It depends.
But it’s certainly not the scourge portrayed by the Stop Wall Street Looting Act. That bill is clearly myopic in equating private equity with leveraged buyouts. Even with that subset of private equity, the results of leveraged buyouts are not bad for the underlying companies.
In a recent paper a group of economists looked at the data. They jumped in data from CapitalIQ and collected a sample of 9,794 private equity led leveraged buyouts. They divided those deals into four groups: the buyout of an independent, privately held firm (private-to-private), the buyout of a publicly listed firm (public-to-private), the buyout of part of a firm (divisional), and the sale of portfolio firms from one PE firm to another (secondary).
Does a PE buyout result in job losses. According to the paper, relative to control firms:
- In private-to-private buyouts employment at targets rises 13 percent
- In secondary buyouts, employment rises 10 percent
- In public-to-private deals employment falls by 13 percent
- In divisional buyouts, employments falls by 16 percent
That’s a push. One would assume that one of the reasons a public company ends up under-valued and in the sights of PE firms is that its underperforming.
To support that, the research shows a rise in labor productivity of eight percent at target firms. The researchers note that as striking given that the target firms tend to be mature firms in mature industries.
I think the problem is the public perception of private equity caused by poor results in public-to-private deals, like Toys ‘R Us, catch all the headlines, while the run of the mill deals with good success or great success don;t make the headlines.
Sources:
- The Economic Effects of Private Equity Buyouts by Davis, Steven J. and Haltiwanger, John C. and Handley, Kyle and Lipsius, Ben and Lerner, Josh and Miranda, Javier, The Economic Effects of Private Equity Buyouts (October 7, 2019). Available at SSRN: https://ssrn.com/abstract=3465723 or http://dx.doi.org/10.2139/ssrn.3465723
- Do Private Equity Buyouts Get a Bad Rap? by Michael Blanding
- The Stop Wall Street Looting Act of 2019
