- Leveraged buyouts were thought to cause job losses and insecurity
- But research on 1,500 buyouts found the widely held view is wrong
- Significant restructuring does not lead to heightened job insecurity
- Findings cast doubt on need for tighter regulations that EU is discussing
Leveraged buyouts do not increase redundancies or lead to the introduction of more insecure forms of work, according to new research by Warwick Business School, Cass Business School, and Imperial College.
The findings contradict the widely held view that leveraged buyouts – where investors use loans to buy under-performing companies they can then turn around and sell on – regularly lead to rapid job cuts and greater use of agency staff, fixed-term contracts and external contractors.
Particular concerns had been raised that buyouts involving private equity funds, management buy-ins, short-term deals or high levels of debt could lead to a so-called ‘buy, strip and flip’ approach.
Yet researchers at Warwick Business School, Cass Business School, and Imperial College found jobs were no less secure, even when a leveraged buyout featured a ‘perfect storm’ of all these factors.
Their findings are reported in the paper, Is Job Insecurity Higher in Leveraged Buyouts? published in the British Journal of Industrial Relations.
Kim Hoque, Professor of Human Resource Management, said: “The labour movement has waged a concerted international campaign to highlight the impact of leveraged buyouts on job security.
“However, the theory that these buyouts work only in favour of investors, not staff and other stakeholders, does not hold water.
“In some instances leveraged buyouts may well have led to downsizing and job insecurity, but our analysis suggests these cases are far from the norm.”
The team analysed data on 1,572 workplaces from the Centre for Management Buy-out Research's database of UK buyouts and the UK Government’s 2011 Workplace Employment Relations Study.
They found employees actually felt more secure in their jobs in ‘perfect storm’ leveraged buyouts than other firms. There were no redundancies at any of these companies and they were less likely to employ agency staff to do work previously done by permanent employees.
Nick Bacon, of Cass Business School, said: “One potential explanation is that leveraged buyouts seek to develop sustainable growth opportunities, which in turn leads to higher job security.
“There may be significant restructuring to address wasteful costs, but our evidence suggests this does not lead to heightened job insecurity.”
The findings cast doubt on the need for tighter regulation of leveraged buyouts, which are due to be discussed by the European Parliament later this year.
Mike Wright, of Imperial College, said: “To set leveraged buyouts up as barbarians at the gates risks constraining activity that could well be the difference between survival and failure for struggling firms. The latter would, of course, be the most devastating in terms of job losses.”
19 June 2019
Kim Hoque is Professor of Human Resource Management and teaches Human Resource Management Professional Practice on MSc Human Resource Management & Employment Relations.