the U.K.’s leading tea bag maker, when it
was owned by Permira in the 1990s. “Damon is the prime
minister at Permira.”
Permira Holdings is registered in Guernsey, one of the
Channel Islands. The firm’s headquarters is in London, one of
a total of eight Permira offices, including one each in New York
and Tokyo. Permira has been a leader in European private equi-
ty from the time it was founded in 1985 as a group of European
venture capital funds by U.K. money manager Schroders Plc.
It has arranged 280 deals worth more than ¤60 billion. Per-
mira says it backed 14 European takeovers worth ¤1 billion or
more from 2000 to ’05, making it the top firm by that mea-
sure. Its closest rivals were Apax Partners Worldwide LLP and
Cinven Ltd., with a dozen deals apiece, and KKR, with nine,
according to a March report prepared for Permira’s investors.
The ¤5.1 billion fund Permira
raised in 2003 set a European
record at the time and was
among the biggest in the world.
There’s no sign the European
deal well is about to run dry. By
value, half of last year’s an-
nounced $255 billion in acqui-
sitions were in Europe, where
companies in industries from
telecommunications to health
COURTESY AA
care are undergoing an intense
period of restructuring and
where many family-owned
 B l o o m b e r g M a r ke t s
June 2006 39

customers’ calls, according to Which?, the Consumers’

Association’s magazine. Sherwood, who’s an AA board
member, says Permira and CVC have made the road
service company stronger and more efficient.
The dust-up in Britain is just one example of the
suspicion that many Europeans have of loosely regu-
lated buyout firms and their cousins, hedge funds,
which are investment pools designed for investors
with at least $1 million to bet on falling as well as ris-
ing securities. In early April, Werner Seifert, former
CEO of Frankfurt-based stock exchange Deutsche
Börse AG, published a book, Invasion of the Locusts
(Econ Verlag), whose title makes clear his view of Eu-
rope’s new financial elite. Seifert mostly targets hedge
fund firms, one of which, London-based TCI Fund
Management, helped force his ouster from Deutsche
Börse. The epithet locust was used last year by Ger-
man Labor Minister Franz Müntefering to describe
the buyout firms that bought $27 billion worth of
German companies in 2004 and ’05.
Nigel Doughty, co-founder of U.K. buyout firm
Doughty Hanson & Co., considers the attacks on pri-
vate equity misguided. “We can help them, but they
don’t realize it,” he says. “They think we’re locusts. We
can promote economic growth, and we do create jobs.”
From 2000 to ’04, companies backed by buyout firms
have added a net 420,000 jobs in Britain and on the
Continent, according to the Brussels-based European
Permira partner Sherwood says the era of big deals is here to stay. Private Equity and Venture Capital Association
(EVCA). Permira’s Sherwood says private equity
companies are selling out as founders retire. In the first quar- boosts long-term employment and economic growth by mak-
ter of 2006, $28 billion of European buyouts were an- ing businesses stronger.
nounced, up slightly from the same period a year earlier. The Money is pouring into buyout funds even though stock
biggest was a ¤7.5 billion bid for Dutch media company VNU markets in the U.S., the U.K. and France are hitting five-year
NV by a group of five U.S. buyout firms including KKR, and highs. One reason is that top private equity outfits like Per-
Amsterdam-based AlpInvest Partners NV. mira have consistently beaten the markets, even after they
In November, Permira and four other firms offered $15.3 deduct high management and performance fees from the
billion for TDC A/S, Denmark’s former telephone monopoly. profits. In 2005, European private equity firms returned an
When the deal closed in January, it was the largest leveraged average 24 percent, according to EVCA, beating the 20 per-
buyout since KKR led the $31.4 billion takeover of RJR cent rise in Europe’s benchmark Dow Jones Euro Stoxx 50
Nabisco Inc. in 1989. “In Europe, national businesses are be- Index. “Private equity and hedge funds have performed well
coming European businesses,” says Joseph Bower, a professor over the past 10 years when compared with public markets,
at Harvard Business School who served as an adviser to Per- which still bear the scars of the downturn after 2000,” says
mira in the 1990s. “To help that happen, you need a lot of Bill Barnard, an analyst at Dresdner Kleinwort Wasserstein
capital. Private equity firms can play a very constructive role in London.
in doing this.”

M
Permira partner Charles Sherwood says the process of re- anagers looking to restructure companies often
making a company shouldn’t be judged by whether jobs are choose private equity to avoid answering to public
lost. “I just can’t accept that,” he says. “The correct question is, shareholders. “A decision taken in a day in a pri-
When they come out of the period of ownership by Permira, vate equity context can easily take many, many months in a
are they stronger, more-efficient businesses?” Parliament’s publicly traded company,” Sherwood, 46, says. He’s worked
Prosser and the U.K.’s Consumers’ Association argue that in at Permira and its predecessor firm, Schroder Ventures, since
TOM WAGNER

the case of the AA, the answer is no. In the 12 months ended 1985. Like Buffini, he was educated at Cambridge and Har-
on Feb. 28, it dropped to third place from first among road ser- vard. Both started out as management consultants.
vice organizations in terms of how promptly it responded to The deals are getting bigger and bigger, as buyout firms
 Bloomberg Markets
40 June 2006

team up to buy giant companies like Denmark’s

TDC. “This dynamic of larger transactions is here to
stay,” says Sherwood, speaking in Permira’s London
office, located above an open-air market in the Cov-
ent Garden district, just down the street from the
Royal Opera House. “There’s no sign of it abating.
You have public companies seeking to benefit from a
period in private ownership, conglomerates selling
marginal businesses to focus on their strengths and
family-owned businesses selling control to manage
succession issues or to help expand outside their
national market.”
In addition, European interest rates, which are
near a 50-year low, have made it easier for firms to
leverage huge amounts in takeover loans. Permira
and its partners arranged more than $12 billion in
loans to buy TDC, helping push European, Middle
Eastern and African takeover loans to $97 billion for
the first three months of 2006, up 60 percent from
the previous year, according to Bloomberg data. In
April, TDC declared a $7 billion dividend, $6.3 bil-
lion of which will go to Nordic Telephone Co., the
holding company that took control when Permira
and its partners bought TDC.
Permira is taking advantage of the clamor by in-
vestors for more private

������ equity to raise its new

fund, which may rank sec- Ferguson was a founder of the business that would become Permira.
����� ond in the world to a $13.5
billion pool that New York–based motel chain Travelodge Hotels Ltd. to Luxembourg-based
�������������� Blackstone Group is raising. SBS Broadcasting Sarl, Europe’s second-largest television
�������������������������
������������������������ Wanching Ang, co-head of private company, to Grandi Navi Veloci SpA, an Italian high-speed
������� equity at Munich-based Allianz ferry company.
���� AG, Europe’s largest insurer, ex- Under Buffini, Permira has run up one of the best track
pects firms like Permira to easily records in European private equity. Permira’s last three funds
reach their fund-raising targets. all rank in the top 10 percent in Europe in terms of returns.
“There’s more demand than there Its 1997 fund had returned 84 percent as of Dec. 31, 2005; its
��� is supply,” Ang says. These days, 2000 fund, 15 percent; and its 2003 fund, 40 percent. It has
she adds, it’s hard work to get the revamped companies such as Tetley and turned around Ger-
private equity managers to take her man pay-television broadcaster Premiere AG. And it has
money. “I have to flatter, beg, get backed expanding businesses like U.K. casino operator Gala
��� drunk with them,” Ang jokes. Group Ltd.
��� A glance at Permira’s returns

O
explains why the firm is popular ne of Permira’s most successful investments was U.K.
����� among investors. Permira and home improvement retailer Homebase Ltd. Permira
����
���� Schroder Ventures, which was the reaped ¤858 million, or six times its original invest-
���� firm’s name until 2001, earned an ment, when it sold Homebase to U.K. retailer GUS Plc in
��� ��� ��� ��� average of 31 percent annually 2002, according to a report that was sent to investors in Per-
�������������������������������������� from 1990 through 2005 com- mira’s last fund and obtained by Bloomberg News. Another
����������������������������������������
pared with 7 percent for a basket of winner was Italian luxury yacht maker Ferretti SpA, which
European stock indexes, according to the March report pre- earned Permira ¤222 million, or more than 50 times its 1998
pared for Permira’s investors. The firm has given back ¤6 bil- investment of ¤4.3 million. Permira sold its stake after Ferretti
TOM WAGNER

lion in cash to investors since 2000. Permira currently owns was listed on the Milan stock exchange in 2000. Two years
���� �������
30 companies with more than 200,000 employees and com- later, it made the unusual decision to buy Ferretti back, invest-
���� ����������
bined annual sales of ¤45 billion, ranging from U.K. budget ing a sum equal to the amount it earned from the first sale.
�����
 B l o o m b e r g M a r ke t s
C O V E R S T O RY : P E R M I R A ’ S P R I N C E O F L B O s June 2006 41

“It’s easier to expand as a private company,” says Gabriele
Del Torchio, 55, Ferretti’s chief executive officer. “Permira has
given us guidance, scrutinized our acquisitions and helped
supply financing sources.” Ferretti’s payroll has grown to 2,500
from 200 in 1998, thanks to 10 acquisitions. Sales at the yacht
builder, which plans to sell shares in Milan again at some
point, rose 14 percent to ¤636 million in the 12 months ended
on Aug. 31.
Buffini’s determination to make his mark on global private
equity pits him against some of the industry’s icons. At KKR,
November 2004, Permira lost out to New York–based Clayton,
Dubilier & Rice Inc. in a ¤2.6 billion auction for Rexel SA, a
French electrical equipment supplier. The following year, Per-
mira retreated from Paris after failing to buy a single French
company in six years. It now does French deals from London.
“It just wasn’t working,” Sherwood says of the French effort.
The only Permira fund that ever lost investors’ money was a
¤98 million French fund raised in 1989, according to the re-
port sent to prospective investors in Permira’s last fund.
In the U.K., Permira hasn’t had everything its way either.

In Europe, Permira faces a growing army of U.S.

competitors, led by Blackstone, Carlyle and KKR.

cousins George Roberts, 62, and Henry Kravis, 62, remain in
charge of the 30-year-old buyout firm. Yet for the most part,
Buffini, who was elected to succeed Peter Smitham, 64, as Per-
mira’s managing partner in 2000, will be competing with a
new generation of deal makers. In March, billionaire Thomas
Lee, 62, who founded buyout firm Thomas H. Lee Partners LP
32 years ago, stepped down and left his firm in the control of
its younger partners, including Anthony DiNovi, 43.
Like other Europe-based buyout firms, Permira faces a
growing army of U.S. competitors, led by KKR, that are en-
croaching on its turf. In 2005, U.S. private equity partnerships
backed more than $48 billion of European takeovers, up from
about $9 billion in 2001, according to Bloomberg data. In
In March, the firm walked away from an £845 million bid for
retailer HMV Group Plc, after the publicly traded owner of
HMV music stores and Waterstone’s bookshops rejected the
buyout firm’s second approach. In 2004, Permira halted its
pursuit of W.H. Smith Plc, the U.K.’s biggest seller of statio-
nery and magazines, after it reviewed the company’s books
and decided its pension fund deficit was too large. In 2003,
Permira lost U.K. department store chain Debenhams Plc to
U.S. rival Texas Pacific Group and CVC. Sherwood declined
to comment on the unsuccessful deals.
As American firms push further into Permira’s European
sphere, Permira is looking east. The company opened a Tokyo
office in 2005, with plans to invest as much as $1.3 billion in
Japan by the end of 2008. Sherwood, whose

��������� business card has his contact information

in Japanese on the back, says Japan may
����������� now offer the same kind of opportunities
Germany and Italy did in the past 10 years.
������� “There’s a crying need for industrial re-
structuring,” he says. “At the large-deal end,
�������� ����������� ����������� �����
������������������ ���������� ����������� ����������� there are very few competitors.”
�������������������� ������������������������������� ������� � ������ Permira is also expanding in the U.S.
�������������� �������������������������������� � ����� � ����� Last year, it hired Thomas Lister, 42, a for-
�������������������� ������������������������������ � ���� � ����� mer lieutenant of U.S. buyout pioneer
�������������� ������������������������� � ��� � ����� Forstmann, to run its New York office,
��������������������������� ������������������������������� � ��� � ������ which opened in 2002. It faces intense
competition in the world’s most-established
������
buyout market. Sherwood says the New
�������� ����������� ����������� ����� York office looks for companies whose busi-
������������������ ���������� ����������� �����������
nesses span Europe and North America.
�������������� ���������������������������� ������ ������
“There is a significant opportunity to bridge
������������������� ��������������������� � ���� � ����
the Atlantic,” he says. “We’re not interested
������������������ ������������������������ � ���� � ����
in the Alabama supermarket.” In February,
������������������ ������������������������������� � ���� � ����
Permira bought Indianapolis-based safety-
��������������� ������������������ � ���� � ����
goggle maker Aearo Technologies Inc. for
��������������������������������������������������������������������������������������������������������������������������� $765 million. The company made about

FILE perdec5
 Bloomberg Markets
42 June 2006 C O V E R S T O RY : P E R M I R A ’ S P R I N C E O F L B O s

one-fifth of its fiscal 2005 sales in five Monday, when the Dow Jones Industrial
European countries. ������������������ Average fell more than 20 percent. “It’s
Buffini, the man in charge of Permi- ��������������������������� the only time in my life I heard the pilot
ra’s strategy, was born in the central Eng- ������������������������������ announce the wind speed, the tempera-
lish city of Leicester in 1962 and raised ���������������� ture and the level of the Dow as we land-
by his mother, Maureen Buffini, who ��� ����������������������� ed,” he says. Ferguson had hired a house
worked for the state gas board. His fa- �������������������� in Cambridge, Massachusetts, to inter-
���
ther, a U.K.-based American military view candidates. When he arrived,
man named Jonathan Taylor, was never ��� “Damon was standing in front of the
part of the family, acquaintances of Buf- ��� door,” Ferguson, 57, recalls. “He said,
fini say. At Gateway College, a local pub- ���
‘You can’t come in until you hire me.’”
lic secondary school, Buffini thrived on Buffini joined Schroder Ventures’ U.K.
��� ��� ���
the soccer pitch and in economics class, team the following year.
says Steve Martin, his teacher and for- � � � � � � � � � � � � � Buffini seldom talks one-on-one to
��� ���
mer coach. “He was always the one pre- the press. He designated Sherwood, a se-
pared to challenge conventional ideas,” ��������������������������������������������� nior partner, as the firm’s spokesman for
Martin, 52, says. “We were just moving into the era of this article. “Unlike some of the firms in this industry, we
Thatcher, and Damon was challenging traditional Keynesian really do want to avoid a personality cult,” Sherwood says.
ideas.” Margaret Thatcher, U.K. prime ministerFILE from 1979 to That hasn’t prevented Buffini from basking in the admiration
perstk4
’90, clashed with Britain’s labor unions as she
SIZE sold offxstate
12p0 15p7 of his peers. On April 4, he attended a lunch with 250 rivals
assets. In the process, Maureen Buffini’s former
NOTESemployer be- at London’s Merchant Taylors’ Hall, where Financial News
came publicly traded British Gas Plc in 1986. gave him its personality of the year award. Financial News is
In 1981, Buffini entered Cambridge University’s 495-year- a weekly newspaper for London’s banking industry, with a
old St. John’s College to study law. “He was a passionate foot- circulation of 19,000.
baller, part of the soccer crowd,” recalls Toby Wyles, a fellow Damon’s first boss, Evans, has an explanation for Buffini’s
Cambridge student who went on to become head of U.K. buy- allergy to media coverage: “He’s a black guy who’s done incred-
outs at Apax Partners. Buffini graduated and moved to Lon- ibly well from a working-class background, and he’s very wary
don, where he took a job at LEK Consulting LLP, a management of the press. You see people built up by the press and then
consulting firm run out of a basement office on London’s St. pulled down. He is possibly more vulnerable than others.”
James’s Square that had been co-founded a year earlier by Iain Colleagues say that from the start of his career in private
Evans, a former partner at Boston-based Bain & Co. “We were equity, Buffini showed a strong aptitude for the process of eval-
looking for intellectual horsepower, energy and ambition— uating and remaking companies that’s crucial to the success of
people who wanted to make a mark on the world,” Evans, 55, any buyout firm. Colleagues point, for instance, to his perfor-
says. “Damon had all those qualities. We taught them that the mance in helping manage the 1992 acquisition of Linton &
world is driven by markets—by demand and consumers and Hirst Ltd., a maker of components for transformers for home

‘We were looking for intellectual horsepower, energy

and ambition,’ Evans says. ‘Damon had all those qualities.’

competitors.” At LEK, Buffini got an early lesson in hostile
takeovers, helping defend U.K. conglomerate Imperial Group
Plc from British corporate raider James Hanson. “We lost by a
small margin,” Evans says. Hanson Trust Plc bought Imperial
Group for £2.5 billion in 1986.
That same year, Buffini enrolled in Harvard Business School’s
MBA program; LEK helped pay his tuition. In October 1987,
Nick Ferguson came calling. Then a manager for Schroders,
he was in the process of building up a chain of private equity
funds around the world, and he was looking for talent at
Harvard. Ferguson landed in New York on Oct. 19—Black
appliances that Schroder Ventures bought for ¤1.2 million.
Veteran corporate manager Jim Ryan was hired as CEO to
turn the business around, and he worked with Buffini. “He’s
inhumanly intelligent,” Ryan, 59, says. “In meetings, he lets
people have their say and tries to get to a point where people
feel the decisions reached were their own ideas.” Ryan and
Buffini agreed to focus on boosting Linton & Hirst’s margins.
Once the business was acquired, Ryan says, he got sidelined
into controlling costs by selling off land. “He’d gently but con-
stantly remind you about the business plan, developing very
subtle boundary limits within which you can work,” he says.
 Bloomberg Markets
44 June 2006 C O V E R S T O RY : P E R M I R A ’ S P R I N C E O F L B O s

Buffini was a risk taker at Schroder Ventures. By 1994, Lin-
ton & Hirst had reached Schroder’s targeted value of £12 mil-
lion—at which point it normally would have been sold, Ryan
says. Ryan saw potential in the business of making transform-
ers for computer modems, so he asked Buffini for more time.
“A lot of venture capitalists would have pulled out then,” Ryan
Armin Timmerman, a former partner at McKinsey & Co. who
advised on the negotiations. Partners had to be convinced to
give up their existing compensation contracts and take a
smaller share of a larger pie. “This was the most difficult issue:
Who’s got to give?” he says.
Timmerman says the tension was eased when the firm

Permira and other top buyout firms have beaten the

markets even after deducting high management fees.

says. “Damon rolled the dice again.” The business was sold in raised a ¤3.5 billion fund in October 2000. “There was three
1995 for about £23 million, including debt. Schroder Ventures times as much money to be distributed,” he says. That same
made ¤12.9 million, or 10 times its investment. year, the principals elected Buffini managing partner.
Given Permira/Schroder Ventures’ 31 percent average re-

I
n 1996, Schroder Ventures’ teams in the U.K., France, turns, it’s no surprise that investors today have great faith in
Italy and Germany decided to unite as Schroder Buffini & Co. “They’re darn good,” says Ferguson, now chair-
Ventures Europe. The U.S. and Japanese units con- man of London-based SVG Capital Plc, a publicly traded in-
tinued as separate funds. In 1997, the European partners vestment trust that was spun off from Schroders. SVG has
launched a pan-European fund for the first time. The bet pledged ¤2.8 billion to Permira’s new fund. Shares of SVG,
paid off: The ¤890 million pool raised in 1997 earned in- which has 75 percent of its assets in Permira’s funds and is
vestors 2.2 times their money, according to one of the inves- considered a proxy for the private equity firm, rose 34 per-
tors, the California Public Employees’ Retirement System, cent in the 12 months ended on April 7, while the U.K.’s FTSE
or Calpers. All-Share Index rose 23 percent. Permira’s management
As late as 2000, Schroder Ventures’ European national owns 5 percent of SVG Capital.
teams were still semiautonomous, even though they invested Other big investors in Permira’s funds include Calpers, the
from one fund. Volatile talks started to form a unified com- biggest U.S. pension fund, and AlpInvest, which invests on
pany. “The crucial point turned out to be compensation,” says behalf of 4.3 million Dutch workers. Calpers has sunk at least
$270 million into Permira’s funds
since 1991, according to its Web
site. “Permira has a strong per-
formance track record of invest-
ing in Europe and has a good
business sense of the local econo-
mies,” says Brad Pacheco, a
spokesman for Calpers. “We are
in four of their funds, and each
has performed well for us.”
Buffini and his partners are
well paid for taking care of their
clients’ investments. While the
partners’ individual compensa-
tion has never been made public,
documents at Companies House,
PAOLO SACCHI/GETTY IMAGES

the Cardiff, Wales–based regis-

trar for U.K. companies, reveal
that the top, unnamed earner at
Permira Partners LLP in 2004
made £4.74 million. Permira
takes an annual fee amounting to
Permira helped Ferretti expand through acquisitions, CEO Gabriele Del Torchio says.
1.5 percent of each fund. On that
 Bloomberg Markets
46 June 2006 C O V E R S T O RY : P E R M I R A ’ S P R I N C E O F L B O s

�������������� sparked a strike that shut down Europe’s third-largest airline

at its Heathrow Airport hub for two days.
���������������������������������������� At the AA, Permira and CVC aggravated the situation in
��������������� February, when they arranged additional loans to fund a
���� �������� ����������������� ������ £500 million dividend from the company to themselves. Per-
���������� �������� ������ ������� mira and CVC declined to comment on the payment.
������� ������ � ���� ������� The political battle presents a new challenge for Permira
������������������� ���������������� � ���� ������� and its rivals. “The limits to the growth of the industry now
����������������������� �������� � ���� ������� include politics,” says John Barber, a managing director at
������ �������� � ���� ������ London-based Helix Associates Ltd., which advises buyout
������������ ������ � ���� ������� firms on fund raising. “Permira and other high-profile play-
������������� �������� � ��� ������ ers have a choice. They can lead or be led in dealing with the
�������������� �������� � ��� ������ wider public. The consequences of doing nothing could be re-
������� ���������� � ��� ������ strictive legislation.”
����������� ������ � ��� ������ One area in which Permira and other private equity firms
are vulnerable is in their tax accounting. “You could destroy
�����������������������������������������������������������������
the economics of this industry in one day by denying all the
basis, the new, ¤10 billion fund would contribute ¤150 mil- tax deductions on loans used for acquisitions,” says John
lion a year in fees for Permira’s 92-member staff. The firm Moulton, founder of U.K. buyout firm Alchemy Partners LLP
also keeps 20 percent of profits from any sale or stock market and a former head of U.K. buyouts at Schroder Ventures.
���� ������
listing. And it charges fees to the companies it buys and sells; Under British law, companies can deduct interest costs on
���� ������������
the AA agreed to pay Permira and CVC £25 million when it loans from their tax bills.
����� ��������
was acquired. By contrast, managers of stock investments

for pension funds charge an average fee of 0.3 percent, ac-
cording to Arlington, Virginia–based pension consulting firm
Watson Wyatt Worldwide Inc. And stock fund managers
don’t get to keep any of their gains.
Permira executives defend their lucrative compensation
program. “Private equity is undoubtedly an expensive way of
financing a business,” Sherwood says. “It’s typically only a
logical way of financing for a transitionary period and only
for a period when there is tremendous upside to be achieved
through radical change.”
Under Buffini, Permira sometimes seeks to work with the
sellers of companies it takes over. When Permira bought
Homebase from J Sainsbury Plc in 2001, Sainsbury kept an
18 percent stake. At a Bloomberg-sponsored private equity
C
ritics of private equity single out its penchant for se-
crecy. “Every day, the public is dealing indirectly with
private equity firms that they know very little about,”
says Prem Sikka, a professor of accounting at the University
of Essex and an expert on tax havens. “People have a right to
know why a factory is being closed or jobs are being cut,” Sikka
says. “Who is behind the takeover of the store where they buy
their clothes? Who owns their electricity provider? And where
and how is their pension being invested?” Permira’s privacy
is assured because it’s registered in the offshore tax haven of
Guernsey, Sikka says.
In March, Arthur Levitt, former chairman of the U.S.
Securities and Exchange Commission, urged an audience of
private equity investors in Geneva to open up. “While private

‘People have a right to know why a factory is being

closed or jobs are being cut,’ Prem Sikka says.

seminar in London in February 2004, Buffini told his audi-
ence of fellow takeover artists: “I think we have to think about
different ways in which we can work together with the exist-
ing shareholders. We could both be winners.”
For now, critics are keeping the private equity community
in a defensive mode. In November 2005, 131 members of
Parliament signed a resolution calling for stronger labor
rights after Gate Gourmet, a caterer for British Airways Plc
owned by Texas Pacific Group, fired 670 workers. The firings
equity will remain technically private, its actions will become
the public’s concern,” Levitt said in his speech. Levitt noted
that he had met with a group of U.K. lawmakers three weeks
earlier. The areas they were most concerned about were pri-
vate equity firms and hedge funds, he said. (Levitt is a board
member of Bloomberg LP, the parent of Bloomberg News,
and a senior adviser to Washington-based Carlyle Group.)
Jonny Maxwell, head of private equity at Edinburgh-based
Standard Life Investments Ltd., doesn’t expect much to
 Bloomberg Markets
48 June 2006
change. Maxwell, 43, says the big challenge to Permira comes
from across the Atlantic. “Just six years ago, there was a ques-
tion mark over whether U.S. firms like KKR could make it in
Europe,” he says. “Now, we know they are here to stay.” In Oc-
tober, KKR raised ¤4.5 billion for its second European fund.
Blackstone plans to raise, and spend, billions in Europe, too.
Buyout firms are competing for talented managers as well
as for acquisitions. When Buffini lost the bidding war for
Debenhams to Texas Pacific’s David Bonderman in 2003, the
U.S. firm hired British entrepreneurs John Lovering and Rob-
ert Templeman to manage its bid. They had previously led the
turnaround at Homebase for Permira. “Every deal is treated on
its own merits,” says Templeman, now Debenhams’s CEO. “I’d
never rule out working with Permira again.”
When Buffini sets out to recruit investors and managers
for Permira’s acquisitions, he does it in style. In June 2005, to
celebrate the firm’s 20th anniversary, he sailed 400 guests
down the River Thames from the Houses of Parliament for
dinner at the Old Royal Naval College in Greenwich.
Jim Ryan recalls another memorable soiree in early 1996,
months after he’d sold Linton & Hirst. Permira invited the
entrepreneur, who was looking for his next challenge, to an
overnight party at stately Brocket Hall north of London. “I
B LO O M B E R G T O O L S
Tracking Permira’s Deals
You can use the Bloomberg M&A Analysis (MA) function to
track Permira’s acquisitions and sales of companies. Type
MA <Go>, and click on Mergers and Acquisitions Search.
Tab in to the ENTER COMPANY NAME field, enter PERMIRA and
press <Go>. Click on Permira Advisers Ltd. to select the pri-
vate equity firm. In the list of results, as shown below, click on
Aearo Technologies Inc. under the Target Name heading to
see details of Permira’s acquisition of the Indianapolis-based
maker of earplugs and other safety equipment. Permira an-
nounced on Feb. 1 that it had agreed to pay $765 million to
acquire the company from Bear Stearns Merchant Banking,
the private equity arm of Bear Stearns Cos. The offer came
just over two months after
Aearo had filed to sell shares
in an initial public offering.
The largest private equity
deal in 2005, the $15.3 bil-
lion acquisition of Danish
phone company TDC A/S by
a consortium of five buyout
firms including Permira, is
listed on MA under the name
of the group’s acquisition ve-
hicle, Nordic Telephone Co.
Press Menu twice to return
For a list of the major holders of SVG Capital, type SVI LN <Eq u ity> PHDC <Go>.
C O V E R S T O RY : P E R M I R A ’ S P R I N C E O F L B O s
was a bit puzzled why I was invited,” he recalls. “After dinner,
I returned to my room and found a brown envelope with my
name on it on the bed.” Inside were the financials for Strand
Lighting Ltd., a U.K. maker of theatrical lighting equipment.
“They got me at my weakest point,” Ryan says of the offer to
take over the lighting company. “I was hooked.” Ryan took—
and still holds—the job of managing director of Strand Light-
ing, which remains owned by Permira.
SVG’s Ferguson says that as the private equity industry’s
size and power increase, buyout firms would do well to devote
some time to communicating better with the wider public. The
pension fund of the GMB, the union leading the protests over
the AA, has a deficit. Until last year, most of the union’s assets
were in funds that track stock market indexes. Now almost
half of the fund is in bonds. Ferguson has some advice for the
union: Try investing in private equity. “I would focus on the
best performers,” Ferguson says. “Permira is one of those.” Such
an investment might teach the union to love private equity a
bit more—or at least hate it a bit less.„
SIMON CLARK is a senior writer at Bloomberg News in London. EDWARD EVANS
covers private equity in London. With additional reporting by LAURIE MEISLER in
New York and HUI-YONG YU in Seattle.
sclark4@bloomberg.net
eevans3@bloomberg.net
to the M&A Search screen, tab in to the E NTER COMPANY
NAME field and enter NORDIC TELEPHONE. Press <Go> and
click on Nordic Telephone Co ApS for details of the deal.
Permira’s performance is reflected in that of SVG Capi-
tal Plc, a fund of funds that invests in private equity and
shares with Permira a heritage in Schroders Plc, a London
investment manager. SVG has about 75 percent of its as-
sets invested in funds run by Permira. To see the percent-
age gain in SVG shares during the previous 12 months,
type SVI LN < Equity> GPCT <Go>. For headlines of news
stories on buyouts and private equity, type NI LBO <Go>.
JON ASMUNDSSON