Thursday, June 11, 2009
Yesterday, the Deal Book had a story about a study commissioned by the Investor Responsibility Research Center Institute. The story reports the major conclusion of the study is that
buyout firms generally do not establish more shareholder-friendly corporate governance policies at the companies they take over, restructure and then take public. Instead, [these companies] tend to exhibit features that potentially benefit executives at the expense of shareholders, including takeover defenses and boards whose independence may be compromised.
The study is apparently based on a sample of 90 companies that went public from 2004 to 2006. Of these, 48 were backed by private equity funds, and 42 were not.
In addition to being a sample that must be too small to be of any statistical significance (can we really draw any conclusion from the fact that 5 of 48 PE backed companies had poison pills compared to 1 of 42 companies without PE sponsorship?), the study seems to have stolen a base that the DealBook implicitly recognizes.
Since “private equity firms generally keep a large ownership stake in their portfolio companies for years after they take them public” isn’t it at least as likely that the policies in the PE backed companies are ones the PE funds believe are MORE shareholder friendly? After all, why would these funds do anything other than maximize the value of their ultimate exit?