ICYMI: Private equity buckles up for public battle, round two

Private equity buckles up for public battle, round two

Wall Street Journal Pro

By Laura Kreutzer

July 31, 2019

Private-equity firms have once again found themselves in the political hot seat, but this time around some industry participants say the industry is better prepared to fight back.

Earlier this month, Democratic presidential hopeful Sen. Elizabeth Warren targeted everything from debt placed on portfolio companies to carried interest tax treatment and employee pension obligations in her Stop Wall Street Looting Act of 2019. The Massachusetts senator accused private-equity firms of acting “like vampires,” loading up companies with debt, stripping assets and profiting when the remains entered bankruptcy, often leaving workers without jobs.

Although few expect the bill to pass in its current form, it has reignited a longstanding public debate over whether private-equity managers help or hurt the economy. To some industry professionals, the public attention and criticism sparked by the bill evokes memories of the 2012 presidential election when Republican standard-bearer and Bain Capital co-founder Mitt Romney drew criticism of his private-equity record, and by association, the industry itself.

Sen. Warren’s bill goes much further than the critiques of 2012 and, even if only parts of the bill make it into law, could dramatically affect how the industry operates.

But this time, some private-equity executives say the industry plans to fend off such attacks, using data and stories from portfolio companies as its best weapons.

The American Investment Council, an industry advocacy group, quickly rolled out statistics to counter job-loss claims from Sen. Warren and her supporters, citing various research and data points that back the industry’s narrative of investing for corporate growth and job creation.

The group has focused efforts on different states, initially pointing to the number of workers private-equity portfolio companies employ in Sen. Warren’s home state of Massachusetts. For presidential candidates, the Boston media can play a key role in nearby New Hampshire, as it serves most of the population in the state with the first 2020 primary.

More recently, Drew Maloney, the organization’s president and chief executive, published an opinion piece in an Iowa newspaper emphasizing the capital and jobs that the industry has brought to the Hawkeye State, where the first presidential contest traditionally takes place in the form of party caucuses. Efforts by the industry group in other states are expected to follow.

At least one midmarket firm that declined to be named said it is galvanizing portfolio company executives and asking them to meet with the senators from their states and explain to them how private-equity capital has helped support job creation and economic growth.

A senior private-equity executive at this firm said that some of the industry’s best defenders are likely to be these business leaders.

“There’s much more of an effort to have employees and CEOs talk this time,” this executive said. “Not every investment is going to be successful. We’re not always going to be right, but most of the time we do pretty well.”

Vicente Reynal, CEO of Gardner Denver, an industrial manufacturing company that was acquired by KKR & Co. in 2013 and later taken public in 2017, has said his experience was nothing like the accounts that have drawn recent media attention.

For example, he said that in conjunction with its initial public offering, Gardner Denver, with KKR’s support, issued $100 million in deferred stock grants to its global workforce. At the time, that was equivalent to 40% of the company’s total combined annual salary payments. KKR also advocated for another $150 million equity grant, announced earlier this year, that will be implemented after the acquisition of an Ingersoll-Rand PLC division closes.

“At our current share price, this will represent over $300 million of value allocated to non-executive employees, most of whom are hourly workers,” Mr. Reynal said by email. “This investment in our workforce has changed lives and created financial security, and it was inspired by our private-equity ownership.”

Exactly how many other portfolio company executives or even firms themselves speak out remains to be seen. But they will have to speak loudly and convincingly to be heard amid the popular fervor inspired by the industry’s critics.