Large private equity acquisitons grew U.S. jobs significantly in recent years, new study finds

WASHINGTON, DC, January 17, 2008 — Acquisitions of large companies by some of the leading U.S.-based private equity firms between 2002 and 2005 resulted in significant net gains in U.S. employment, according to an important new study released today by the Private Equity Council. The most significant job gains came in the manufacturing sector, where U.S. companies acquired by private equity firms posted an overall employment gain of 1.4 percent, versus a loss of 7.7 percent in the broader manufacturing sector.

The study, authored by Dr. Robert J. Shapiro, former Under Secretary of Commerce in the Clinton Administration and Chairman of Sonecon, LLC, and Dr. Nam D. Pham, founder and president of NDP Group, LLC, is believed to be the first ever based on empirical data provided directly by major private equity firms. The study represents the initial phase of a project undertaken by the PEC and Drs. Shapiro and Pham to assess the economic impact of private equity on the U.S. economy.

For the jobs study, Drs. Shapiro and Pham examined data from 42 large companies acquired by eight major private equity firms between 2002 and 2005 and found that overall employment rose from 310,420 to 336,634, a net increase of 8.4 percent. The companies studied represent 60 percent of all acquisitions valued at $250 million or more made by the eight firms between 2002 and 2005, and 70 percent of the total dollars invested in deals over the $250 million level in the period.

“The data show that large private equity transactions produce significantly greater job gains than observed in other companies in the same sectors, especially other large companies,” Shapiro said. “These findings reflect the role that private equity funds play in the economy: acquiring underperforming companies and reforming their operations,” he added.

Douglas Lowenstein, president of the PEC, said: “An important measure of each individual private equity investment is whether it helps a company grow and become more competitive in today’s global economy. There are many ways to evaluate progress toward this objective, including revenue and sales growth, capital expenditures, innovation and R&D investment, and, of course, employment. With respect to the latter, in some cases private equity investments may result in employment growth, in others, it may save endangered jobs, and in still other cases, it may mean job losses. But this study clearly suggests that, in the aggregate, private equity investment has a net positive effect on U.S. employment growth.”

In the manufacturing sector, the study found that job results were consistent with the long-term investment approach typical of private equity: After experiencing initial job losses, acquired companies generated job gains within two years that exceeded both the initial losses and the rates of job gains by other companies in the same sectors.

Lowenstein said the jobs pattern reflects the efforts of private equity investors to take steps in the early stages of an investment that will ensure the long-term growth and competitiveness of an acquired company. The job gains resulted both from organic growth and acquisitions.

“This analysis shows the value for job growth in the United States of the long-term approach used by private equity firms to reform the operations of underperforming companies,” Shapiro said. He added that the study provided “particular insight into the recent impact on employment of the purchases of relatively large companies by large private equity firms and their subsequent operations.”

The Shapiro-Pham study is part of a broader effort by the PEC to add to the growing body of research examining the effects of private equity investments on the American and global economies, Lowenstein said.

“In the next few weeks, major new research on private equity’s impact will be released at the World Economic Forum by a team headed by Professor Josh Lerner of The Harvard Business School. We look forward to reviewing Professor Lerner’s findings. In releasing this study, our intent is to complement his work and to make a positive contribution to the global discussion about the economic impact of private equity — on job growth, productivity, innovation and many other important metrics. We look forward to working with Professor Lerner and scholars around the world in the important work required to shed more light on the economic issues surrounding private equity investments,” Lowenstein added.

Highlights of the Shapiro-Pham study include:

• Over the period examined, the combined worldwide workforce of the 42 large firms acquired in private equity transactions grew 8.4 percent. More than 76 percent of the sample recorded job gains, while less than 24 percent reduced employment.

• Among a subset of 26 firms providing data on their U.S. employment, domestic jobs by private equity-backed firms increased 13.3 percent, compared to 5.5 percent for all U.S. businesses and 2.7 percent for large U.S. businesses. About 73 percent of the companies covered in the study increased their employment, while 27 percent cut jobs over the study period.

• Manufacturing firms purchased by private equity funds achieved the greatest relative gains, increasing their worldwide employment by 8.6 percent. Moreover, domestic employment by private equity-backed manufacturing companies rose by 1.4 percent, compared to job losses in all U.S. manufacturing of 7.7 percent. The job results followed a pattern of initial losses followed by subsequent and usually larger gains.

• Non-manufacturing companies purchased by private equity funds, in areas such as health care, retail trade and food services, expanded their total employment by 8.4 percent. Moreover, domestic employment by private equity-backed non-manufacturing firm rose 14.3 percent, almost double the gains of 7.4 percent by all non-manufacturing U.S. firms.

The eight PE firms provided data on 70 companies acquired between 2002 and 2005, including 50 that they continued to own in 2007. Of those 50, comparative job data were available for 38 companies, or 76 percent of the total. Employment data also were available and included for four companies that had been acquired between 2002 and 2005 and subsequently sold.

The study is available in PDF format on the PEC web site at Hard copies can be obtained by contacting the PEC at 202.465.7700.


The Private Equity Council, based in Washington, DC, is an advocacy, communications and research organization and resource center established to develop, analyze and distribute information about the private equity industry and its contributions to the national and global economy. PEC members are: Apax Partners; Apollo Global Management LLC; Bain Capital Partners; the Blackstone Group; the Carlyle Group; Hellman and Friedman LLC; Kohlberg Kravis Roberts & Co.; Providence Equity Partners; Silver Lake Partners, THL Partners; and TPG Capital (formerly Texas Pacific Group).