Private equity firms use investment money from pension funds and wealthy individuals to buy companies with the express purpose of selling them again - making as much profit as they can on both the purchase and the sale - and also while they own them. By exploiting the tax system, private equity firms use the debts incurred from buying the company to dramatically reduce the amount of tax the companies pay. At the same time, they also ‘restructure’ the company by cutting costs, selling off assets, reducing wages and conditions and sacking workers.
Private equity executives are
“paying less tax than a cleaning lady”
Nicolas Ferguson, chairman of SVG Capital, which built Permira, Europe’s biggest private equity fund.
Often we’re told we must accept cuts and reductions because the economy or the company is in crisis; private equity firms make money by creating and ‘managing’ crisis. One of their ways to do that is exploiting the tax system: the companies they buy up suddenly stop paying taxes – but that only means more profits for private equities: the workers still get the sack. Both the firms and the men at their top exploit these loopholes, so that they end up paying less tax than many teachers and nurses.
Documents
Case Studies
Key PE Industry Facts
- The biggest five private equity deals together are larger than the annual budgets of all but 16 of the world’s largest nations. The five biggest deals involved more money than the annual budgets of Russia and India.
- The annual revenue of the largest private equity firms and their portfolio companies would give private equity four of the top 25 spots in the Fortune 500. One firm, Kohlberg Kravis and Roberts would crack the top 10. These private equity firms have more annual revenue than companies such as Bank of America, JP Morgan Chase, and Berkshire Hathaway.
- The top 20 private equity firms alone control companies that employ nearly 4 million workers.
- There were a record US $197 billion worth of private equity mergers in first quarter of 2007 alone.
According to Private Equity Intelligence, a London-based company that does research on the industry
- PE funds raised a record US $406 billion in 2006.
- More than 170 funds each hold US $1 billion or more in assets
- They brokered US $475 billion in deals last year alone, 13 times more than five years ago.
- And while U.S. companies are spearheading private equity’s expansion, European-based funds raised some US $90 billion in 2006, a 25 percent increase from the prior year. Indeed, private equity firms from both continents are now forming partnerships to fund large trans-Atlantic deals, a rare move just 10 years ago.
