Study Finds Private Equity Can Improve Employee Relations

Brussels - Private equity ownership does not tend to impair the quality of employee relations and often has a positive impact, according to a new study by the Centre for Management Buyout Research.

The study, conducted in association with EVCA, assessed the quality of employee relations across a range of measures, including changes to real earnings, occupational pension schemes, employee consultative committees and trade union relations.

Across all these criteria, private equity involvement had an overall neutral or positive effect, compared to the situation in the same company prior to private equity involvement.

In addition, private equity investment was found to have the most positive effect on employee relations in traditionally liberal market economies, such as the UK. In those European economies with the most extensive regulatory frameworks, the effect of private equity investment on employee relations was neutral.

Key findings

• Number of companies with a unionised workforce is static post-buyout at 71%.

• Real earnings of non-managerial employees increased in just over half (51%) of cases. A large minority of 47% experienced no change.

• Availability of occupational pension schemes increased from 76% of companies before a buyout to 81% afterwards.

• Amount spent on non-managerial employee training increased post-buyout in 45% of cases, and fell for just 3%.

• Employee commitment best practice increases, with regular team briefings up from 71% to 90% of cases.

• The proportion of private equity-backed companies that had a consultative committee in place increased from precisely half before the buyout to 63% afterwards.

“While company managers, rather than private equity professionals, are normally responsible for operational decisions relating to employees, this study suggests that private equity investment can be a trigger for improvements in employee relations,” said Javier Echarri, Secretary General of EVCA.

“As we enter a downturn, the strengthened employee relations afforded by private equity ownership puts those businesses in a stronger position to confront the difficult trading conditions across Europe,” said Mr Echarri.

Professor Mike Wright of CMBOR added: “This study looks beyond private equity’s effect on absolute employment levels, to the changes in employee relations across a range of measures. While companies may experience redundancies or employment growth during various points in their life cycle, the fair treatment of stakeholders should transcend economic cycles.”

“It provides additional and comprehensive evidence that private equity’s responsible form of company ownership tends to promote the fair treatment of stakeholders, and in this case, employees,” said Professor Wright.

The study, which was undertaken by the Centre for Management Buyout Research at the University of Nottingham during the first half of 2008, involved questionnaire and face-to-face interviews with 190 human resource professionals and company executives.

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About CMBOR

The Centre for Management Buyout Research (CMBOR) was founded at the University of Nottingham in 1986 as the first centre dedicated to monitoring management buyouts and private equity in a comprehensive and objective way. CMBOR has compiled the most comprehensive dataset of management buyouts and private equity in Europe comprising over 27,000 deals covering the period since the late 1970s. CMBOR provides regular monitoring of trends in management buyouts and private equity in Europe, as well as objective analyses of their effects for practitioner, policy and academic audiences. CMBOR also provides research on venture capital and entrepreneurs including early-stage venture capital for academic entrepreneurship, serial entrepreneurs, international venture capital and return entrepreneurship. In addition to the core team based in Nottingham, CMBOR has an active network of over 40 academic and practitioner collaborators in Europe and worldwide. www.cmbor.com

EVCA

The European Private Equity and Venture Capital Association (EVCA) is a member-based, non-profit trade association and was established in 1983 and is based in Brussels. EVCA is the voice of European private equity and venture capital and represents, promotes and protects the interests of the industry.

With over 1,300 members in Europe, EVCA’s role includes representing the interests of the industry to regulators and standard setters; developing professional standards; providing industry research; professional development and forums, facilitating interaction between its members and key industry participants including institutional investors, entrepreneurs, policymakers and academics.

EVCA’s activities cover the whole range of private equity, from venture capital (seed, start-up and development capital), to buyouts and buyins. www.evca.eu

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