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Private Equity (PE) has negative consequences for employees in terms of employment, wages and working conditions, according to research by The Work Foundation, a UK-based not-for-profit organization.



The report, based on the analysis of independently gathered data, says that PE ownership results in significant cuts in employment in the first year. However, in the longer term, an important distinction must be made between management buy-outs (MBOs), where PE is used by the existing management team, and management buy-ins (MBIs), where external investors impose a new management. MBOs, which account for the majority of private equity deals, seem, overall, to increase jobs by about 13 percent over 5 years. In MBIs, on the other hand, jobs are cut roughly by 18 percent over 6 years. These findings imply that there is a lot of changes in employment over the life of a buy-out firm.



In terms of wages, employees working for a company taken over in a leveraged buy-out (LBO) will see their salary grow more slowly than workers in non-LBO firms. Again, there is an important difference between MBOs, where workers lose an average of £231.35 a year, and MBIs, where the figure is £83.70. The data further shows that wage increase is particularly weak immediately of the takeover, but picks up a little in subsequent years.



The study also finds that PE firms seek to substantially change the management techniques of bought-out companies as they tend to favour performance-related and merit pay. This can add to workers’ stress level and anxiety about job security. This could also be seen as a way to justify further redundancies.



A further concern is the anti-union picture displayed by PE managers. Companies recognizing trade unions fall from 34 percent to 29 after a buy-out (but reverts to the original figure over time), only one in 10 managers at MBO firms have positive attitude towards unions and 40 percent admit being hostile to them. This hostility towards trade unions is more pronounced than in the population of private sector managers’ as a whole.



To this extent, PE is highly unlikely to benefit employees at affected companies. It implies lack of job security and loss of benefits for the thousands of workers now employed by private equity.



The Work Foundation recommends that the government creates a special fund and sets up a working group to explore the potential for introducing additional protections for employees having lost their job as the result of a buy-out.