Study: Managers back PE-ownership model

Company managers believe private equity has improved or kept stable performance at their businesses, according to a BDO survey, although a quarter of respondents said their capital structure was inappropriate for the current environment.

BDO's annual survey of 50 private equity executives and 100 senior managers from private equity-backed companies found that just four percent thought private equity ownership had negatively affected the performance of their business. Of the 96 percent of respondents who thought private equity ownership had benefited or kept stable their performance, most cited the expertise and support provided, or the access to additional capital as reasons for the improved performance.

Recent negative comments about private equity from Labour leader, Ed Miliband, at the Labour Party Conference in September sparked criticism of the industry for asset stripping and overloading companies with debt. The case for private equity has largely been validated by an overwhelming number of portfolio companies in the study. 

The survey also found that 69 percent of respondents thought organic growth had been the main focus of management over the past 12 months. Over the next 12 months, 75 percent also agreed that this would be the main focus. 

However, a quarter of respondents felt their company's capital structure under private equity ownership was inappropriate for the current financial climate, suggesting the level of debt commonly attached to buyouts was unsettling for some portfolio company management teams.

Alex White, a corporate finance partner at BDO commented: “Contrary to widespread accusations that the Private Equity industry is guilty of stripping assets for short term gain, our findings prove that the overwhelming majority of private equity backed companies recognise tangible benefits from their investors’ involvement.”

The findings also demonstrate that a substantial amount of firms are planning to add value to their portfolio companies through bolt-on acquisitions. These were expected to be made by 49 percent of companies surveyed. Of the companies that have already experienced a bolt-on acquisition, 81 percent confirmed that the move has added value to their company. 

On average, the survey found that 71 percent of private equity houses’ current investments are on target or ahead of achieving their original plans.