Private equity-owned businesses have out-performed rivals, says new report
THE PRIVATE equity industry achieved healthy levels of profit growth in the bigger companies it sold off last year, according to a study by Ernst & Young.
The industry, which often finds itself fighting a reputation for “asset stripping” companies and making staff redundant to slash costs, actually boosted profits at large firms that were sold off last year.
On average, profits were boosted by 15 per cent annually at companies exited – or sold off – in 2008.
Employment levels at the firms rose by five per cent and productivity grew nine per cent.
The rates were consistent with the previous three years, suggesting the industry has defied the downturn. But the annual study, based on nearly 300 of the biggest European firms that were sold by private equity funds in 2008, found the total volumes of company exits by private equity firms fell by 66 per cent last year.
That suggests that those firms at which it was difficult to boost profits were not sold off, as the financial crisis forced private equity firms to hold on to investments rather than dispose of them at record-low values.
John Harley, global private equity leader at Ernst & Young, said targeted business improvement initiatives have paid off for private equity firms.
“The industry has been able to achieve above-market returns. Indeed, the top portfolio companies have achieved a considerable advantage over their peers,” he said.