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Performance of UK’s private equity portfolio companies is positive, says new BVCA survey

Private equity-owned portfolio companies show positive growth in employment, investment, productivity, revenue, profits and returns to investors, according to a new report from the BVCA complied by EY.

The aggregated data the BVCA’s 11th annual report into the performance of private equity portfolio companies, covers 91 per cent of the total population of UK PE portfolio companies.
 
The report reveals that compared to relevant public company and UK-wide private sector benchmarks, the performance of the portfolio companies on employment, investment, compensation and productivity growth is in-line or ahead of the comparators, indicating some benefits of the private equity ownership model versus alternatives.
 
Private equity investments in the portfolio companies are long term, with an average timeframe of 5.7 years from initial investment to exit. The current portfolio companies have been owned for an average of 3.9 years.
 
Over the duration of PE ownership of the portfolio companies, underlying organic employment (removing the effect of bolt-on acquisitions and partial disposals) has grown by 1.3 per cent per annum, in line with the UK private sector benchmark of 1.3 per cent growth.
 
Employee compensation growth under PE ownership is slightly above the UK private sector benchmark, at 3.3 per cent versus 2.5 per cent annual growth, while operating capital employed has grown at 1.9 per cent per annum. There has also been more investment in bolt-on acquisitions than funds realised from partial disposals.
 
Capital productivity growth in the portfolio companies, meanwhile, exceeds public company benchmarks, at 7.4 per cent versus 0.6 per cent growth per annum, whilst labour productivity growth at just under 2 per cent growth per annum is broadly in line benchmarks.
 
Returns to equity investors from realised investments (pre fees) are 3.8x the returns from the same sector and timeframe in the UK public stock market: benefit of strategic outperformance and additional leverage.
 
Harry Nicholson, EY partner, who led the research, says: “Analysing the last eleven years of data on this defined set of current and past portfolio companies shows the effects of private ownership on large UK businesses. While there is variation at the individual portfolio company level, in aggregate the findings are clear that the private equity effect is positive, or neutral, on large UK business across all of the measures that we have tested. The private equity-owned portfolio companies generate employment, increase investment and grow.”

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