Although Monday’s victory over Portsmouth helped alleviate the poisonous gloom pervading Anfield, the future of the club remains shrouded in mystery. As Liverpool managing director, Christian Purslow’s brief has been to fish for new investment; and, early on Saturday morning, he snared his first catch, with the New York based Private Equity Firm the Rhone Group offering £118.5m for a 40% stake in the club.
Little is known about the Rhone Group, other than that it was formed in 1996, is owned and managed by the millionaire financiers Robert Agostinelli and Steven Langman, and claims to be ‘one of the world’s leading mid-market private equity firms.’ Those Liverpool fans seeking further information from the firm’s website are confronted by implacable blue visage, and politely but firmly requested to enter a ‘partner’ password. So much for greater transparency; we are left to patch together what little information is in the public domain, in order to answer some pertinent questions.
Firstly, the details of the prospective bid: although the Rhone Group specializes in ‘leveraged’ buy-outs, this will not be the case in this instance. They plan to inject cash in return for a controlling stake in the club, with messrs Hicks and Gillett seeing their shareholding diluted to 30% each. If the Americans were capable of presenting a united front, they would retain a controlling interest, but going on past form, this seems unlikely. Liverpool’s management structure could potentially become even more convoluted, with Rafael Benitez having to parlay his requests for funds between three separate major shareholders via managing director Christian Purslow. In the modern transfer market, where swift action is imperative, this could lead to further frustrations. That, however, is assuming that this deal will loosen up funds for Benitez to spend in the first place, which is by no means guaranteed.
This brings us to question number two: what is in it for the Rhone Group? Unlike Hedge Funds, Private Equity firms do not generally engage in short term, ‘quick flip’ investments. Typically, a Private Equity firm is in it for the long run, maybe 5-7 years, possibly longer. They take a greater interest in the strategic development of the club, hence the Rhone Group’s aspiration to become the majority shareholder, with a decisive say in managerial and financial decisions.
A further distinction involves the level of risk tolerated. Private Equity firms are generally more risk-averse, and less likely to invest in ‘distressed’ companies. They assiduously research the organizations that they are planning to invest in, conducting a comprehensive due diligence process in order to produce an accurate portrait. That they have tabled a bid for Liverpool suggests that the Rhone Group’s prognosis of the club’s financial prospects is less bleak than has generally been forecast.
The deal will see the club’s debt, which currently stands at £270m, and which the Royal Bank of Scotland are demanding is reduced by £100m, slashed by roughly 50%. Once this has been achieved, Liverpool’s iconic status and merchandising potential will be harnessed to inflate the value of the club, allowing the Rhone Group to make a return on their investment. Going by the details available, the deal could be good for the club, and bad for Gillett and Hicks, as they will not profit from the initial transaction, and will glean a smaller share of any future profits. A welcome boon for the fans, at least.
Thus we move to the third question: will the offer be accepted? Early reports indicate that Hicks feels that the offer undervalues the club, and the news that it will not benefit him directly will be of further concern. However, both owners have maintained a conspicuous silence; expect it to remain that way. They will hope that the bid smokes out other investors biding their time in the wings. Regardless of the specifics of the Rhone Group’s offer, it will be viewed as a welcome sign that Purslow’s efforts are starting to bear fruit. However, should further bids not be forthcoming, Hicks and Gillett will have to make a decision, and may be forced to accept against their will.
Currently, Liverpool are trammeled by ruinous levels of interest, and – despite Hicks claims to the contrary –have little or nothing with which to compete in the transfer market, let alone build a new stadium. Indeed, the latter ambition may remain on the backburner, whatever the upshot of this episode. There is little point in the Rhone Group’s radically reducing the levels of debt only to pile it on again by borrowing in order to construct a new stadium. Selling naming rights, or – God forbid – entering into a joint venture with Everton represent potential solutions, but the priority will be to rejuvenate the financial health of the club, and to reassure the star employees – namely Gerrard, Mascherano, and, above all, Torres – that the team can compete for trophies, not just scrap for fourth place and Champions League football. The low level of attendance at Monday’s game was a chastening reminder to the current owners that the fans’ loyalty is not unconditional.
Whilst Peter Kilfoyle’s claim that Liverpool face ‘financial disaster’ without a change of ownership was self-consciously dramatic, it may yet prove true. According to Kilfoyle, Purslow ‘s job is not to run the club, but to sell it. If that is indeed the case, then Hicks and Gillett cannot afford to be overly pedantic. As inappropriate as the phrase may seem applied to men who – according to Forbes’ latest missive – remain multi-millionaires, beggars can’t be choosers.