When a private equity (PE) firm purchases a company, it’s often great for the owners of the company. The PE-backed firm usually pays more than any other kind of buyer would. But what is the impact on employees?
A New Employer with No Emotional Connection
Employees suddenly find that their ultimate employer is a group of investors with no history with the company, no personal connection, and often, no feelings of attachment. While the original owners considered the company their baby or brainchild, the PE firm likely sees the company as nothing more than a vehicle to make money. Is that a problem?
It wasn’t all negative, but the negative impacts were listed first. Reduced job satisfaction, increased job insecurity, changes in company culture, negative impact on health, and potential job losses were among the negative impacts Google’s AI bot found in research posted online.
The reduced job satisfaction could be related to compensation, changes in work-life balance, company culture, and senior management, according to the Foster School of Business.
Specific Impact on Employees Post-PE Purchase
One of the industries I write about is healthcare. I noticed a trend in which doctors in healthcare practices purchased by private equity complained of suddenly having to see many more patients per day. Their jobs started to focus on quantity than quality of care. They found themselves on a metaphorical sped-up conveyer belt. This is bad for patients, but it’s also bad for the doctors (now employees) of the PE firms. In addition to the discomfort of having to do more work per day, those with ideals around quality of care, and taking as much time as needed with each patient, are forced to sacrifice their ideals.
If you work for any kind of company, having a focus that is separated from the original owners’ mission can be damaging. The original owners probably believed in the substance of what the company provided to customers. Let’s say the company sold camping equipment and other supplies that would be used outdoors. The original owners were likely outdoor and camping enthusiasts. The new owners, the PE firms, are likely composed of people who couldn’t care less about the outdoors, or, at the very least, don’t consider a camping trip one of their great passions in life. What happens to the employee who wanted to work at a company that aligned with a passion they shared with their employer? That employee probably starts feeling disengaged in their work.
Preventing Negative Impacts on Employees
Is it possible to prevent negative impacts from PE sales? It’s a challenge because PE firms typically have profit as the only motivator. During the sales process, a bargaining chip for the company thinking of selling could be maintaining the company culture. There could be points in the sale contract that require that specific employee benefits and work-life standards are kept after the sale.
So for a healthcare practice, that might mean doctors will not be required to see more than specific number or range of patients per day. For another organization, it could mean employees will continue to be given the option to work from home, rather than having to commute.
Maintaining quality of work life also could mean the PE firm would commit to maintaining annual events, such as staff retreats, that employees appreciate.
Optimally, you wouldn’t want to sell to a PE firm and find your organization’s new owners launching a cost-cutting bonanza that strips employees’ work life of joy.
Maximizing the Potential Positive Impacts
In some cases, a private equity owner can bring some positive benefits. A new private equity employer with deep pockets may mean the potential for higher salaries, along with the possibility of greater resources for employees. Just as negative changes to employee benefits and work life are thought about when the deal is made, a seller could choose to have promises of additional resources for employees written into the contract.
That could mean, for instance, a commitment to merit-based salary increases of a specific percentage for all qualifying employees at consistent intervals, (i.e., every two to three years), or the introduction of new benefits such as a 401k in which the new owners match what employees put in.
If possible, middle managers could be brought into the conversation with the executives hammering out the deal with the PE firm. The middle managers could be asked to offer an example or two of valuable resources the company currently is not able to offer that a better-funded employer might be able to provide.
When a company is selling to a PE-backed buyer, the fate of employees—including the quality of their work life—should not be left up to chance.
Has your been sold to a PE firm? Or is there a strong possibility this will happen soon? How do you protect employees’ interests during this transitional period?
