Private equity investor targeted for possible cross-dealing
A report in the New York Times last Friday outlined protests in the UK against private equity giant, Blackstone Group, in regard to its investment in Britain’s largest nursing home operator, Southern Cross. The union protestors claim that Blackstone, which exited Southern Cross five years ago, burdened the company with high leasing costs that inured to the benefit of NHP, the biggest landlord for Southern Cross and also an investment of Blackstone Group.
While there is hardly sufficient evidence presented in the article, and Blackstone denies the charges, this case does represent an interesting new twist on liability exposures for Private Equity firms. The dealings between NHP and Blackstone are not unusual. Private Equity firms often try to find synergies between their portfolio companies. But, if one of those portfolio firms benefits unduly and that benefit is unclear to the market, then future blow-ups can lead to litigation from security holders in the sold company many years after the Private Equity firm exits their investment.
This threat requires careful consideration for risk managers of Private Equity and other investment companies. Litigation from unions, governments, or future shareholders may have a very long tail if this case has legs.
About the Author
Phil Edmundson is the Chairman and CEO of William Gallagher Associates (WGA), insurance brokers and consultants for businesses with over 30 years in the insurance industry. He manages strategy, talent acquisition and development, and management / acquisitions at WGA.