Metastudy: Private equity drives innovation and growth

Alice Murray
29 May 2013

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A new secondary research report has found that private equity investing leads to increased foreign investment and improvements in innovation.

The European Private Equity and Venture Capital Association (EVCA) commissioned Frontier Economics to analyse more than 60 academic and professional studies as well as publicly available data to give a more comprehensive picture and understanding of private equity activity.

The study found that the asset class attracts investible funds into Europe, which provides capital for growing businesses. In the 12 largest private equity markets in Europe, nearly €250bn was invested by private equity houses in more than 19,400 companies between 2007 and 2012. Of this, an estimated €50bn came from outside Europe.

Private equity-backed businesses were found to be more innovative than non-private equity-backed firms. Patents granted to portfolio companies between 2006 and 2011 are estimated to be worth up to €350bn.

The study also found that the industry contributes to the creation of up to 5,600 new businesses in Europe each year. This finding is based on Samila and Sorenson's 2011 study, which looked at a range of US firms between 1993 and 2002 and found that investing in one additional company could create between one to 11 new businesses in the same metropolitan area.

The research also revealed that private equity-backed businesses are more resilient. Frontier Economics found that some studies suggest that portfolio companies are up to 50% less likely to fail than non-private equity-backed counterparts.