Private Equity is about Strengthening Companies
The recent political discourse would have you believe that private equity and growth capital is about turning a quick profit, no matter what the cost to the acquired company may be. But a cursory look at the data shows these unjust, politically convenient attacks on a valuable industry to be untrue. According to a recent study, private equity creates value for portfolio companies through active ownership and governance. The private equity industry is about making long-term investments and strengthening companies to achieve superior returns, not 80’s-style financial engineering, as the political rhetoric erroneously implies.
Private equity and growth capital firms invest in and often acquire companies, referred to as portfolio companies, that have significant potential for growth, are struggling and need repair, are poised for expansion, or underperform their potential. In all instances, the private equity firms bring their energy, expertise, and talent to improve company performance and create value. A study published by Ernst and Young found that strategic and operational improvement , or underperform their potential. In all instances, the private equity firms bring their energy, expertise, and talent to improve company performance and create value. A study published by Ernst and Young found that strategic and operational improvement drove 57 percent of value created by portfolio companies. Private equity deals often take years before the full benefits are realized, and this long-term focus aligns the interests of the private equity firm with the company it buys, and ensures that the company has lasting success.
And the research demonstrates the positive impact of private equity managers on the companies they own. Productivity at portfolio companies grows two percent faster than at competitors, and private equity owned companies made more economic improvements measured by patent filings than their competitors. Furthermore, private equity-backed companies that go public tend to outperform their competitors by 11 percent.
Private equity is about preparing companies for global competition, creating value, realizing long-term growth, and generating superior returns for investors. By investing capital in all sectors of the economy, private equity allows local businesses to grow, benefiting everyone who participates in the U.S. economy.
By Steve Judge, President and CEO of the Private Equity Growth Capital Council
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