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PE and employment
• Private equity investment over time often slows or halts existing job losses and can drive job growth in new facilities, according to a 2008 study of 5,000 transactions over 25 years commissioned by the World Economic Forum and led by Harvard Business School Professor Josh Lerner. (The Global Economic Impact of Private Equity Report 2008, “Private Equity and Employment,” January 2008.)
• Prior to private equity investment or acquisition, the WEF study found that private equity portfolio companies were, on average, losing jobs at existing facilities at a rate one to three percent faster than their competitors. After private equity investment or acquisition, those same companies initially experienced a dip in employment but by year four under private equity ownership, employment rates rose to slightly above the industry average. (The Global Economic Impact of Private Equity Report 2008, “Private Equity and Employment,” January 2008.)
• The WEF study also concluded that in the first two years of investment, private equity firms increased the rate of job growth at new U.S. facilities built by their portfolio companies to six percent above the peer industry average. (The Global Economic Impact of Private Equity Report 2008, “Private Equity and Employment,” January 2008.)
• Acquisitions of large companies by major, U.S.-based private equity firms between 2002 and 2005 resulted in a direct and positive impact on U.S. employment, according to a study conducted for the Private Equity Council. (Shapiro, Robert and Pham, Nam. “American Jobs and the Impact of Private Equity Transactions,” Private Equity Council, January 2008.)
- o Across 42 companies, 26,214 net new jobs were created – an increase of 8.4 percent over their combined employment of 310,420 at the time of acquisition. Seventy-six percent of the sample recorded job gains, while less than 24 percent reduced employment.(Shapiro, Robert and Pham, Nam. “American Jobs and the Impact of Private Equity Transactions,” Private Equity Council, January 2008.)
- o Among of subset of 26 firms providing data on U.S. employment, domestic jobs by private equity-backed firms increased 13.3 percent (or 13,861 net new jobs), compared to 5.5 percent for all U.S. businesses and 2.7 percent for large U.S. businesses.(Shapiro, Robert and Pham, Nam. “American Jobs and the Impact of Private Equity Transactions,” Private Equity Council, January 2008.)
- o For manufacturing companies, employment increased 1.4 percent, while employment in the overall US manufacturing sector dropped by 7.7 percent during the same period. (Shapiro, Robert and Pham, Nam. “American Jobs and the Impact of Private Equity Transactions,” Private Equity Council, January 2008.)
• A 2007 study conducted by Ernst & Young determined that in 80 percent of the cases studied, employment levels at PE-owned companies were the same as or higher at the conclusion of a PE investment than they were at the beginning. (Ernst & Young, Transaction Advisory Services, “How Do Private Equity Investors Create Value? A Study of 2006 Exits in the US and Western Europe,” 2007)
• Over the five years to 2006/7, UK PE-backed companies increased their worldwide employment levels by an average of 8% p.a. This is dramatically faster than the 0.4% p.a. and 3% p.a. employment growth rates for the FTSE 100 and FTSE Mid-250 companies respectively. Furthermore, 84% of responding companies reported their growth was organic, rather than by acquisition, since they had PE backing. (The Economic Impact of Private Equity in the UK 2007, British Private Equity and Venture Capital Association (BVCA), February 2008).