The impacts of private equity investments on employment relations in Ireland
Dhuha Mujadedi, Michael Smurt Graduate Business School, University College Dublin
Colm McLaughlin, University College Dublin
This paper reports on the findings of PhD research into the impacts of private equity (PE) funds on employment relations (ER) in Ireland. The spread of PE investments is part of the financialization culture that puts greater emphasis on shareholder value, debt financing, short-termism, liquidity and flexibility. PE funds target large mature businesses: they take them private with a typical financial structure of 70% debt to 30% equity, manage them with a focus on increasing efficiency and reducing costs, and sell the companies within a 10-year period. The existing financial literature on PE investments highlights a financial model that provides investors with high and relatively fast return of investment (Kaplan, 1989; Marais et al., 1989; Smith, 1990). The nascent literature on the impacts of PE funds on ER outcomes, however, is somewhat divided. In a more pessimistic stream of literature, Batt and Appelbaum (2013, 2014), Clarke (2009, 2013), Gospel and Pendleton (2014) and Georgen et al. (2012), find that PE investments shifts risk from investors to employees, through redundancies, outsourcing, the creation of precarious employment, work intensification, and liquidation of assets. In contrast, Hoque et al. (2018), Wilson et al. (2012), Davis et al. (2014) and Wright et al. (2009), find that cost cutting strategies by PE houses result in improved financial results in the targeted companies with concomitant job growth in the longer term.
This paper contributes to this debate and suggests that the strategies of PE equity towards ER are less homogenous than has often been portrayed in the literature. It draws on interviews with management, unions and employees in four large companies in Ireland that were bought by PE funds. The companies are in TMT, pharmaceuticals, services and retail. In addition, interviews were conducted with investment houses, financial advisors, and investment associations. Over 50 interviews have been conducted. The analysis of the interviews is in its early stages, but initial results suggest that although the mainstream focus in PE buyouts is primarily on the bottom line and on using cost cutting strategies, the impacts of PE buyouts on ER varies across different types of PE houses. Irish-based PE funds, or funds invested in by the government, tend to be more concerned with the targeted company's longer term performance and tend to have closer ties with the management than international PE funds. The geographic convergence between the PE investment company and the targeted company allows for greater communication and understanding of the local context. National PE houses are cognizant of reputational issues, and focus on expanding the targeted business, which leads to job growth and maintaining and improving employment terms and conditions in order to attract skilled employees. Additionally, some international PE houses have moved from an aggressive short-term focus, to a more ‘impact-oriented’ focus, including social and environmental outcomes. The findings also show that unions can play a major role in maintaining employment standards in the face of proposed redundancies and cuts to terms and conditions.
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