By Carol Matlack
With buyouts by private-equity firms hitting record highs in Europe, naysayers are warning that jobs will be slashed as the new owners restructure companies to generate quick returns for investors. While that's true in certain industries, a new study shows that the majority of European companies taken over in buyout deals are generally posting healthier employment growth than the region's economy as a whole.
The study, commissioned by the European Private Equity & Venture Capital Assn. (EVCA) and carried out by researchers at the Munich Technical University, found that European businesses taken over in buyout deals from 2000 to 2004 posted a net increase of 420,000 jobs during the period. That works out to a 2.4% annual employment growth rate, compared to a growth rate of only 0.7% in the European Union during the same period. "For the first time at the pan-European level, we can see clearly that venture capital has set in motion a process for creating jobs," says Walter Butler, who heads the EVCA's buyout committee.
Butler, who runs the Paris-based private-equity firm Butler Capital Partners, has experienced firsthand the political volatility surrounding buyouts. In late September, French union members staged angry protests and hijacked a ferry after Butler's firm took a 40% stake in SNCM (Société Nationale Corse Méditerranée), a previously government-owned concern that provides ferry service linking Corsica to the French mainland. Last year in Germany, leaders of the Blackstone Group, another private-equity outfit, were called "locusts" by Franz Muntefering, chairman of the Social Democratic party, after Blackstone bought out German chemical company Celanese.
Despite such controversy, private-equity investment is booming in Europe, climbing from $6.5 billion in 1995 to almost $44 billion last year. Buyouts accounted for $31.5 billion of the 2004 total, including such megadeals as the Blackstone Group's $3.8 billion takeover of Celanese. Across the Old World, some 5 million people now work in companies that were targets of private-equity buyouts from 2000 to 2004, the EVCA survey says.
Still, the survey found that 33% of companies did trim their payrolls after buyouts. Those in the chemical, communications, and financial-services sectors were most likely to cut jobs. Another 4% kept headcounts stable. But 63% of companies -- particularly those in the transportation, computer, health, and biotechnology sectors -- hired more employees.
How are these businesses able to hire when so much of Europe's economy is in the dumps? One reason, Butler says, is that a change in ownership often "pushes a company to clarify its strategy" and focus on their most profitable activities. New owners also can help companies expand their presence globally.
Consider Cartesis, a French maker of financial-management software. A spinoff of accounting giant PriceWaterhouseCoopers, it was acquired in 2003 by several private-equity firms, including Apax Partners and Advent Venture Partners. Until the buyout, most of Cartesis' customers were PriceWaterhouseCooper clients in France, says David Cooksey, Advent's managing partner and the EVCA's chairman. But over the past two years, the company's sales have grown 50% as it has expanded operations into the U.S., Britain, and Germany.
Certainly, the EVCA study won't put an end to fears that private-equity buyouts will lead to job losses. But it could provide some reassurance that, as Cooksey says, "European private equity and venture capital can make a difference to the European economy by providing sustainable, high-quality jobs."
Matlack is BusinessWeek's Paris bureau chief