The Operational Consequences of Private Equity Buyouts: Evidence from the Restaurant Industry

The Operational Consequences of Private Equity Buyouts: Evidence from the Restaurant Industry

By
Shai Bernstein, Albert Sheen
Review of Financial Studies . May
19, 2016, Vol. 29, Issue 9, Pages 2387-2418

How do private equity firms affect their portfolio companies? We document operational changes in restaurant chain buyouts between 2002 and 2012 using comprehensive health inspection records in Florida. Store-level operational practices improve after private equity buyout, as restaurants become cleaner, safer, and better maintained. Supporting a causal interpretation, this effect is stronger in chain-owned stores than in franchised locations – “twin” restaurants over which private equity owners have limited control. Private equity targets also slightly reduce employee headcount, and lower menu prices. These changes to store-level operations require monitoring, training, and better alignment of worker incentives, suggesting private equity firms improve management practices throughout the organization