Private Equity Owned Companies
Private Equity Owned Companies
Private Equity Manages Companies Best, Report Finds
A consistent point of contention over private equity concerns the impact that private equity investors have when controlling a company. A new report from the World Economic Forum aimed at answering this question and found that companies backed by private equity are “on average the best-managed ownership group.” The report reveals that private equity-backed firms fared considerably better in a variety of management practices than other owners including government, family or private owners.
One reason for why private equity firms tend to manage companies better than others is the reward structure. That is, most private equity firms use merit-based hiring, firing, compensation and promotions. Additionally, private equity firms tend to have uniquely rigorous evaluation metrics, which consider both short- and long-term performance, and is well understood by the PE firm’s employees. Private equity-backed companies performed especially well in operational management practices. Many private equity-owned companies employ lean manufacturing practices, “with continuous improvements and a comprehensive performance documentation process.” In this way, private equity ownership implies a broad approach to improving management practices across the board.
The report concludes that “most private equity-owned firms are well managed.” The impressive average levels of management practices within private equity firms can be explained by the relatively small number of badly managed firms. So, while the number of poorly managed firms owned privately or by a family is pretty normal, it is fairly rare to find a badly managed private equity-backed firm. This reflects that private equity-backed companies are consistently managed well.
Here is the full report, it is over 100 pages and provides interesting insight into how private equity investors owning a company effects its efficiency.
Tags: private equity, private equity management, world economic forum, private equity management practices, private equity owned companies, private equity owned companies performance
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Tags: Private Equity, Private Equity Management, private equity management practices, Private Equity Owned Companies, private equity owned companies performance, world economic forum
