Private equity firms, long seen as corporate raiders and vultures by the mainstream media and Hollywood, now have something more positive to hang their hats on thanks to a new report from Ernst & Young.
Entitled "How Do Private Equity Investors Create Value?," the survey reveals a more upbeat impact on the companies and management teams affected by leveraged buyouts. For starters, the report says that the annual rate of growth in enterprise value achieved last year by the largest p.e.-backed companies significantly outperformed equivalent public companies in the same country, industry sector and timeframe. The average annual EV growth rates were 33% in the U.S. and 23% in Europe, compared to public company equivalents of 11% and 15% respectively.
Surprisingly, employment levels at p.e.-backed companies were the same, or higher, at the time of the firm’s exit versus entry in 80% of U.S. deals, according to the report. In Europe employment grew by an average of 5% per annum across the U.K., France and Germany, where two-thirds of the deals took place, compared to 3% for equivalent public company benchmarks.
The report also disputes private equity’s “raider” and “vulture” image, substituting a wonk who is “highly selective and well researched when making the decision to buy a business and have the ability to drive real efficiencies through the business plan under their ownership.”
“Three-quarters of investments resulted from proactive deal origination strategies, including company or sector tracking, building relationships with management, or introductions from established contacts," said Simon Perry, global p.e. leader at E&Y.
“Across almost all deals and ownership strategies, Private Equity investors were actively involved in the business after acquisition, making rapid decisions alongside management, challenging progress and making available specialist expertise. The intensity of engagement between Private Equity investors and management was often stronger than under the previous owners."