Thursday, January 12, 2006

Boffins For Sale

If reports are to be believed, top private equity players, the Carlyle Group, will make up to £300m from the floatation of Qinetiq, the high-tech boffin company spun out of MOD's Defence Evaluation and Research Agency, and apparently named after Q. Not bad for eighteen months work.

Naturally, there's much outcry about the loss to taxpayers. Ex-Shell man Vince Cable says:

"I'm seriously worried that the government massively miscalculated the value of its own assets and has sold the taxpayer short."

Which is almost certainly true: Qinetiq owns a treasure-trove of intellectual property, which the IPO bankers are now busy bigging up to potential investors.

But amid the outcry, nobody should have anything but praise for the Carlyle Group. Those guys can recognise underpriced value when they see it, and were even able to convince Qinetiq and MOD to select them as "partners" without an open contest.

And by God, have they delivered: not just for themselves of course but also for the 56% still owned by the taxpayer. That's now apparently worth some £500m more than it was when the Commons Defence Committee looked at the deal in 2003.

OK, doubtless Carlyle have brought some strategic expertise and some useful commercial connections to the table, but the main thing they've done is to show us once again why our politicians and senior civil servants are not to be trusted with our money.

PS On the fatcat front, Qinetiq's IPO will create quite a few multi-millionaires: 'About 2,000 Qinetiq staff own 13% of the business, with the lion's share belonging to top management. Sir John Chisholm, the executive chairman, stands to make an estimated £24m from an initial stake of £129,000. Sir John was appointed chief executive of the Defence Evaluation and Research Agency, Qinetiq's forerunner, in 1991.' This is despite assurances given to the Defence Committee that the fatcat issue had been dealt with by setting the pay-out hurdles at seemingly impossibly high levels (30-40% rates of return). Looks like those hurdles may have been achieved after all. Of course, any similarity to all those utility bosses- who after years of running underperforming businesses in the public sector only had to remain at their posts through privatisation to cash out- is purely coincidental.

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