2008-01-23

Companies flourish after private equity investment

After a private equity-backed buy-out, companies grow more rapidly and create more jobs. Revenue growth increases from 6% per year before the buyout to 13% in the three years after. An ample majority of 57% indicates that their employment has increased. A further 21% says the number of employees has remained unchanged.

This has emerged from a survey by the dutch Private Equity & Venture Capital Association (NVP) and Ernst & Young. In the Netherlands, more than 100 buy-outs are effected annually by management teams which acquire a company in cooperation with a private equity firm. The study shows that, after a buy-out, companies make new strategic and financial choices which have a positive impact on turnover, employment and profit.

More than 90% of the companies said they developed a growth strategy after the buy-out. NVP president André Olijslager: "In the public debate, private equity is often associated with quick fixes by investors that are only interested in their own gains. The reality is that private equity firms focus on making companies successful. The results of this survey show that our members turn buyouts into successes for all stakeholders. They help creating economic growth, employment and a future for those companies."

Accelerated development
62% of the companies said they had developed more quickly because of the buy-out. 17% said they would no longer have existed without the buy-out. The survey shows that average spending on training courses, marketing, R&D and capital goods increased in the period after the buy-out.

Increased involvement
A crucial success factor for buy-outs lies in the fact that shareholders, management and employees cooperate closely. Companies are supported by their private equity firm, not only with capital, but also with know-how. More than three quarters of the companies had contact with the private equity firm on a monthly or even weekly basis. The management made a substantially greater effort to involve employees in the business. The percentage of employees who received a performance-related pay increased from 12% to 21% after the buy-out.

Dutch companies backed by (amongst others) Dutch private equity firms generate revenues of € 67.5 billion and employ 320,000 people in the Netherlands. Dutch companies that are financed by foreign private equity companies generate revenues of € 21.5 billion and they employ 110,000 people, of which 21,000 in the Netherlands. In total, Dutch private equity backed companies provide more than 6% of all those employed in the Dutch private sector and about 17% of the gross domestic product.