The Checkout

Should You Care About Buyouts?

Annys Shin

Excuse my absence. I am just back from the wilds of Iowa, Nebraska and South Dakota. Okay, it wasn't really wild, but I did see some buffalo.

Anyway, while I catch up, I thought I'd bring up something I wasn't able to delve into before I left.

I wrote not long ago about Bain Capital's buyout of Bright Horizons Family Solutions, the nation's largest provider of employer-sponsored child care.

The Service Employees International Union , which doesn't represent any Bright Horizons employees but has decided to speak up anyway, is worried the buyout will be bad for workers and parents. Many of their concerns are based on their experience with other buyouts. So far those worries seem to have been addressed by Bain and Bright Horizons management, who say they plan to expand the company and not close centers or lay off workers. The union is taking a wait and see approach.

The story got me thinking--should consumers care if a trusted retailer or nursing care provider has been bought by a private equity firm? Do buyouts affect them?

In theory, private equity buyouts ought to be good for consumers. The PE folks are supposed to swoop in, work their magic and make the company more efficient and profitable. They earn a big payday when they spin the company back onto the public markets years later.

Reality, however, hasn't always worked out that way.

A New York Times investigation last year found terrible cases of neglect at nursing homes purchased by private equity firms. Moreover, those homes had higher rates of staff cuts than comparable facilities with other types of ownership.

The Private Equity Council--which represents guess who?--says that's not the whole story and that PE firms are getting a bad rap. In a fact sheet, it cites studies that show two-thirds of the increase in earnings growth at private equity-owned firms has come from organic growth and only 23 percent were derived from cost cutting. PE investment also spurs job growth and innovation, all of which is good for consumers, said Private Equity Council spokesman Robert Stewart.

The rest of the studies the group cited have more to do with the impact on job growth and don't directly address the impact on consumers. Have you noticed a difference in a business after it has been bought out by a private equity firm? And if so, how?

By Annys Shin |  May 19, 2008; 7:00 AM ET Annys Shin
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Comments

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I loved my Mamsi health insurance, until they were bought by United Healthcare. Now I can't wait until November when I can switch.

Posted by: RT | May 19, 2008 8:27 AM

Posted by: che | May 22, 2008 6:34 AM

From the time that the leveraged buyout was invented in the 1980's the modus operendi has always been the same: take over the company fire some of the employees pay the rest of them less charge the customers more and invent more fees for them to pay, raid the pension fund move the factory to Mexico, get out as much money as you can in as short a time as possible and leave behind an empty shell .

Posted by: Bob | June 2, 2008 2:55 PM

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