Ernst & Young has produced findings contrary to the job-slashing stereotype some critics consistently apply to the European private equity industry.
The top portfolio companies have achieved a considerable advantage over their peers.
The advisory firm analysed nearly 300 of Europe’s largest companies that were owned and exited by private equity firms in the past four years, and found that under private equity’s stewardship the companies not only averaged a 15 percent profit increase and 9 percent productivity percent boost, but also a 5 percent jobs growth.
The private equity-backed companies Ernst & Young examined outperformed public company benchmarks, “even after adjusting for leverage”, the firm said in a statement.
John Harley, global private equity leader at Ernst & Young, said: “By selectively applying its distinct ownership model and targeted business improvement initiatives PE has been able to achieve above market returns; indeed the top portfolio companies have achieved a considerable advantage over their peers.”
The study also found that private equity firms “remained committed to its poorer performing businesses”, holding on to struggling portfolios for seven years, or twice as long as the average hold period for healthier investments.
The findings echo that of a much larger, global study published in February that found private equity-controlled firms are 2 percent more productive and have 72 percent more effective management than their government-, family- or privately owned equivalents. Commissioned by the World Economic Forum and conducted by a team of academics including Josh Lerner of Harvard Business School, the study examined more than 4,000 private equity-owned and comparable businesses in 12 countries across Asia, Europe and the US.