Firms acquired by private equity groups experience higher productivity growth than firms of the same age, size and industry, according to a working paper published by the World Economic
Firms acquired by private equity groups experience higher productivity growth than firms of the same age, size and industry, according to a working paper published by the World Economic Forum.
Among the chief findings of the report, entitled The Global Economic Impact of Private Equity, are that private equity-owned firms are, on average, better managed than government, family or privately owned firms.
Firms acquired by private equity groups enjoy productivity growth two percentage points greater than average; in France, private equity funds act as an engine of growth for small and medium size enterprises.
Private equity investment in emerging markets raised increasingly significant funds between 2004 and 2007.
The research project included an international team of noted academics led by Josh Lerner, Jacob H. Schiff Professor of Investment Banking at Harvard Business School.
The Management Practices Study found that private equity-owned firms are on average the best-managed ownership group. They are significantly better managed across a wide range of management practices than government, family and privately owned firms. It also found that most private equity-owned firms are well managed. The high average levels of management practices in these firms are due to the lack of any ‘tail’ of very badly managed firms under their ownership (that is, very few private equity firms are really badly managed
The Productivity Study found that firms acquired by private equity groups experience productivity growth in the two-year period after the transaction that is on average two percentage points more than at controls. It also found that private equity investors are much more likely to close underperforming establishments at the firms they back, where underperformance is measured by labour productivity.
The roughly 1,400 private equity transactions involving US manufacturing firms from 1980 to 2005 raised output by between USD4bn and USD15bn per year as of 2007.
