Buyout firm slams "half-baked" UK policies

By Jeffrey Goldfarb

VIENNA (Reuters) - Buyout firm Mid Europa Partners said more "half-baked" policies from the British government in reaction to a political and union outcry against private equity could prompt it to leave the country.

In one of the first public remarks by a private equity partner since the ruling Labour Party unveiled plans to tighten a tax loophole used by the industry, Mid Europa's managing partner Thierry Baudon criticized the government's handling of the debate.

"I don't see anything yet that would frankly push me to relocate, but if this nonsense keeps going on, and we see more somewhat half-baked policy changes like the ones we just saw, then maybe we will," Baudon said on Tuesday at the Reuters Central European Investment Summit in Vienna.

Mid Europa Partners acquires companies exclusively in central and eastern Europe, but operates from London, Budapest and Warsaw. Baudon is based in the London office. The firm is set to close the largest buyout fund in the region of about 1.5 billion euros ($2.1 billion).

"For us, it would be a pity to have to relocate," he said. "What has made London attractive is the critical mass of skilled talent, the labor pool, the financial institutions. But you can take a train or fly to London quite easily. It would not be the end of the world to relocate."

Earlier this month, British finance minister Alistair Darling proposed a single 18 percent capital gains tax, ending a scheme that allows many private equity executives to pay a rate of 10 percent or lower.

Private equity has come under fire this year during a record buying spree of companies for paying the lower rate applied to capital gains for businesses owned for at least two years instead of the higher 40 percent income tax.

"I'm actually somewhat disappointed by the quality of the debate," Baudon said. "The level of oversimplification is appalling. There are things that deserve to be discussed, but they've been grossly oversimplified and caricatured, and it's not in the interest of the industry, not in the interest of the regulator, not in the interest of anybody."

Echoing the reaction from a number of business groups, Baudon said he thought the tax proposal would cut investment in Britain because the flat rate will affect not only private equity but also small- and medium-sized business.

"I think it has a lot of perverse affects and I'm sure we're going to see that popping up over the next few weeks and months," Baudon said.

"I think personally that this was a bit of a kneejerk reaction and by trying to cure a small problem in one part of your place, maybe a number of other problems will be created for no reason."

(For summit blog: summitnotebook.reuters.com/)