Monday, 10 March 2008

Private equity job figures

Just spotted an interesting bit on the BVCA site (click on the link 'Professor Mario Levis: expert academic analysis of BVCA report'). It's a response to John Moulton's recent claim that the BVCA was using 'dodgy' figures about the industry's job creation record.

The short two-page statement makes a number of points about the statistics used. The main one is to address the 'survivorship bias' problem - namely that if you survey firms about employment levels you can only survey those that exist. Hence PE-owned firms that go bust won't be included in the figures. So the survey will only reflect the success, or otherwise, of surviving firms and as such doesn't provide a really accurate picture.

The note says that this is a problem, and that the BVCA's survey does not address survivorship bias, but adds that it probably wouldn't make a significant difference to the figures overall. The reason for this is that although there is a fairly high failure rate amongst PE-owned firms (20% if I am reading it right) its tends to be smaller businesses that go under, so the impact on overall figures won't be that great.

I think the other point that the statement doesn't address is how do we know that employment growth in PE-backed companies is due to the nature of ownership? If Boots does well is that because it has been bought out by PE, or because it was a good business that was going to grow anyway?

Finally I am intrigued by this line at the end of the BVCA statement:

My view, having looked at the report and other supporting evidence, is that labeling the employment growth data “dodgy”, at least for venture-backed companies, remains totally unfounded.

"at least for venture-backed companies" eh? Is the implication that the story might be different for buyouts then?

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