What Happens to a Long-term Employee When a Company Is Acquired by Private Equity Groups?

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Change can be stressful on employees. Many employees simply earn an hourly paycheck or weekly salary, regardless of who is in management, and do not directly benefit if the company does well, or if the company is acquired by a private equity company. From the employee's perspective, change can threaten job security and stability. But it can bring new opportunities, as well.

Private Equity

Private equity firms are investment firms that seek out promising smaller companies that need additional financing to expand their business or bring a product or service to market. In exchange for providing the capital needed to fund the next stage in the company's business plan, they will frequently take a large ownership stake, and sometimes a controlling interest, in the company. This means they are free to make decisions involving staffing and compensation that directly affect you as an employee.

How Private Equity Builds Value

Private equity firms seek to sell a company for a greater price than they paid when they bought it. This means increasing the value of a company in a variety of ways. In order to increase the value of the company, the private equity firm can seek to slash expenses by laying off unnecessary workers, liquidating or selling non-core parts of the company or outsourcing ancillary functions, such as marketing, human resources or building maintenance. Each of these steps involves potential layoffs, or transfers of company functions out the door and to another firm.

Management Changes

Private equity firms are also on the lookout for companies which have promising markets, technology, an innovative idea or other compelling feature but need additional expertise or personal leverage from more experienced investors. Not every company founder has the skills necessary to take a company public, for example. When this is the case, the private equity firm may have its own people, or people known to the firm's management, take over key management functions. Occasionally, this new team will bring in their own set of people, or outsource functions of the company to firms already known to the new management team. If you are let go, however, you may well be offered a severance package. You also may be able to qualify for unemployment coverage.

Opportunities

Private equity frequently brings millions and sometimes hundreds of millions of dollars to the company -- money available for additional staffing and expansion. This means that there is opportunity with private equity acquisition as well, as the new management will be looking for ways to invest their money profitably within the company. Research indicates that there is a 3 percent average decrease in the number of employees after a private equity acquisition, but a net 19 percent increase in employees thereafter, as the private equity investment takes root in and the expansion takes place. To maximize your opportunities and minimize the chances of a pay cut or layoff, seek to work in sales, or in the most profitable or fastest-growing sections of the company.

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