Douglas Lowenstein, president of the US industry lobbying group, the Private Equity Council, has praised the research on private equity conducted for the World Economic Forum by a team of
Douglas Lowenstein, president of the US industry lobbying group, the Private Equity Council, has praised the research on private equity conducted for the World Economic Forum by a team of researchers led by Josh Lerner, the Jacob H. Schiff Professor of Investment Banking at Harvard Business School.
The research, commissioned at last year’s World Economic Forum meeting in Davos and unveiled at the 2008 event last week, finds that the popular image of private equity acquisitions as a destroyer of jobs at investee companies is largely inaccurate, and that job creation is already lower at companies acquired by private equity firms during the two years preceding the deal.
‘The WEF studies represent a significant new contribution to the body of research on private equity investment,’ Lowenstein says. ‘The WEF studies further validate what we’ve been saying all along – private equity firms invest for the long term and build stronger, more innovative, and more competitive companies.
‘The studies affirm that private equity-owned companies pursue more economically important innovations than companies that are not owned by PE investors. They directly contradict critics’ assertions that PE owners starve investment and R&D. In fact, the researchers said PE firms maintain a comparable level of cutting-edge research at the companies they acquire.’
The studies commissioned by the World Economic Forum demonstrate that private equity firms are ‘job savers and job growers’ rather than destroyers of employment, the council argues.
‘Firms acquired by PE on average are losing jobs at a faster clip than their peers when purchased,’ Lowenstein says. ‘But over time, as the business is stabilised and refocused by PE investors, the employment trend rises to match the industry average at old facilities and exceeds average industry-wide job creation at new facilities.’
He says the research is consistent with a study carried out on behalf of the Private Equity Council by Dr Robert Shapiro, a former US under-secretary of commerce, who found in a study of 26 large US acquisitions that after a period of initial job losses, private equity-owned firms over time were net job creators.
‘The WEF researchers put to bed the myth of ‘strip and flip’, reporting that private equity owners are long-term investors of five years or more,’ Lowenstein says. ”Quick flip’ transactions of two years or less represented less than 12 percent of all the transactions studied. The study confirms that private equity investors are active owners that take a direct role in managing the companies they acquire long after the acquisition closes.’
Based in Washington DC, the Private Equity Council is an advocacy, communications and research organisation that develops, analyses and distributes information about the domestic and international private equity industry, and whose members are Apax Partners, Apollo Global Management, Bain Capital, Blackstone Group, Carlyle Group, Hellman & Friedman, Kohlberg Kravis Roberts, Providence Equity Partners, Silver Lake Partners, THL Partners and TPG Capital (formerly Texas Pacific Group).
