Greed is good, says Gordon Gekko. What do you think?
The titans of the leverage buyout may have one more reason to be smiling. If generating exorbitant profits and amassing huge fortunes isn’t enough, one authority now says that the demonization of the “Kings of Wall Street” might be a bit overstated. That’s according to a recent study by the World Economic Forum which The New York Times has described as the “most extensive conducted on the issue.” The 2008 study titled The Global Economic Impact of Private Equity examined 5,000 private equity transactions from 1980 through 2005.
But not so fast, says organized labor. Several unions have been critical of the impact private equity firms like KKR, Blackstone and the Carlyle Group have had on working people, taxpayers and the broader economy. Last year, SEIU released the report Behind the Buyouts to expose the problems of the super-secretive buyout industry. And the AFL-CIO sent letters to potential investors and the SEC warning against the Blackstone IPO last summer.
So what’s your take? Barbarian at the gate or savior of the economy? Register your vote and give us your comments.
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Among the key findings of the report:
- Companies owned by private equity shed on average about 1% more jobs than their peers.
- Two years before a buyout, a company cuts 4% more of its work force compared with its peers.
- After a buyout, the acquired company cuts 7% of its work force over two years but also added jobs at a pace of about 6%, resulting in a net loss of 1%.
- By the fourth and fifth years of private equity ownership, the growth of a company’s work force becomes similar to its public peers.
- 6% of all buyouts eventually end in a bankruptcy filing, slightly higher than the average for public companies.
- Public-to-private transactions represent only 7% of the total number of buyouts since 1980.
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