Of a village pub, and other tales of private equity
There’s a pub for sale at the top of my lane.
It’s an eighteenth century building, of worn limestone with pert eaves and low ceilings. Small, but for a village like this, just the right size. There’s a curved wooden bar, an open fireplace and window nooks with cozy tables. It’s the last traditional pub in our village.
It’s the last traditional pub in any village near us.
The pub has a garden, with a vantage over a lightly wooded valley. Every year, around this month, two mature apple trees in the pub garden pummel the lane, until eventually the apples are gathered for a cider press.
The pub hosts the village quiz, hotly contested, on Wednesdays. The kitchen does a steady trade in burgers. Kids high on sugar and crisps race about the garden. Sometimes, there is live music; other times, a mini-beer festival. Everyone shows up on Friday nights, from local worthies with their dogs to thinly-showered farm workers. It’s the place to be. In the summer, sitting out in that beer garden with a G&T under the apple trees, as the sun sets over the valley, there’s nowhere I’d rather be. Plus I can walk (roll, stumble, crawl) home.
Except none of this is happening anymore. The pub’s much-loved tenants have been forced to shutter the business and move out.
The pub is up for sale.
It’s up for sale because (so the grapevine has it) the owners, Stonegate Group, are trying to shift a block of pubs in the same price bracket off their books. Stonegate has ascribed a notional value to the pub and the pub, failing to return that equity investment sufficiently promptly, is being liquidated. Private equity works in tight cycles (2 to 5 years) and the shareholders want their return.
They don’t care about keeping it, restoring it, investing in it. Making the toilets accessible, installing a viable commercial kitchen, maybe primping the upstairs so it could be let out as chic rooms for the night in the way of other successful roadside pub-with-rooms.
Stonegate only cares about the bottom line.
And the bottom line is this: Stonegate wants its RoI1.
You may have heard of Stonegate, registered in the Caymans and responsible for such high street watering hole abominations as Yates’ (which I can’t even type without picturing sticky tables and an aggressively well-attended hen do) and Slug and Lettuce, about which I can offer no observations whatsoever since I’ve never been and so, ignorant will remain. I don’t want to drink in a place synonymous with slime. What is wrong with you. Who comes up with these things?
Stonegate is, to those in the sector and in the know, a “Pub Co” —which is a misleading name. It doesn’t mean they run pubs but simply that they own the assets (the buildings/ the land) and then rent that out to tenants, who do all the actual legwork of running the pub. The tenants pay a hefty rent and, in the case of our local, are tied into expensive and burdensome supply agreements with breweries owned by (you guessed it) Stonegate.
The pub is no good to Stonegate, which is just a husk of a company — owned by another husk of a Midco, probably up to another husk of a ParentCo — all based in the Caymans (or some other tax-friendly waystation) — and all owned ultimately by TDR Capital, a British private equity firm.
Now, you may have heard of Stonegate — but I would be floored if you’ve heard of TDR. It’s shadowy as fuck.
It has, at various times had at least one finger or toe or some other appendage (via a related company called Gondola) in all of the high street emporia at which I would rather shear off my tongue than eat: Byron Burger (where I was once served a burger that was two degrees off fully raw — and not in a good way), Zizzi’s, Ask (which I’ve always taken as short-hand for “Ask for directions to any other restaurant”) and Pizza Express.
TDR owns ASDA, where past-sell-by-food from twenty years ago goes to die, and has interests in “volumetric modular home building”. Its ASDA co-owners, the billionaire Issa brothers, are — as this goes to press — apparently being questioned by MPs over providing themselves with interest-free loans for private jets.
Need I go on?
If you haven’t spotted how much I loathe private equity and am convinced it is responsible for how shit the world has become, you aren’t paying attention. I suggest you start by reading this, and maybe this, along with the excellent book Barbarians at the Gate, about KKR’s unprecedented takeover of RJR Nabisco in the late 80s that kick-started the whole sick leveraged buy-out sideshow.
A lot has been written about why leveraged buy-outs — which underpin most (if not all) private equity acquisitions — are systematically killing the companies we love and replacing the products we love with shoddy imitations.
An old article in Vox says it better than I can (italics mine):
To explain leveraged buyouts in easier-to-understand terms, let’s say you buy a house. Under normal circumstances, if you can’t pay for the mortgage, you would be in trouble. But by the LBO rules, you’re only responsible for a portion. If you pay for 30 percent of the house, the other 70 percent of the asking price is debt placed on the house. The house owes that money to the bank or creditor who lent it, not you. Of course, a house can’t owe money. But under the private equity model, it does, and its assets — its factories, stores, equipment, etc. — are collateral.
That’s because — in this analogy, the “house” is the company being bought out (sold down the river).
Its assets become collateral for the buckets of new debt incurred to acquire it.
Where the company previously just had to generate profits and deliver returns to its shareholders, now it is festooned liberally with debt millstones — and, here’s the kicker: it still has to deliver the returns. Except it can’t, because it’s so burdened with debt.
Oh, also there’s a thing called dividend recapitalisation, which is basically where the manager of the fund rewards itself and other investors a healthy pay-out for their canny investment — taken from the proceeds of the debt financing.
That’s the briefest summary. These structures are complex and it’s hard to generalise. There is a good focus paper here (which also links to lots of good background reading) available on the House of Lords library of all places, if you want to start getting more into the weeds.
But, honestly, my gripe with private equity is this: private equity is…. private.
Behind closed doors, keep-out-no-trespassers kind of private.
A private equity fund, in contrast to a public company, is a loose, liberal and unregulated beast subject to minimal restrictions. Our private equity overlords are not publicly accountable. They don’t really have to publish anything. They don’t really have to tell anyone what they’re up to. Only the shareholders know — and the shareholders are king.
Maximum value to the shareholders is the sole unifying precept.
It’s funny because the evil Wall Street stereotype often centres around public companies — the public trading of shares in publicly owned companies on a highly-regulated market. But the clue is in the name: publicly-listed companies are, wait for it, public. They’re held to the rigours of listing rules and insider trading and market abuse regulations. They publish in eye-watering detail meeting minutes and reports, financial statements, projections, certified and audited accounts, remuneration statements, all of which are available on a public website for all to read, should anyone be so inclined. Frankly, I’d rather scour my eyeballs with hydrochloric acid, but the point is that the information is there if I want to read it.
That information is not available when it comes to private equity funds. Unless you’re an investor. They don’t have to tell us anything. And they don’t.
Don’t believe me that they don’t have to tell us anything? That they don’t have to do anything more onerous than pay lip service to ethical niceties?
Take a look at TDR Capital’s website. Remember them? The shadowy private equity firm that owns Stonegate, which is selling my village pub?
TDR’s public website is as insubstantial as a soap bubble and just as shiny. There is nothing on it, no information of any heft whatsoever.
Oh wait, no there is something! There’s a drop-down arrow for “Investing Responsibly”. Let’s check it out.
Under Governance, there are some nice, comforting words about anti-corruption, bribery and ESG (environmental social governance: words almost as meaningless as they are trendy).
Great! Oh, but wait…..
These aspects of ESG performance will also be reported quarterly to TDR, alongside notification of any cyber and data breaches, with supporting KPIs provided on an annual basis.
Ah. So, TDR will be monitoring and reporting on… itself.
I feel reassured, don’t you?
Let’s move on to the Environmental section, in which TDR spotlights its efforts on “cruise-based adventure tourism” in Antarctica on its sustainability page.
And that’s… it.
So, to summarise, TDR Capital — a private equity fund with 15 billion Euro under active management — has a website which is nothing more than some shiny photos, some PR blurbs, a list of “active” and “realised” investments — and a link to the mysterious Investors’ Portal. Where, presumably, all the juicy info lies — for those with the money to invest, who are presumably already dead inside and don’t care about a village pub because, if they have a house in the village, they Air BnB it out anyway and spend their time in Portugal, because non-dom.
Upon examination, there is nothing. Not even the thinnest veneer upon nothing.
Nothing at all — except 15 billion Euro out there under active management, buying up companies, sucking them dry and stripping us of products and services in a protracted race to the bottom.
These are the people who are killing everything you love. They are the reason why everything is shit, why everything has the costs stripped out and the value passed on to its fucking shareholders. The idea that these shadowy funds, subject to neither public scrutiny nor the regulations of public companies, are allowed anywhere near our essential human services — care homes, daycare, the NHS, education — chills my soul. It should chill yours.
The shareholders are far away and a lot richer than us. They don’t care about the same things we care about — so why should we trust them with our essential products and services? A pub is a less egregious example than a daycare centre, but still. TDR’s shareholders don’t care if my village has a pub; they don’t care if that pub is a success or not. They care about extracting from it as much value as they possibly can; squeezing it and juicing it dry, pissing out a generous distribution to shareholders and maximum bonuses to the dealmakers.
If it would make more money — and they were legally permitted — to sell off each stone of the ancient building and the shiny polished wooden bar and the picnic tables out back, they would.
And their shareholders would be happy. Shadowy, grey men in far away places would shake hands on a deal well done and that would be it.
A row in someone’s Excel sheet of “pubs under active management” would disappear; a digit in someone else’s balance sheet would twitch a little higher.
The village might be left with a razed plot, which might in turn be snapped up by a developer and converted to a passel of modestly-sized but high-spec residential accommodation — with (baked into the deal) a hefty share of the profits to be paid to the Pub Co seller that razed the plot in the first place.
Yesterday, we went for a walk in the woods of a local estate.
For my American readers, that means we went for a walk on land owned by an actual titled lord.
A meagre ten foot wide public right of way bisects his boundless acres of forest. Each side of the path is rimmed with barbed wire, I kid you not, and there is a sign warning that guard dogs patrol the fenced-off area.
Don’t believe me? Look:
It’s enough to make anyone agitate for a new Kinder Scout-style mass trespass.
There’s some industrious looking extractive activity happening behind the fence and my son wondered out loud what was going on.
“I wonder what they’re doing here.”
“Something ugly in the name of profit.” I’m feeling cynical. I notice the previously overgrown public footpath has been covered in a dusty white aggregate. Rolled flat for vehicles to access.
Have you ever read James C. Scott’s Seeing Like a State? On how the apparatus of power requires that things at the fringes be made legible to those at the centre? Standardised weights and measurements for gauging lumber, minerals, pigs. Roads, homes, even surnames — that make us all visible and knowable and controllable.
Fuck this guy and his inherited wealth. Fuck this estate, that makes me yearn for the revolution.
“See that?” I say to my son at an open cleared space, visible behind the barbed wire and full of plastic wrapped bales and pallets and diggers and metal containers. “That’s what greed looks like. Someone who’s not happy with just being rich; they want to be extra rich.”
They want to know every inch of their land, parcel it off and size it all up. Make every space legible; extract from it every last squeezable dime.
Fuck the barbed wiring of this wood. Fuck the shuttering up of my pub. Fuck this unquenchable greed for more.
I’m writing this from my garden. It’s not a regular, perfect square — impossible to plot properly on a neat map of the village. The boundary where it meets the stream is a bit unclear and always moving, with the shifting water levels. Sometimes the hosta I’ve planted stands out clearly; more often it’s covered over when we forget to mow (three months now and counting). One of the ash trees appears to be dying back; another is thrusting jauntily upwards through a rose bush, in precisely the wrong spot and uncomfortably close to the BBQ.
It’s one of the most peaceful places I know.
Its value is hard to determine. The grass is mostly thwarted dandelions, but soft on the toes. The fruit trees are beautiful, if unproductive.
Its value is known only to a very few people — but to those few, it is incalculably precious.
Return on investment, baby.