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June 12, 2007

FSA Continues Private Equity Investigations

by Gill Montia

Story link: FSA Continues Private Equity Investigations

The Financial Services Authority (FSA) has published its response to a discussion paper issued in November 2006 and has plans to further investigate a number of concerns it raised regarding the strong growth of private equity-led acquisitions, such as the takeover Boots Alliance, the pharmacy group.

Whilst the FSA considers its supervision of the sector to be broadly appropriate, its enquiries will focus particularly on issues surrounding excessive debt and market abuse, such as the increase in the share price of some firms shortly before private equity firms have announced takeover plans.

A further study is proposed to investigate the large levels of borrowing that some private equity firms build up to fund their takeovers, and how banks can advise private equity firms before they lend to them.

Private equity firms have been criticised by trade unions for acquiring businesses for less than their market value, making staff redundant and selling off assets. However, the CBI is in defence of the private equity sector, seeing it as a means to improve the performance of the companies acquired.


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