Whatever the rights and wrongs of the Government’s decision to sell a third of its Qinetiq R&D organisation to a private equity firm, the deal as set up in 2003 should have returned more value to the taxpayer.
The reason it did not was down to a lack of knowledge on the part of the MoD on how such sales should be carried out.
The Qinetiq privatisation has been roundly criticised by the National Audit Office for not offering value for money for the taxpayer.
In 2002, the MoD agreed to sell part of the state-owned R&D organisation Qinetiq to the US-based Carlyle Group in a deal which the MoD claimed valued Qinetiq at around £500m.
The NAO believed greater proceeds could have been secured from the sale, although the MoD disagrees with this.
The first issue was simply a matter of timing. With stock markets under pressure, 2003 was not the ideal time to get the best price for Qinetiq.
According to the NAO, the Government decided “to press ahead in difficult circumstances rather than to attempt to maximise proceeds”.
At the start of the process in 2002, there were seven bids for Qinetiq valuing the business at between £450m and £600m. The final deal valued Qinetiq at just £374m and the MoD received just £155m from the sale of 37.5 per cent of Qinetiq. Then there are the very large incentive scheme pay-outs to senior Qinetiq managers. The NAO report concluded that the top ten managers at Qinetiq received shares worth £107m at the time of flotation, from an investment of just over £500,000.
“These returns were greater than MoD had expected. We think that the returns to management exceeded what was necessary to incentivise them,” said the NAO report.
While the loss of value to the taxpayer is depressing enough, the big issue facing the MoD will be the rebuilding of trust with defence industry and convincing them that it will better manage public asset sales in future.