Private equity creates jobs, claims report

A newspaper study of 30 recent large buyouts in the UK has revealed that the companies involved have actually increased staff numbers by 25 percent under private equity ownership, contrary to recent trade union claims.

Another study has cast doubt on recent UK trade union claims that private equity destroys jobs.

The research, in today’s Financial Times, looked at a sample of 30 large UK buyouts between 2003 and 2004, with a total value of more than £31 billion. It found that the number of staff in these private equity-backed businesses had increased from 141,000 to 177,000 today – an increase of about 25 percent.

The largest increase was seen at Southern Cross, a nursing home operator owned by The Blackstone Group, which has boosted staff numbers from 8,000 at the time of the buyout to 30,000 today, as its new owners have embarked on an acquisition spree. Another significant job creation story – this time purely through organic growth – could be seen at clothing retailer New Look, which had increased jobs by almost 28 per cent to 15,400 since being bought by Permira for £699m in 2004.

The story was not entirely rosy – just under half of the companies had cut jobs, although in many cases this was due to the sale of non-core or non-performing subsidiaries. Packaging group Linpac showed the biggest losses – the company, which was bought by Montagu Private Equity in 2003 for £1 billion, has cut almost 4,000 jobs as it tries to focus on core business areas.

In some companies, like gym operator Fitness First, jobs had been added through expansion outside the UK, although the FT found little evidence of the kind of off-shoring that buyouts firms have often been accused of by trade unions.

However, the GMB union, which has proved to be private equity’s most belligerent opponent in the UK, remained defiant. General secretary Paul Kenny said: “The FT’s finding is not a justification for the tax breaks, asset stripping, saddling thriving companies with massive debts and the culture of secrecy that prevails in this industry.”                                      

Kenny again cited the example of the AA, a vehicle breakdown service owned by Permira, where the buyout had led to: “the largest example of corporate bullying ever seen in the UK”. He said the intimidation of workers continued even today, which was a clear sign that: “the private equity industry is impervious to bad publicity”.