As an example of “slash, burn and pillage” PE investing tactics, casual critics of PE investing decry the alleged starvation of innovation as companies are deprived of R&D capital. Although these charges are often echoed in the media, continued work with middle-market companies, banks and investors reveals negligible empirical evidence of these tactics. However, we see these myths and legends create friction in dealmaking as they heighten business owners’ uncertainty around private equity capital—and that impacts deal volume.
Deal professionals would agree that innovation is core to driving long-term value accretion in portfolio companies. Innovation includes “new or improved technologies, processes, products and services…innovation improves productivity and competitiveness, and boosts economic growth.”1 Studies in the European Union and the United States provide compelling evidence that innovation not only survives, but seems to focus and flourish under PE ownership.