‘Private equity is a megatrend. I don’t know if you know that’

One scoop to start: Somerset Capital is exploring a sale in a deal that would provide a windfall to UK business secretary Jacob Rees-Mogg, who co-founded the boutique fund manager.

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In today’s newsletter:

• The private equity party goes on

• Xavier Niel comes calling for Vodafone

• A utility acquisition gone awry

Vive la private equity

In the real world, rising interest rates, inflation and an economic slowdown are putting private equity in a very difficult spot. The conditions that propelled its decade-long boom are coming to an end.

But in the September sun of the French Riviera, the mood is brighter.

Thousands of private equity executives are gathering in Cannes this week for IPEM, an annual industry conference. And their conversations have been, at times, bullish.

“Private equity is a megatrend. I don’t know if you know that — it is,” Blackstone’s Verdun Perry said at the event on Tuesday, adding that “when the markets stabilise it will be a tremendous time for private equity”.

Speaking privately, another senior figure told DD’s Kaye Wiggins: “The golden age of private equity is just beginning.”

It’s not that the beachside event, where dealmakers can chat during the day on a balcony with a sea view and party into the night on a boat and on the sand, is without its sceptics.

Mikkel Svenstrup, chief investment officer at ATP, even compared the private equity industry to a pyramid scheme. On the conference’s main stage he said buyout groups are increasingly selling companies to themselves and to peers, on a scale that “is not good business”.

And Matt Wilson, from Oaktree’s special situations group, said that as a distress-focused investor he was “very excited about what we see in front of us right now”.

Still, most of the dealmakers — at least in front of their investors and potential investors — appeared confident about the industry’s future.

George Osborne, the UK’s former chancellor, was in attendance in his capacity as a managing partner of his brother’s venture capital firm 9Yards, which has previously invested in the now-troubled crypto firm Coinbase. (Osborne still works at Robey Warshaw too.)

He said the war in Ukraine, the energy crisis, inflation and supply chain bottlenecks are “very real and immediate problems and in the case of Ukraine a tragic problem”.

However, he added, “It’s important if you’re investing as we do for the longer term . . . that you have to see through some of these issues. Some of the investment cycles will get longer, some of the returns will be delayed, but the fundamentals . . . are still there.”

One reason to be cheerful was the prospect of huge growth in retail investments in private equity, a theme discussed in several of the conference’s sessions. There was even talk of pitching continuation funds to mom-and-pop investors — despite the fact that plenty of people even in finance would struggle to explain what they are and how they work.

Democratisation of private equity is coming, Blackstone’s Perry said. “It’s not a matter of if, it’s a matter of when.”

The French are coming!

Xavier Niel has no shortage of business interests in France.

The French tycoon who leveraged his telecoms empire to become a start-up investor also co-owns French newspaper Le Monde and a five-star hotel in the ski resort town of Courchevel. His partner is Delphine Arnault, the daughter of France’s richest man and heir to the LVMH fortune.

But Niel, who earlier this year found himself among a parade of billionaires questioned by French senators on their influence over the media sector, is leading the charge of international buyers eager to snap up stakes in struggling UK assets.

On Wednesday, the telecoms billionaire scooped up a 2.5 per cent stake in Vodafone, a move that could foreshadow further shake-ups by Niel at the underperforming UK group.

He’s not the only French dealmaker being drawn to the UK as political headwinds, high inflation, low investment confidence and a weaker currency make for attractive opportunities.

French telecoms billionaire Patrick Drahi amassed an 18 per cent stake in British telecoms group BT last year, breeding speculation that he could eventually seize full control over the company. A similar deal came two months ago when France’s state-backed satellite group Eutelsat said it was buying satellite internet company OneWeb.

Prime market conditions may not be the only reason Niel is making a play for Vodafone.

In February, the British group rejected a more than €11bn bid for its Italian business by Niel’s Iliad and private equity fund Apax.

Nevertheless Vodafone’s boss, Nick Read, has been under pressure from activist Cevian Capital to spin off its underperforming units and be more aggressive in driving consolidation in congested markets such as Spain, Italy and the UK.

The British telecoms group was revealed to be in talks with domestic rival Three UK, but that deal has yet to materialise. Nor has Read’s claims that Vodafone is actively pursuing “several in-market consolidation opportunities” for the company “including Italy”.

Niel’s 2.5 per cent stake could potentially pave the way for the dealmaker to attempt another takeover attempt of Vodafone’s Italian arm, as Lex notes, or mark the beginning of a broader plan to increase his stake in the mobile carrier and attempt to squeeze out more value.

Niel has dabbled in activism before, leading the campaign for a strategy shift at shopping mall group Unibail-Rodamco-Westfield in 2020. As valuations continue to suffer in Britain, there’s never been a better time to stage a coup d’état.

The Finnish power group nursing a multibillion-dollar burn

Few recent deals have proved as disastrous as Finnish energy group Fortum’s acquisition of German utility Uniper for €7bn.

The Düsseldorf-based group has been teetering on the brink of insolvency following Russia’s invasion of Ukraine, prompting Germany’s decision on Wednesday to nationalise Uniper.

The €29bn cost for the Uniper bailout makes it the biggest corporate rescue in Germany’s history and one of the largest in Europe since the financial crisis — giving Uniper’s advisers at Rothschild and the German government’s at Lazard a hefty workload.

Fortum has little choice but to accept its fate. Russia’s stopping of gas deliveries forced Uniper to buy gas on the open market at sky-high prices, bringing it to near-collapse.

It’s unlikely to be the last energy bailout in Europe: Fortum itself accepted a €2.4bn liquidity backstop from the Finnish state this month.

Having €6bn wiped out is hardly cause for celebration for Fortum (it had also received dividends of about €900mn from Uniper during its ownership). Its shareholders reacted with relief, however, sending the shares up more than 10 per cent.

Fortum’s advisers at Barclays and Perella Weinberg were able to glean profits off the deal, at least.

The Espoo-headquartered company has now become what investors had always hoped it would be — a Nordic utility focused on carbon-free power.

Job moves

• McKinsey has hired Microsoft’s former chief digital officer Jacky Wright as its first chief technology and platform officer.

• Chelsea Football Club has fired commercial director Damian Willoughby for sending “inappropriate messages” before starting his job, according to The Telegraph.

• Billionaire Sir Leonard Blavatnik has hired Robert Kyncl, previously YouTube’s chief business officer and a former Netflix executive as the new chief executive of Warner Music. He will replace Steve Cooper.

• M&A banker Nathan Eldridge has left Citigroup after almost three decades to join private equity firm Platinum Equity, per Reuters.

• Tesco has named Caroline Silver, an advisory partner at Moelis & Company and chair of healthcare group PZ Cussons, as a non-executive director on its board.

Smart reads

Risky investments South of Manhattan lies a little-known New Jersey brokerage behind wildly fluctuating microcap listings. The mysterious firm has attracted scrutiny from investors and regulators, Bloomberg reports.

Stuck in the past UK asset managers just can’t seem to hire enough women, the FT’s Helen Thomas writes, as the sector struggles to make reasonable strides in reversing its gender imbalance in pace with other global industries.

The next frontier Indonesia’s economy is booming despite surging interest rates and inflation in the west. But as investors flock to see the fast-developing country, some worry about long-term political stability, the FT reports.

News round-up

US bank chiefs warn of China exit if Taiwan is attacked (FT)

Citigroup to wind down UK retail bank (FT)

Schneider Electric agrees £9.5bn buyout of UK software developer Aveva (FT)

Gunvor in sale talks with Abu Dhabi’s Adnoc (FT)

NY attorney-general files fraud suit against Trump and family (FT)

EY revenues hit record $45bn as firm plans break-up (FT)

Discount sale of Deutsche Bank London HQ highlights market pressure (FT)

US banks threaten to leave Mark Carney’s green alliance over legal risks (FT)

Instacart: grocery delivery service IPO will arrive in unwilling market (Lex)

Jamie Dimon’s bank buffer bellyache (Alphaville)