Private equity-owned companies raised productivity faster than those not controlled by buyout firms, an edge that may be tested in the current recession, a study released by the World Economic Forum yesterday said.
Productivity increased about 9 percent in a two-year period after acquisitions by private-equity companies compared with 7 percent for other firms. The study, led by academics including Steven Davis from the University of Chicago and Josh Lerner of Harvard Business School, analyzed about 5,000 US companies taken private from 1980 to 2005.
The operational skills of leveraged-buyout (LBO) firms is drawing scrutiny from investors and labor unions with the global economy mired in recession after a US$1.2 trillion LBO spree in 2006 and 2007. A lack of financing for new transactions and a near-frozen initial public offering market means buyout firms probably will have to hold their investments longer than the average of three to five years.
“An obvious question is where the impact of private-equity transactions on productivity varies with economic conditions in general and with credit market conditions in particular,” the authors wrote.
They concluded the firms historically have outperformed non-LBO companies even in tougher markets.
Still, some LBO-backed firms already have succumbed to the worst economic environment since the Great Depression. Apollo Global Management LLC’s Linens ‘N Things and Carlyle Group’s Hawaiian Telcom Communications Inc last year filed for bankruptcy protection.
A study released in December by the Boston Consulting Group, analyzing the credit spreads of 328 unidentified companies owned by private-equity firms, said as many as 50 percent of them may default by 2011.
The World Economic Forum is an independent international organization that seeks to shape debate of global, regional and industry issues.
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