Private equity investments in portfolio companies are long term, with an average timeframe of 5.8 years from initial investment to exit, according to the tenth annual BVCA report on the performance of PE investments.
Compiled by EY, and covering 89 per cent of the total population of portfolio companies, being all the large, UK businesses that met certain criteria applied at the time of their acquisition by PE investors, the report reveals that current portfolio companies have been owned for an average of 4.2 years.
Under PE ownership, in aggregate the portfolio companies have increased employment, employee compensation, capital investment, productivity, revenue and profits. Compared to public companies and the UK private sector as a whole, the portfolio company performance is broadly in line with or ahead of these benchmarks. 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 1.4 per cent per annum, in line with the UK private sector benchmark of 1.4 per cent growth. Employee compensation growth under PE ownership is slightly above the UK private sector benchmark, at 3.5 per cent versus 2.5 per cent annual growth. Capital productivity growth in the portfolio companies exceeds public company benchmarks, at 6.4 per cent versus 0 per cent growth per annum, whilst labour productivity growth at just under 2 per cent growth per annum is on a par with benchmarks
The gross equity return from portfolio company exits was 3.2 x the public company benchmark; half of the additional return was due to PE strategic and operational improvement and the other half from additional financial leverage.
Tim Hames (pictured), Director General of the BVCA, says: “This report is a hugely valuable contribution to a better understanding of what private equity is, the impact it has on large UK companies and its effect on the economy and society as a whole.”
Harry Nicholson, EY partner, who led the research, says: “Analysing the last ten years of data on this defined set of current and past portfolio companies shows the effects of PE ownership on large UK businesses. While there is variation at the individual portfolio company level, in aggregate the findings are clear that the PE effect is positive, or neutral, on large UK business across all of the measures that we have tested. The private equity portfolio companies continue to generate employment, increase investment and grow.”