Workers, communities, and the nation as a whole should share in the economic opportunities being created by the booming private equity buyout industry, according to a new report by one of
Workers, communities, and the nation as a whole should share in the economic opportunities being created by the booming private equity buyout industry, according to a new report by one of America’s largest unions, the 1.8 million-member SEIU (Service Employees International Union).
“The new economy is leaving millions of Americans squeezed out of the middle class, without opportunities, while a very small number of people grow incredibly wealthy,” said SEIU Assistant to the President, Stephen Lerner. “The wealth being built in the buyout industry can be put to work to create new opportunities for the millions of people shut out of the American Dream.”
SEIU has begun a broad national effort to engage with workers and communities to challenge the private equity buyout industry to work together to create “New Opportunities in the New Economy” and help restore the promise of the American Dream. With both the concerns and the opportunities presented by private equity in mind, SEIU is proposing three “Principles for The Private Equity Buyout Industry:”
The SEIU Principles for The Private Equity Buyout Industry are:
- • The buyout industry should play by the same set of rules as everyone else.
- • Workers should have a voice in the deals and benefit from their outcome.
- • Community stakeholders should have a voice in the deals and benefit from their outcome.
Working people should see their hard work valued and rewarded,” said Lerner. “Instead of being seen as a line-item on a private equity balance sheet, the workers who build the value of these companies should share in the economic opportunities being created by buyouts.” The top 20 private equity firms alone control companies that employ nearly 4 million workers.
The report, entitled “Behind the Buyouts: Inside the World of Private Equity,” includes:
- An overview of the industry — its growing size and the incredible wealth being generated by buyouts;
- Profiles of the five largest private equity buyout firms, the Carlyle Group, Blackstone Group, Kohlberg, Kravis, Roberts & Co., TPG, and Bain Capital;
- Case studies of five recent buyouts and their effects on workers;
- The New SEIU Principles for the Private Equity Buyout Industry;
- Behind the Buyouts: A Look Inside Five Private Equity Deals
These deals brought job cuts, with many workers seeing their pay and benefits cut or denied. In every case, the workers had almost no voice in the process and little information about the firms that now controlled their employers. The Onex deal however, shows the opportunity that deals present if the buyout industry were to focus on creating economic benefits not only for the executives, but also for workers. After Onex took its purchase public, some workers were given compensation and shares of stock worth USD 30,000.
Douglas Lowenstein, President, Private Equity Council, commenting on SEIU’s ‘Behind the Buyouts’ Study, said: "Private equity firms are driven by one overarching objective: to enhance the value and grow the businesses they acquire. There is no one formula for doing so, and every transaction is unique. While we welcome an informed debate about the role of private equity in the global economy, we don’t think that isolating five transactions out of the more than 3,000 PE acquisitions between 2004-06 accurately reflects the private equity market.
"In fact, research shows that private equity investment often results in long-term employment growth and enhances the economic viability of a business to the benefit of all stakeholders. A.T. Kearney found earlier this year that PE firms generate employment, on average, at a much faster pace than comparable, traditionally financed firms. Earlier this month, ‘The Financial Times’ reported that its study of the 30 largest European private equity transactions in 2003-04 revealed that ‘overall, jobs were more likely to have been gained than lost as a result of private equity-backed buys.’
"Curiously, in discussing private equity’s impact on the country, SEIU ignored the salient fact that the largest investors in private equity are public employee pension funds, foundations, and universities who have flocked to the sector because top PE firms have generated returns more than triple the S&P 500.
Thus, the benefits of PE activity flow through to tens of millions of firemen, police officers, and other public servants via more secure retirements, and also help fund college scholarships and educational opportunities, and disease research. In fact, the PE investors have received USD 181 billion from private equity funds since 2000 which, in turn, means less pressure on states to raise taxes or cut spending to meet their pension obligations, and more money to spend on critical services such as health care.
"We recognize the SEIU’s interest in promoting good jobs, and we look forward to engaging in a constructive, open, and fair-minded dialogue with the union and all other stakeholders."
SEIU produced the report to be a resource for the growing number of people and organizations who may not be financial experts, but whose lives, jobs, investments, or communities are or could be affected by private equity buyouts. As the private equity buyout industry grows in size and influence, with a record USD 197 billion in deals in the first quarter of 2007 alone , so do concerns about how its business dealings are affecting workers, communities, and the nation.
The report will be the beginning of a series of efforts by SEIU to broaden the public conversation about private equity buyouts and their impact on America. As part of those efforts, SEIU is distributing copies of the report this week to Members of Congress, the private equity buyout industry trade council, community organizations, pension funds, unions, and other groups.
” Buyouts are at the cutting edge of the forces leaving working people feeling insecure about their future,” said Lerner. “But most Americans know nothing about this industry that is impacting millions of people and countless communities. We need to take the conversation about the impact of private equity buyouts out of the boardrooms and financial pages and into the living rooms and communities of America.”
The report was launched along with a new website- BehindtheBuyouts.org – which will become a clearinghouse for information on the buyout industry, containing profiles of private equity firms and executives, background about how the industry works, and links to blogs and other websites that track the industry and its buyouts.
