The Case for Private Equity

The recent presidential election cycle brought back many unfavorable stereotypes regarding private equity firms and the way they work. These misconceptions are often held by many small business owners, and may affect their willingness to consider a private equity partner, even when other forms of investment are not available or too costly.

The CEO of Dunkin Brands noted “Our acquisition by [a private equity group] liberated our company. Our new owners expressed confidence in our management team, our strategies and our vision.” Several industry reports by the World Economic Forum, Ernst & Young and the Private Equity Council note how strong private equity partnerships are at developing ‘a better cup of coffee’. Here are a few key facts to consider with your first cup this morning:

• Private equity-backed firms generate more jobs. The difference in the job growth rate of private equity-owned companies vs. the overall economy is staggering. From 1995 to 2009, private equity-owned firms enjoyed a job growth rate of 81.5% compared to 11.7% for all other businesses.

• Private equity-backed firms sell more goods and services. Firms backed by private equity increased sales at an annual rate of 10.8%, or 77% faster than the rate of annual sales for the overall economy.

• Private equity-owned firms are better financial performers. Between 1990-2005, private equity-owned firms generated average annual returns of 14.5% while the S&P 500 returned 11.3%.

Most importantly, none of this performance is ‘brewed up’. It’s just sound business practices implemented through disciplined planning, focused management and clear vision.

I hope these thoughts are helpful. If you or any one of the companies you work with have questions about how private equity really works, we’d be delighted to bring the coffee and speak with you.