The positive spirit of private equity sector

Senior business journalist Will Hutton could be heard on

Radio Four the other week complaining about the increasingly visible role of private equity in the British economy. His main point of attack was the lack of accountability and transparency that prevails in the private-equity sector compared to publicly listed companies.

More surprisingly, even Jon Moulton, veteran boss of private equity firm Alchemy Partners and owner of Tattershall Castle and Inventive Leisure, was being cautious about private equity last week. Some private-equity firms were taking on too much debt, he warned: in some cases 80% of cash flow was being used to repay interest on debt.

When Jon Moulton raises his head above the parapet, the wider private-equity world has to take notice. But so far, involvement of private equity in the pub sector seems to have been a largely positive influence. The example of Spirit prior to its sale to Punch in January 2006 is occasionally cited as a case in point of short-termism ruling. Some industry observers believe that Spirit was starved of investment cash during its period of private-equity ownership. The company seemed largely intent on driving sales through price discounting, with investment neglected.

Certainly, those who have taken on former Spirit sites have complained of the poor physical state they're in. It also took part in a good number of sale-and-leaseback deals that achieved high freehold valuations thanks to the promise of extremely high - some would say unrealistic - rents.

Jon Moulton himself was saddled with 18 of these sites within his Tattershall Castle company, although they were sold on eventually. Apart from Spirit, it is difficult to find many glaring examples of private equity "quick-flip" merchants ruthlessly ransacking pub companies for their assets. Moulton's Alchemy Partners is investing heavily at Tattershall Castle and Revolution vodka-bar owner Inventive Leisure has moved back into expansion mode.

Barracuda, the managed operator led by Mark McQuater, is in its second phase of private-equity backing and moving ahead at the rate of 30 new openings a year. Penta Capital has invested in gastro-operator Gernimo Inns, based on a belief that it can create value by opening new sites. GI Partners paid Yates shareholders a handsome premium to take Yates Group private and then sold the company to Robert Tchenguiz, who is investing heavily in Laurel Pub Company to modernise the estate and expand its Slug & Lettuce chain.

Tchenguiz - a one-man private equity house - has securitised Globe, his 440-strong tenanted estate, and has had to invest quite heavily to reverse sluggish performance at sites that were formerly part of the Spirit empire. GI Partners has returned to the pub sector with Orchid and is investing to improve performance at pubs that were previously part of the, er, Spirit portfolio.

Admiral Taverns, driven by private equity of the Landesberg and Rosenberg families, is playing a patient long-term game based largely around investment in its core estate. The two worst examples of quick-flip in the pub sector are London & Edinburgh Swallow Group and Provence, where the modus operandi was all about short-term property profits. Other business models that seem short-termist relate to pub owners intent on ratcheting up rent income to unrealistic levels to achieve higher global value, regardless of sustainability. These owners shall remain nameless for now - but they don't belong to the world of private equity.