Stanford: The Operational Consequences of Private Equity Buyouts

A recent study conducted by Stanford Graduate School of Business assistant professor Shai Bernstein dispels the misconception that private equity is a “strip and flip” business, proving that the industry creates undeniable value for the companies in which it invests.

“The public debate about private equity often lacks data upon which to base its arguments,” said Bernstein. “We wanted to take an in-depth look at the operations of these privately held firms, which are, more often than not, hidden from the public eye.”

Looking specifically at the restaurant industry in Florida as a sample, Bernstein’s research ultimately found that:

PE firms take an active role in the firms they acquire and improve operational practices. Improving such practices requires not only capital budgeting, but also, perhaps more importantly, better training, monitoring, and alignment of worker incentives throughout the chain. We interpret this as evidence that private equity firms mitigate agency problem and improve management practices in the organization.

Bernstein’s research reaffirms the truth about private equity. Firms partner with small and large businesses across the country, bringing not just capital, but also operational expertise to the table in order to create more valuable and successful companies.

To learn more about how companies benefit from private equity, click here.