Private equity takeovers and employment in the UK: some empirical evidence

Abstract

Research Issue: This study investigates the employment consequences of private equity acquisitions, in particular institutional buy-outs (IBOs), in the UK. It involves a pre and post-acquisition analysis of employment and performance characteristics for a sample of acquired firms and a matched sample of non-acquired firms. Research Findings: There is a significant decrease in employment in acquired firms in the year immediately after the completion of the IBO compared with non-acquired firms. Further analysis fails to identify any parallel or subsequent increase in firm productivity or profitability. This evidence suggests that the observed downsizing has not been effective either in disciplining staff or imparting a clearer focus to activities. Academic Implications: The results of this study add to our understanding of the employment effects of private equity acquisitions, especially IBOs. Two important theoretical issues emerge. The first is a need to conceptualize skills and human capabilities on a collective dimension, specific to a particular organizational setting, and the extent to which they contribute to the organization's performance. The second is the importance of understanding managers as operating in particular social settings, making subjective choices based on their specific knowledge and experiences. Practitioner Implications: The main practitioner implication of our study is that companies acquired via IBO do not exhibit increased productivity or profitability in the wake of a significant reduction in employment. This highlights the need for new management to better understand the link between employment and performance in the specific corporate setting of the acquired firm.