Private equity buyouts of publicly listed companies show little evidence of improving the performance of an acquired firm, according to new research.
A study of the 105 publicly listed companies which were the subject of buy-outs by private equity groups between 1997 and 2006 suggests the opposite was true; it found that when compared to firms of a similar size in the same industry, their productivity fell.
The research, carried out by Warwick Business School, Cardiff University and Loughborough University, found that private equity houses tended to underestimate the value of the staff working for an acquired company.
And, despite cutting costs, the gap in performance between the acquired and the controlling companies widened.
Performance was judged by sales per employee.
Geoffrey Wood, professor of international business at Warwick, said: "What we found was the promised productivity gains of a takeover rarely materialized. Rather, there was evidence of private-equity buy-outs reducing the number of workers and squeezing wages, without making the firm more efficient."
Outsiders found it more difficult to cost the worth of a firm's human assets, Wood said. "Hence, they are more likely to lay off staff and less aware of the consequences this may have for future performance."
Conversely, companies that were the subject of management buy-outs improve performance "because they understand and appreciate their human assets," Wood added.