PE Firms Downsize
Private equity firms are laying off employees as the credit crunch grinds down the deal business
December 15, 2008
Private equity firms are well-known for enacting cost-cutting measures in their portfolio companies, including the firing of employees. Rare in the buyout community until now, however, has been reducing the head count at leveraged buyout shops themselves.
But, a number of large financial sponsors and middle-market groups have taken such measures. Three well-established global private equity firms have moved to downsize their staffs in the last few weeks: The Carlyle Group, Investcorp and 3i Group. Washington-based Carlyle is trimming its 1,000 employee staff by 10%, while London's 3i Group recently announced it will eliminate 100 positions, or 15% of its global staff, because of "significantly changed market conditions."
Investcorp, a Bahrain-, New York- and London-based firm, is cutting its work force by 60 positions, or 90 spots, if retirements and other unfilled positions to be eliminated are taken into account.
"In response to the current global economic turmoil, Investcorp has had to realign its business, both to increase its resilience during the mid-term recessionary period and to position itself to take advantage in this changed environment," says a spokesman for Investcorp. "This has resulted in job reductions in its New York, London and Bahrain offices. These redundancies were selected on the basis of which roles were required to fit the future business model." (Investcorp owns SourceMedia, the parent company of IDD.)
The lack of debt for leveraged transactions is behind a major slowdown in dealmaking, which some industry observers blame for the layoffs in private equity.
Denise Palmieri, director of client relations at Pinnacle Group International, a Scottsdale, Ariz.-based private equity recruitment firm, says Pinnacle has received numerous resumes from anxious, but employed, private equity executives, and investment professionals who have been fired. "We are going to see more layoffs in private equity."
Palmieri notes that not all buyout firms have stopped hiring, of course. Instead, they are being far more careful in their selection of job prospects. "The process is getting longer and deeper. Firms want the supermodel candidate, the bar is higher and the competition very heavy," she says.
Behrman Capital is one of a handful of middle-market investment groups that have cut staffers at satellite offices, which in its case involved letting professionals go from its San Francisco office. Managing partner William Matthes, though, is expected to continue running the office. A spokesman for Behrman Capital declined to comment on the report.
A 3i spokesperson said the firm's jobs that are being eliminated could span the gamut from back office or support personnel to the investment professional ranks.
Carlyle, meanwhile, has retreated from West Coast venture capital territory with the closing of its Menlo Park, Calif.-based office.
The California office wasn't the only location it shuttered over the past year. Carlyle closed its Warsaw office, which employed 10 professionals, and also shut down its seven-person Asian leveraged finance team along with its hedge fund operation known as Carlyle-Blue Wave Partners. Carlyle spokesman Christopher Ullman said the firm "has taken measured steps to balance its cost structure with the current investment climate."
Another Beltway investment house, American Capital, recently said it is eliminating 110 positions, or 19% of its staff, in the US and Europe. The private equity and debt investment firm cited current economic and market conditions as reasons behind the cost-cutting measure.
It will be left with 160 investment professionals spread between offices in the US, Europe and Asia.
Similarly, it was joined by another publicly traded Washington firm that began reorganizing its operations earlier this year.
As IDD sister publication Mergers and Acquisitions reported in October, Allied Capital started laying off 30 professionals between its Chicago and Los Angeles offices in August.
The collateral damage has spread beyond equity sponsors to other parts of the private equity business.
GE Antares, a large middle-market LBO lender that operates under GE Capital, is rumored to be planning staff cuts.
"GE Capital has previously announced that it is asking its businesses to take out costs, and not limited to personnel, reflecting the changes in the markets in which they each operate," says Ned Reynolds, a spokesman for GE Antares. "With respect to GE Antares, we aren't planning to announce any further details other than that no personnel actions are planned in December."
(c) 2008 Investment Dealers' Digest and SourceMedia, Inc. All Rights Reserved.
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