A new study commissioned by US lobbying group the Private Equity Council shows disproportionate employment gains among a sample set of 42 companies acquired by eight US private equity firms between 2002 and 2005.
The study was conducted by Robert Shapiro, former US Secretary of Commerce during the Clinton administration, and is based on empirical data provided by the private equity firms. Of the entire sample set, 76 percent of the portfolio companies recorded job gains, and 24 percent reported employment reductions.
Portfolio companies in the manufacturing sector in particular increased their global employment numbers by 8.6 percent and their US employment numbers by 1.4 percent, compared with overall domestic manufacturing job losses of 7.7 percent. Non-manufacturing companies expanded total employment by 8.4 percent, and their US employment by 14.3 percent, compared to overall domestic non-manufacturing job gains of 7.4 percent.
Large private equity transactions produce significantly greater job gains than observed in other companies in the same sectors, especially other large companies.?
?The data show that large private equity transactions produce significantly greater job gains than observed in other companies in the same sectors, especially other large companies,? Shapiro said in a statement.
Though the study did not list the names of the eight private equity firms who contributed data, the council said all eight are members. The PEC's members are Apax Partners, Apollo Global Management, Bain Capital Partners, The Blackstone Group, The Carlyle Group, Hellman & Friedman, Kohlberg Kravis Roberts, Providence Equity Partners, Silver Lake Partners, THL Partners and TPG.
The study comes less than two months after University of Chicago Graduate School of Business professor Steven Davis presented strikingly different preliminary findings from a similar study during a conference at conservative think tank the American Enterprise Institute. Davis' study used data sets about characteristics of US buyouts from 1980 until 2000 from data services companies Capital IQ and Dealogic, and then mapped them onto statistics from US tax records during the period. The resulting data set includes every private equity-backed transaction during the period and compares these against control companies with similar characteristics that were not the targets of buyouts.
Davis' study is the most comprehensive ever conducted on the subject, and it addresses many of the statistical weaknesses of its predecessors. But Davis stressed that his results are simply ?the early installment of one piece of a broader research agenda?. He also stressed that these findings are the result of significant sampling bias, because private equity firms often target companies that are already shrinking faster than their peers. In the wake of the buyout event, private equity-backed companies tend to show employment numbers growing at a slower rate than the control group.
At press time Davis was set to present his findings at the World Economic Forum's annual meeting in Davos in late January, making the timing of the PEC study's release critical.
The issue of private equity's impact on employment is a sensitive one, one that the industry's critics invoke frequently. Labor unions in particular have long attacked the claimed that general partners cut jobs at portfolio companies without concern for workers' welfare.