28th January 2008
Private equity firms "not as harmful as image"
Despite the popular assumption, there is no evidence that companies bought by private equity firms are suffering large-scale job losses, a new study says.
Research conducted by Josh Lerner at Harvard Business School for the World Economic Forum in Davos shows that the private equity tends to stay invested for five years.
According to the study, in the USA only 1.2% of firms run by private equity-owned companies go bankrupt each year, compared to the 1.6% of businesses that are forced to issue bonds.
Although in the first two years after takeover companies make 7% more redundancies than rivals, after that initial period the balance is said to even out. In addition, private equity-owned firms are said to grow more quickly and to create 6% more new jobs than rivals over the same period.
The findings conflict with the notion that private equity industry is built from stripping company assets and ordering heavy redundancies, before closing firms down or selling them off.
Private equity firm bosses now agree that they have not communicated the benefits of this kind of company management to the public.
Dr Martin Halusa, who manages UK private equity firm Apax Partners, blames a "malaise about Anglo-Saxon-type capitalism" in Europe. He says that private equity has "acted as a lightning rod for such general fears".
Research conducted by Josh Lerner at Harvard Business School for the World Economic Forum in Davos shows that the private equity tends to stay invested for five years.
According to the study, in the USA only 1.2% of firms run by private equity-owned companies go bankrupt each year, compared to the 1.6% of businesses that are forced to issue bonds.
Although in the first two years after takeover companies make 7% more redundancies than rivals, after that initial period the balance is said to even out. In addition, private equity-owned firms are said to grow more quickly and to create 6% more new jobs than rivals over the same period.
The findings conflict with the notion that private equity industry is built from stripping company assets and ordering heavy redundancies, before closing firms down or selling them off.
Private equity firm bosses now agree that they have not communicated the benefits of this kind of company management to the public.
Dr Martin Halusa, who manages UK private equity firm Apax Partners, blames a "malaise about Anglo-Saxon-type capitalism" in Europe. He says that private equity has "acted as a lightning rod for such general fears".
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