Following the biggest global recession since the 1930s, academics from the Centre for Management Buy-out Research (CMBOR) and the Credit Management Research Centre have examined how PE-backed businesses performed through the downturn, relative to their peers. The financial performance of a sample of PE-backed buyouts is tracked between 1995 and the start of 2010, and compared to a matched sample of private companies, non-PE-backed buyouts and listed companies. The data includes 302,385 company-year observations, of which 15,392 are observations from PE-backed buyouts. Multivariate models determining productive efficiency and return on assets are estimated for the recession and the period prior to it, in order to isolate the relative performance of PE-backed buyouts during these periods, and a detailed analysis of company insolvencies is also undertaken in order to examine the failure propensity of PE-backed buyouts relative to other forms of ownership.
The key findings are as follows:
Overall, these results suggest that - contrary to some commentators' expectations - PE-backed buyouts are not more likely to fail than matched private companies and listed companies. In particular, during the recent recession, productive efficiency and profitability was stronger than matched private companies and listed companies during the recession period. The failure rate for PE-backed buyouts was lower than for non-PE-backed buyouts, and no worse than the population of companies as a whole.
March 2011
Download: Private Equity portfolio company performance through the recession
