Pepperdine University Study: Private equity-backed small and mid-sized businesses grow revenues and employees quicker
Business Finance magazine recently reported on a new study out of Pepperdine University showing that small and mid-sized companies backed by private equity vastly outperform non-backed companies in revenue and employee growth. Specifically, the article points to the many benefits private equity brings to small and mid-sized companies:
“Most obviously, of course, they’ve captured outside funding they can use to operate and grow their businesses – rarely a slam dunk these days. In addition, many can tap into the expertise and connections of their VC or PE partners.”
The revenue and employment growth observed at private equity-backed companies was dramatic compared to the control group:
“After studying the performance of more than 6,800 small- and mid-sized businesses between 1995 and 2009, the study authors found that five years in, revenue growth at firms backed by private equity was 129% greater than the growth at control firms. Employment grew by 257% more, with the employee rosters at PE firms jumping by 50 more employees, while those in the control group increased by 14 employees.”
These findings are confirmed by a similar study from Ernst & Young, which found that strategic and operational improvement drove 57 percent of value created by portfolio companies, as well as other research demonstrating the positive impact of private equity managers on the companies they own. Productivity at private equity-backed portfolio companies grows 2 percent faster than at competitors, and private equity owned companies made more economic improvements measured by patent filings than their competitors. Furthermore, private equity-backed companies that go public tend to outperform their competitors by 11 percent.
