Private Equity and Labour in Europe: Did the Crisis Change the Perception and Role of Private Equity’
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‘Private Equity and Labour in Europe: Did the crisis change the perception and role of Private Equity’ Project on behalf of the Hans-Böckler-Stiftung FINAL REPORT Jakob Haves (Wilke, Maack und Partner), Peter Wilke (Wilke, Maack und Part- ner), Marie Meixner (Syndex), Emmanuel Reich (Syndex), and Sigurt Vitols (Wissenschaftszentrum Berlin) With the support of – Howard Gospel (Kings College University of London and Said Business School Oxford), Andrew Pendleton (University of York), Ewald Engelen (University of Amsterdam), Tomas Korpi (University of Stockholm), and Bruno Cattero (University Piemonte Orientale). ‘Private Equity and Labour in Europe: Did the crisis change the perception and role of Private Equity’ Content 1. INTRODUCTION ............................................................................................................................................................. 1 2. DEVELOPMENT OF THE EUROPEAN PE MARKET FROM 2002 TO 2012 – GROWTH, CRISIS AND RECOVER 4 2.1. OVERVIEW ON STATISTICAL EVIDENCE (10 YEARS OF PE IN EUROPE ) ...................................................................................... 4 2.2. STRUCTURE AND RELEVANCE /ROLE OF THE PE SECTOR IN THE DIFFERENT COUNTRIES ........................................................... 5 2.3. THE IMPACT OF THE CRISIS ON THE PE INDUSTRY AND ITS IMAGE ......................................................................................... 10 2.4. KEY CHALLENGES FOR PE INVESTMENTS IN THE LAST TEN YEARS ........................................................................................... 12 2.5. CHANGES /DEVELOPMENTS OF THE PE INVESTMENT MODEL DURING THE LAST TEN YEARS ................................................. 12 2.6. CHANGES IN REGULATION OF PE IN EUROPE IN THE LAST TEN YEARS .................................................................................... 14 2.7. OUTLOOK AND FUTURE PERSPECTIVES .................................................................................................................................... 15 3. COUNTRY REPORTS ................................................................................................................................................... 16 3.1 FRANCE ..................................................................................................................................................................................... 16 3.1.1. INTRODUCTION .............................................................................................................................................................. 16 3.1.2. PE IN FRANCE BEFORE AND DURING THE CRISIS ........................................................................................................... 17 3.1.3. THE LEGAL AND POLITICAL FRAMEWORK OF PE IN FRANCE ......................................................................................... 25 3.1.4. INDUSTRIAL RELATIONS , EMPLOYMENT AND WORKING CONDITIONS IN PE MANAGED COMPANIES : EVIDENCE FROM THE LITERATURE ................................................................................................................................................................................... 28 3.1.5. THE IMPACT OF PE FUNDS ON THEIR PORTFOLIO COMPANIES IN FRANCE BEFORE AND DURING THE CRISIS : CASE - STUDY EVIDENCE .................................................................................................................................................................................. 32 3.1.6. CONCLUSIONS AND OUTLOOK ....................................................................................................................................... 36 3.2 GERMANY ................................................................................................................................................................................. 39 3.2.1. THE DEVELOPMENT OF THE GERMAN PE MARKET ...................................................................................................... 39 3.2.2. OVERALL CONDITIONS FOR PE INVESTMENTS IN GERMANY ........................................................................................ 46 3.2.3. THE INFLUENCE OF PE ON COMPANIES AND THEIR EMPLOYEES - RESEARCH FINDINGS .............................................. 49 3.2.4. THE INFLUENCE OF CHANGED ECONOMIC CIRCUMSTANCES ON THE BEHAVIOUR AND IMPORTANCE OF PE IN GERMANY DURING THE CRISIS ............................................................................................................................................................ 57 3.2.5. CONCLUSIONS AND OUTLOOK ....................................................................................................................................... 60 3.3 EVIDENCE FROM OTHER EUROPEAN COUNTRIES – GB, NL, ITALY , SWEDEN ....................................................................... 62 4. CONCLUSIONS AND RECOMMENDATIONS ........................................................................................................... 80 5. REFERENCES ................................................................................................................................................................ 85 ‘Private Equity and Labour in Europe: Did the crisis change the perception and role of Private Equity’ 1. Introduction BACKGROUND CONTEXT The growth of new investments funds in recent years is a phenomenon closely connected with the fundamental changes in the financial markets in the context of globalisation. Private Equity (PE) companies first were founded in the US and started an unprecedented success story. Using financial strategies of leveraged buyouts this part of the “financial industry” attracted a rising number of in- vestors. The practice of PE in the US during the 1980s to acquire companies by a hostile takeover with asset stripping, major layoffs and significant corporate restructuring activities soon gave a "cor- porate raid" label to many PE investments. The growth story of PE was heavily interrupted in 2008/2009 when the financial markets “closed” due to the collapse of the subprime market and the related consequences. It became difficult for PE funds to obtain funding, which is the necessary precondition for their business model. Investors be- came more reluctant to invest money in risky investment strategies and banks were no longer willing to provide PE funds with large means to realize their multi-billion leverage buyouts. As a result, the number and size of PE deals and buyouts decreased strongly. But not only the sheer number of buyouts and the amount of invested money changed, there is evi- dence that also today’s investment strategies of PE seem to be different from the pre-crisis era. PE investments are becoming more specialized, i.e. the investment companies focus more on specific sectors or industries with which they are conversant. At the moment, times seem to be over where PE companies could acquire a company notwithstanding if they were familiar with the specific chal- lenges of the branch but however could realize high returns due to the use of leverage effects. Addi- tionally, the investment period of PE seems to be prolonging. On the one hand this is because due to the crisis it became nearly impossible for PE to exit its investments due to the overall difficult market situation. But on the other hand the lack of cheap money is resulting in a situation where PE funds have to implement a much more sustainable strategy towards their target companies to make them more profitable for the expected exit. Facing the development of PE and the impact of the financial and economic crisis the question arises whether the current situation will lead to a substantially changing model of PE? Or will the PE indus- try recover as it did in the 1990s while the memories of the industry’s cyclical nature will fade result- ing in the return of extensive fundraising and aggressive investment behaviour? OBJECTIVES OF THE REPORT The impact of PE on employment, industrial relations, and restructuring practices has attracted sub- stantial attention from policy-makers, media commentators, and academics over the last years. 1 There have been active and often acrimonious and polarized debates about the effects of PE. Em- ployee representatives and some political actors have argued that these new forms of investment 1 Lutz, E./Achleitner, A-K: Angels or Demons? Evidence on the Impact of Private Equity Firms on Employment, Zeitschrift für Betriebswirtschaft (ZfB), Sonderheft Entrepreneurial Finance, No. 5, pp. 53-81, 2009. 1 ‘Private Equity and Labour in Europe: Did the crisis change the perception and role of Private Equity’ secure returns at the expense of labour. By contrast, those managing these funds have claimed that they play a valuable role in rejuvenating under-performing companies, thereby contributing to long- term employment growth. However, the research findings of the published research projects on the impact of PE on labour, i.e. employment development, wages, working conditions, and social dialogue remain controversial. The effects of PE on employment levels and other issues related to the employees in target firms are probably the most controversial issue of the debate on the impact of investment funds. PE tends to be associated with a high degree of restructuring activity due to its typical acquisition of a majority stake and its objective of gains over the medium-run based at least in part through operational effi- ciencies. Such restructuring activities often