Where credit is due

The positive impact of private equity on innovation, productivity and competitiveness across Europe is rarely recognised. Greg Gille looks at EVCA's latest report which aims to set the record straight.

The European private equity industry has faced a well-documented uphill PR battle post-Lehman’s. Attracting international investors to commit to private equity funds in particular remains a challenge.

The lure of emerging markets and mounting regulatory pressure conspires to handicap European general partners (GPs) in an increasingly competitive fundraising market.

Highlighting the importance of a ‘local’ private equity industry in Europe has therefore never been so important for the European Private Equity and Venture Capital Association (EVCA). The trade body recently commissioned research from Frontier Economics to analyse the contribution of private equity to economic growth. The resultant meta-study report, Exploring the impact of private equity on economic growth in Europe pooled the results of 60 studies published in the past decade to evaluate the impact of the industry in three key areas: innovation, productivity and competitiveness.

PE – the success

The study looked at innovation through the lens of granted patents and patent citations, as a proxy for innovation activity. The report argues that GPs tend to funnel capital investments towards the more innovative sectors of the economy. While private equity-backed companies account for less than 6% of total private sector employment in Europe, they account for 12% of all industrial innovation.

What’s more, private equity investors appear particularly effective at optimising R&D expenditure. According to one paper included in the meta-study, each €1 of private equity finance can be up to nine times more effective than €1 of non-private equity finance when it comes to patent generation.

The report also found that private equity involvement helps companies generate innovation that is more economically relevant. David Mott, managing partner at venture capital house Oxford Capital, says that they offer businesses far more than just capital. The added value is key to the success of the PE-backed business: "The capital is just the tip of the iceberg - it is important that we spend time looking at getting businesses out into the market."

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