The fifth Canadian issue of the monthly executive brief providing M&A market insight for C-level management and their professional advisors.
Job creation has been a major issue on the minds of individuals, businesses and government in the wake of North America’s recovery from the economic downturn of 2008 and 2009. Lately, interest has been raised in the effect of private equity investment on jobs: does the private equity industry actually create jobs or do their efforts – by consolidation and operational streamlining – actually result in a net loss of jobs?
To answer this question, the Association for Corporate Growth and other non-partisan organizations recently launched a new website www.growtheconomy.org. This site uses data from 1995 to 2009 to track private equity investing and its effect on job creation, sales and other metrics. Data is provided by the National Establishment Times Series (NETS) database, and PitchBook, the leading provider of independent private equity research and data. In addition, many top universities have contributed and will be mining this data on an ongoing basis to inform the public, industry and government on private equity investing.
And what are the results? During the 14 year time period covered by the data, private equity-backed companies created significantly more jobs (82%) than their public/private company counterparts (12%). In addition, the private equity-backed companies showed significantly higher sales growth – 133% versus just 28%.
Why such a difference between the two? The goal of private equity is to acquire and grow a company, then sell it and make a competitive rate of return for its investors. Most private equity groups seek out investments that are best-in-class companies or at least solid performers in need of capital and expertise to expand. An influx of capital and the involvement of a team of business experts provide that “shot in the arm” needed for rapid growth. Essentially the companies selected by private equity investors are the ones that would have had strong prospects for growth in jobs and sales anyways, therefore the private equity investment helps to solidify, accelerate, and even magnify that growth.
For additional information contact:
Douglas Nix, CA | Vice Chairman
Corporate Finance Associates | Toronto West | 905-845-4340 x211 | firstname.lastname@example.org