Buyout companies slash jobs, research finds

LONDON: Leveraged buyout companies, which say they create employment, cut more jobs at companies they own than similar businesses in the same industries, according to the preliminary findings of the latest academic research made public this week.

Private equity firms cut most of the jobs in the second and third years after leveraged buyouts, according to the research by academics, including Steven Davis of the Graduate School of Business at the University of Chicago and Josh Lerner of Harvard Business School. Buyout companies cut more jobs at retailers than at manufacturers, according to the research.

"There really is housecleaning," Davis said during a Webcast of a conference at the American Enterprise Institute in Washington this week. "They disproportionately go into firms that are already shrinking and then shrink them more."

Buyout firms are under intense scrutiny from lawmakers in the United States and Europe after an unprecedented $1.8 trillion worth of takeovers in the United States over the past three years.

The U.S. Congress is considering increasing taxes on publicly traded firms like Blackstone Group, the manager of the biggest buyout fund. A panel of British lawmakers plans to resume its inquiry into the private equity industry next month.

The British group required deal makers, including Damon Buffini, a managing partner at Permira Advisers, and David Blitzer, a senior managing director of Blackstone Group, to defend their tax arrangements during the year.

"There's huge political interest in this," Davis said.

Buyout firms have attempted to counter attacks from lawmakers and labor unions by saying they fix broken companies and help economic growth.

"We are not greedy speculators out to make a quick buck," Steve Schwarzman, Blackstone co-founder, said in a speech to the Confederation of British Industry in London this week. "We take the tough decisions other management teams dodge. We are here to stay as a force for good in the global economy."

Davis said the researchers' findings were preliminary and did not include the number of jobs private equity firms create when they open new plants.

The study does not take into account any improvements in labor productivity either, he said. The researchers plan to publish their final findings in January.

Video Exclusive:
Suzy Menkes interviews Luxury Leaders

Also from Supreme Luxury: Moscow 2007

• In Russia, luxe in the bloodline
• Moscow has hot clubs but it's a cold wait to get in
• In Russia, luxury no longer means loud

Search

Subscriptions
Sign Up  |  Manage