Private equity businesses outperform public-study

By Megan Davies

NEW YORK, July 8 (Reuters) - Private-equity owned businesses outperform publicly owned companies in terms of earnings and valuation, a study by accounting firm Ernst & Young said on Tuesday.

The study looked at buyout firms' "exits" from the businesses they owned in 2007. Private equity firms typically hold companies for five to seven years before exiting via either a sale or an initial public offering.

Ernst & Young said the annual growth rate in enterprise value for the 100 largest global companies from which private equity exited last year was 24 percent, double the rate of public counterparts.

Enterprise value is a measure of market capitalization plus debt and preferred shares minus the company's holdings of cash.

Profits, measured as EBITDA (earnings before interest, taxes, depreciation and amortization), effectively a measure of a company's cash flow, grew 33 percent faster than public company benchmarks on the private equity companies it examined.

E&Y said it examined the 100 largest private equity exits globally in 2007 for its data. The accounting firm said it compared the performances with public company metrics over the same time period the private equity investments were held.

"On the whole, private equity sells better businesses than they bought," John O'Neill, Ernst & Young's Americas director of private equity said in a statement.

O'Neill said the private equity companies exhibited higher valuation, revenue, profit and head count growth versus public benchmarks, "countering the popular image of PE firms just cutting costs to drive success". (Reporting by Megan Davies)