After a four year period, workers’ annual salaries will be roughly £10,000 less in companies that have been taken over by private equity, compared to firms that haven’t, according to a new paper, The employment consequences of private equity acquisitions: The case of institutional buy outs.
Workers will not only be worse off when their firm is taken over by private equity through an institutional buyout (IBO), but their company’s performance will fall behind its rivals. New research has discovered that IBOs —defined as a highly leveraged transaction where one or more institutional investors act together to initiate a buyout deal—result in staff losses and a decrease in overall productivity.
Geoffrey Wood, Professor of International Business at Warwick Business School, and co-author of the paper said, “Our findings suggest IBOs and their impact on managerial practices do not appear to be an effective mechanism for turning round failing firms.
“I would argue, far from the notion they revitalise the acquired organisation and unlock dormant capabilities and value, our research suggests more often than not the opposite occurs. Our core finding shows a significant loss in employment in firms subject to an IBO immediately following the takeover. What’s more, wages tend to fall well below the market rate,” he concluded.
Paul Arkwright
Publisher
