The Economic Impact of Private Equity

Last Friday, SEIU protesters at Wharton accused the private equity industry of being a callous job killer. Then The Private Equity Council released a study purporting to show that its members were actually magnanimous job creators. Not surprisingly, the truth is found somewherei n the middle.

A massive new academic study called “The Economic Impact of Private Equity” was released today in Davos, and included detailed findings on private equity employment. Among the findings:

* Two years prior to a buyout, PE-backed companies cut 4% more of their employees than do companies that are not acquired by PE. The indication here is that the typical PE-backed company is in relatively tougher shape to begin with.

* PE-backed companies cut, on average, 7% of its existing workforce over the first two years post-buyout. But they also add jobs over the same amount of time, resulting in just a 1% net employment decrease. Job growth balances out with the non-PE control group in years four and five. Expect the SEIU and other critics to inquire as to the “quality” of those new jobs — in terms of location, salary and benefits.

The study examined around 5,000 PE transactions between 1980 and 2005 (recent boom excluded, therefore), and was co-led by Josh Lerner of Harvard Biz School and Steven Davis of U Chicago. I’ll have more on this later, once I read through it all. In the meantime, you can also read it for yourself:

Executive Summary: ExecSummary.pdf
Full Report: Full_Report.pdf