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Study Private Equity Goes Easy on Jobs

January 30, 2008
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A company bought by a private equity firm will shed roughly 1 percent of its payroll, according to a study released at the World Economic Forum in Davos, Switzerland.

“The Global Economic Impact of Private Equity” examined U.S. private equity transactions from 1980 through 2005.

After a buyout is completed, the study found, an acquired company cuts 7 percent of its workforce in the first two years.

At the same time, however, companies that are taken private usually add new positions in new locations at a 6 percent clip, making for a 1 percent total loss of jobs.

And after a company is under private equity ownership for four or five years, the growth of its workforce becomes similar to that of its publicly traded counterparts, the study found.

The research, which was led by Josh Lerner, professor at Harvard Business School, and Steven J. Davis, professor at the University of Chicago’s Graduate School of Business, was commissioned last year to measure the impact of private equity on employment.

The study also said that a company will cut, on average, 4 percent or more of its workforce as it tries to prepare for a sale.

Filed by Aaron Siegel of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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