NY Times DealBook: In Tough Times, Private Equity Saves Jobs
By Richard Farley
Richard Farley is a partner in the corporate practice of Paul Hastings and is based in the firm’s New York office. His practice centers on representing some of the world’s leading commercial and investment banks in leveraged buyout financing, recapitalization and refinancing.
If you asked a random sampling of people with jobs whether they would work for a company owned by a private equity firm during financially difficult times, I’d be shocked if the results were not overwhelmingly against the private equity firm, given the relentless beating private equity has received this year, principally as a result of Mitt Romney’s presidential candidacy and his former affiliation with Bain Capital.
But is the commonly accepted view that private equity firms slash jobs at the first sign of trouble supported by the evidence? According to a report by Moody’s Investors Service last week, workers would be wise to choose companies owned by private equity.
Moody’s data shows that such companies are much less likely to be liquidated when the going gets tough. It turns out that private equity does more to save the jobs of workers at struggling companies than other types of owners do.
The Moody’s study reviewed more than a thousand situations going back to 1988 where companies defaulted on their debt. Two hundred involved companies that had undergone leveraged buyouts backed by private equity; the others had not. The results of this exhaustive study repudiate the “conventional wisdom” of the anti-Wall Street crowd that leveraged buyouts destroy companies and jobs.
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