PEC: buyouts better businesses

Three case studies of private equity-owned businesses demonstrate that the companies are strengthened and made more globally competitive post-buyout, according to a white paper released by industry lobbying group the Private Equity Council. The paper was released yesterday, coinciding with two Congressional hearings today on private equity-related tax matters.

“The overwhelming evidence is that private equity firms strengthen the firms that they buy,” Robert Stewart, the PEC’s vice president of public affairs, told PEO. “That’s how the business model works.”

Burger King, which was owned by TPG, Bain Capital Partners and Goldman Sachs, SunGard, which was owned by a consortium led by Silver Lake Partners, and AutoZone, which was owned by Kohlberg Kravis Roberts, were the subjects of the paper, which also maintains that because of increasing competition in the buyout industry, private equity firms can no longer make a profit from “financial engineering” alone. Because of the scarcity of proprietary deals, the paper says, firms must now add value to companies to earn positive returns.

The white paper also shows that at SunGard and AutoZone, the number of employees at each firm rose because of private equity ownership, which contrasts claims made by one of the industry’s most vocal critics in the US, the Service Employees International Union. Its private equity-dedicated website, behindthebuyouts.org, alleges that private equity firms hurt employees through massive job cuts.

Stewart said the council hopes the paper will reach members of Congress, members of regulatory bodies, the media, the financial community, limited partners and employees at all levels of private equity portfolio companies.

This is the council’s second white paper. The PEC released its first white paper, “Public Value: A Primer on Private Equity”, in July, concurrently with the launch of its website.