PE HUB Wire Highlights, 10.14.19

Sulak, Marlin Equity exec, steps back; Insight weighs $1.8B InhabitIQ sale; In defense of private equity

There was a lot of talk last week about the Harvard-University of Chicago study, which analyzed PE takeovers of U.S. companies from 1983 to 2013. Private equity buys of public companies led to substantial layoffs, the Financial Times and others reported. Publicly listed companies acquired by buyout funds saw employment drop by 13 percentage points over two years, the story said.

Yes, employment does drop when private equity buys public companies or carve-outs, according to Preeti Singh of PEI, who has looked at the study. But many public-to-private deals involve firms that suffer from poor corporate governance and “face an intense need for cost-cutting,” she reports. When the deal involves private-to-private, employment rises, Singh said.

When credit is cheap, PE firms typically deliver returns via financial engineering. but when credit is costly, PE focuses more on operational improvements, she said. See Singh’s report here.

Hubsters, last week I also asked how PE should respond to continued negative coverage of the industry. Make no mistake, PE is in the crosshairs. Sen. Elizabeth Warren of Massachusetts tweeted this on Oct. 11: “Private equity firms are sucking value out of our companies, putting people out of work, and wiping out newspapers and digital news outlets like @Splinter_News. I have a plan to hold these firms accountable.”

Here are some responses from our readers:

Brent noted that much of the press coverage focused on the negative. “The vast majority of PE activity is focused on buyouts of non-PE owned businesses and, to a lesser extent, to PE owned businesses. If you look at the employment and productivity growth in those investments, the report presents a compelling case for the positive impact of PE investment.  I have noted that press coverage has focused on some of the negative data that over-represents the impact of large public to private deals.  While that is not an activity in which the lower middle market and middle market is particularly active, the investment thesis for a public to private deal is very different from what goes on in our market.  Using data from public to private buyouts to obscure the positive impact of the vast majority of PE investment is misleading, at best.”

Doug says: “When the world is changing rapidly because of technology and globalization private equity has become the catalyst to keep companies competitive.