1) There is heterogeneity in private equity investment styles and outcomes that is often neglected in debates that portray private equity firms as either "angels or demons". 2) The impact of private equity investments on companies varies greatly depending on the type of company and private equity firm, with some focusing on growth, others on operational efficiencies, and others on turnarounds. 3) A looming refinancing crisis could occur as large amounts of debt taken on in private equity deals during the boom years from 2007-2009 come due for repayment.

1. Heterogenity in Private
Equity Investment Styles
and Outcomes: A Neglected
Isssue?
Sigurt Vitols
Wissenschaftszentrum Berlin für Sozialforschung
Presentation for the Restructuring Forum: The Impact of
Financial Investors on Enterprises, Brussels 5/6 July 2010

2. Overview of Presentation
• „Angels vs. Demons“ debate too simplistic
• Impact of PE on companies varies greatly:
-- across company types
-- across PE firms
• Looming refinancing crisis?
• Redirection of research and policy agenda
necessary?

3. Research: Leading or Lagging
Public Debate?
• „Angels or Demons?“ (Lutz/Achleitner 2009)
• „Are PE Investors Good or Evil?“ (DIW 2009)
• Most econometric studies of PE impact:
-- measure „average“ effect of PE
-- assume all PE firms the same

4. PE Model
• Different strategies: Growth vs.
Operational Efficiencies vs. Turnaround
• Potential changes: management, HRM,
acquisitions, investment, R&D policy
• Source of profits: increase in company
value, tax benefits, market timing
• Financing: different mixes of debt + equity
• Debt: discipline device or danger to firm?

5. Different PE Styles/Experience?
Source: Moody‘s „$640 billion and 640 days later“

6. PE Transaction/Equity Value
by Deal Size, 2007-2009
5.7
6
5
4
3.1
2.6
3
2.1
2
1
0
Small Mid-market Large Mega
Source: Own calculations from EVCA Buyouts Report 2009

7. Were Mega-Deals a Market Failure?
Source: Moody‘s „$640 billion and 640 days later“

8. Different trade unionist
experiences with PE
Source: Unionen „Owned by Private Equity“, 2008 survey of Swedish TU reps

9. A Looming Refinancing Crisis?
Source: Moody‘s „$640 billion and 640 days later“

10. Distressed Exchange vs.
Bankruptcy
Source: Moody‘s Private Equity 2009

11. A Research and Policy Agenda
• Lack of transparency: a problem for research
• Drivers of different PE strategies/impacts?
• Best framework for encouraging „good“ and
discouraging „bad“ PE outcomes?
– Leverage cap in context of market failure
– Employee information/consultation rights
• Impact of distressed exchange vs. bankruptcy?
• Policy measures for the looming refinancing
crisis?

12. THANK YOU FOR YOUR
ATTENTION!!!!!!!!!!!!!!!!!!!!