A new study commissioned by the European Venture Capital Association (EVCA) aims to stem the flow of criticism about recent heavy job losses at private equity portfolio companies such as Grohe and Gate Gourmet. As well as providing defensive cover for an industry that has been exposed to an unprecedented amount of media and political scrutiny over the past year, the survey aims to paint a positive picture of the benefit of private equity in helping the EU to achieve the long-term goals set out under the Lisbon Agenda.
The survey found that 1m new jobs were created by European private equity and venture capital financed companies between 2000 and 2004, of which 420,000 were part of buyout portfolios. During the period, employment grew by an average rate of 5.4%, which, according to the survey, is eight times the annual growth rate of total employment in the EU. In buyouts, job growth was 2.4% a year, or nearly four times the annual rate.
The study also found that 67% of buyout-financed companies surveyed either kept their headcount stable or increased their number of employees overall.
The study also provides clear ammunition for those that want to reform what they see as the inefficient rump of family-owned Continental European businesses. Buyout transactions of these businesses show the highest employment growth of all, with an average of 7% per year following the investment.
While the European survey is certainly impressive, it also goes a long way to show how far Continental Europe lags behind the UK in terms of the maturity of its private equity industry. What is perhaps most surprising is that, despite its maturity, job creation was far faster in UK portfolio companies than in the EU as a whole.
The recent UK survey, which was completed by Initiative Europe on behalf of the British Venture Capital Association (BVCA), found that the number of people employed in the UK by private equity-backed companies increased by an average of 14% a year, against a national private sector employment growth rate of 0.3%. Furthermore, private equity-backed companies increased their staff levels at a rate of nearly five times that of FTSE 100 and FTSE mid-250 companies.
It is now estimated that the private equity industry employs around 2.9m people in the UK, equivalent to 19% of private sector employees. According to the EVCA survey, the industry employed nearly 6m people in the EU as a whole, or around 3% of the economically active population.
The reports conclude that employment growth is faster in private equity-backed companies. This rate of growth accelerates with the maturity of the private equity industry.