08 Dec 2017

BVCA launches EY’s tenth annual report on the performance of Private Equity portfolio companies

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The BVCA has today launched the tenth annual report on the performance of Private Equity (PE) portfolio companies compiled by EY. The report presents independently prepared information to inform the broader business, regulatory and public debate on the impact of PE ownership on large UK businesses. It is one of the steps taken by the PE industry to implement the Walker Guidelines, activities now overseen by the Private Equity Reporting Group (PERG).

The aggregated data in this report covers 89% of the total population of portfolio companies, being all the large, UK businesses that met certain criteria applied at the time of their acquisition by PE investors. This year, compliance for the current portfolio companies was 44 of 52, or 85%.

Key findings

The report finds that PE investments in the portfolio companies are long term, with an average timeframe of 5.8 years from initial investment to exit. The current portfolio companies have been owned for an average of 4.2 years.

Under PE ownership, in aggregate the portfolio companies have increased employment, employee compensation, capital investment, productivity, revenue and profits. Compared to public companies and the UK private sector as a whole, the portfolio company performance is broadly in line with or ahead of these benchmarks. Over the duration of PE ownership of the portfolio companies, underlying organic employment (removing the effect of bolt-on acquisitions and partial disposals) has grown by 1.4% per annum, in line with the UK private sector benchmark of 1.4% growth. Employee compensation growth under PE ownership is slightly above the UK private sector benchmark, at 3.5% versus 2.5% annual growth. Capital productivity growth in the portfolio companies exceeds public company benchmarks, at 6.4% versus 0% growth per annum, whilst labour productivity growth at just under 2% growth per annum is on a par with benchmarks

The gross equity return from portfolio company exits was 3.2 x the public company benchmark; half of the additional return was due to PE strategic and operational improvement and the other half from additional financial leverage.

Tim Hames, Director General of the BVCA, said: “This report is a hugely valuable contribution to a better understanding of what private equity is, the impact it has on large UK companies and its effect on the economy and society as a whole.”

Harry Nicholson, EY partner, who led the research, said: “Analysing the last ten years of data on this defined set of current and past portfolio companies shows the effects of PE ownership on large UK businesses. While there is variation at the individual portfolio company level, in aggregate the findings are clear that the PE effect is positive, or neutral, on large UK business across all of the measures that we have tested. The private equity portfolio companies continue to generate employment, increase investment and grow.”

Other findings in the report include
  • Annual employment growth at the Portfolio Companies is in line with private sector benchmark of 1.4% growth (organic), and public company benchmark of 2.8% growth (reported)
  • Almost half of the jobs in the Portfolio Companies are for part time work with annual compensation less than £12,500, over double the proportion of the UK private sector. This is explained by a sector focus on consumer services and healthcare where there is a higher mix of part time work
  • Investment in operating capital employed at the Portfolio Companies has grown by 2.3% per annum
  • 48% of the current Portfolio Companies have made net bolt-on acquisitions while 10% have made net partial disposals, showing investment in bolt-on acquisition ahead of partial disposals
  • Labour and capital productivity have grown under PE ownership, by 1.6-1.8% and 6.4% per annum respectively
  • Since acquisition, the Portfolio Companies have grown reported revenue at 5.4% per annum and profit at 4.0% per annum; organic revenue and profit growth have grown at 3.8% and 2.4% per annum respectively

Notes to editors

About the report

This is the tenth annual report on the performance of Portfolio Companies, a group of large, private equity-owned UK businesses that met defined criteria at the time of acquisition. Its publication is one of the steps adopted by the Private Equity industry to improve transparency and disclosure, under the oversight of the Private Equity Reporting Group.

The report is based on information provided on the Portfolio Companies by the Private Equity firms that own them. With a large number of Portfolio Companies, and now ten years of information, this report provides a comprehensive and detailed insight into the effect of Private Equity ownership on large, UK businesses. As the study notes, it is possible to make a wide range of claims about the effect of Private Equity ownership if the fact-base is limited to any one or two examples. This report aggregates data across a defined set of businesses, which gives a robust fact-base.

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over.

We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.


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