08 Dec 2016

BVCA launches the ninth annual report on the performance of Private Equity portfolio companies

93A35B80-E8E8-4C1A-A023F6304566E47E.jpg

The BVCA has today launched the ninth annual report on the performance of Private Equity (PE) portfolio companies compiled by EY, the professional services firm. 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.

The aggregated data in this report covers 105 companies, or 91% of the total population. This year, compliance for the current portfolio companies was 53 out of 60, or 88%.

The report finds that PE investments 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 4.4 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 1.5% per annum, which is slightly ahead of the UK private sector benchmark of 1.4% growth. Employee compensation growth under PE ownership is slightly behind the UK private sector benchmark, at 2.1% versus 2.4% annual growth. Capital productivity growth in the portfolio companies exceeds public company benchmarks, at 6.4% versus 0.1% growth per annum.

The total equity return on 64 portfolio companies that were exited by PE investors in the period 2005-15 was well in excess of the comparable public company benchmark, by a factor of 4.3x. This significant outperformance is explained in equal measure by PE’s strategic and operational improvement, and the net benefit of 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 nine years of data on current and past portfolio companies shows the positive effects of PE ownership, judged most of all by growth in productivity and resulting growth in value for shareholders. 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 report can be found here.

Other findings in the report include

  • Organic employment growth at the portfolio companies has been faster in the last two years, averaging c.3% per annum, consistent with economy-wide benchmarks.

  • 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.

  • 5.5% of jobs in the portfolio companies are on zero-hour contracts, lower than the economy-wide benchmark of 5.8%. For the portfolio companies, when the impact of one sector is excluded, this falls to 0.1%.

  • Investment at the portfolio companies has grown by 1.6% to 7.6% per annum across a number of measures.

  • Measured by effect on revenue, 47% of the current portfolio companies have made net bolt-on acquisitions while 9% have made net partial disposals, showing investment in bolt-on acquisitions ahead of partial disposals.

  • Annual growth in labour productivity in the portfolio companies at between 2.0% and 2.4% is on a par with public company and economy-wide benchmarks.

  • The portfolio companies have grown reported revenue at 5.8% per annum and profit at 4.6% per annum; organic revenue and profit growth are both 3.6% per annum.

  • Portfolio companies have much higher levels of financial leverage than public companies, 6.5x net debt to EBITDA versus 2.4x, respectively.

  • There were 11 new investments in 2015, equalling the number in 2010, and 13 exits together leading to a net decline in portfolio companies of 2 to total 60 at the end of December 2015.


Notes to editors
  • About the report

    This is the ninth 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 nine 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.
  • About BVCA

    The British Private Equity & Venture Capital Association (BVCA) is the industry body and public policy advocate for the private equity and venture capital industry in the UK. Our aim is to aid understanding around the activities of our members, promote our industry to entrepreneurs and investors as well as to Government, the EU, trade unions, international media and the general public. We communicate the industry's impact and reinforce the crucial role our members play in the global economy as a catalyst for change and growth.
    Our membership comprises more than 600 influential firms, including over 250 private equity and venture capital investors, as well as institutional investors, professional advisers, service providers and international associations. We work together to provide capital and expertise to growing businesses, to unlock potential and to deliver enhanced returns to the millions who directly and indirectly invest in our industry.





Related topics

×

Update your login details

We updated our website and supporting systems on 12th December. 

If you previously had an account, please reset your password. If it's your first-time logging in, please register to create an account. For assistance, please contact the BVCA Membership Team

Login