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On the Job Hunt

Private Equity Boosting the Economy

Stacks of U.S. Money

AP Photo/Paul Sancya

The economy isn't yet out of the doldrums, but there is some good news to report for job seekers right now. Opportunities are increasing, especially at small and mid-sized companies, while the number of unemployed is decreasing, according to The Bureau of Labor Statistics. 

Much of it can be credited to private equity. "Private equity is one of the key sources moving the economy forward and creating job market growth right now. They're future oriented and they're putting capital behind companies to develop new products and moving into new markets, which leads to job creation" according to John Challenger, of outplacement firm Challenger, Grey and Christmas.

Private equity basically consists of large sums of cash pooled together by groups of professional investors who get money from pension funds, or hedge funds or insurance companies and invest that money into businesses that they can improve and expand. 

"These people are experts at helping companies grow to the next level. It's part of their plan, to take a small company and make it a strong mid-size company, or take a mid-size company and make it a large company...they bring a level of expertise and help them in a way the business wouldn't have been able to do otherwise", says Tim Van Mieghem, of The ProAction Group, which consults private equity companies on investments, and also has a private equity branch of its own.

The Association for Corporate Growth estimates there are over 4 million people in the country employed by private equity backed firms, and with over $400 billion ready to be invested, that number is growing. The Health and Safety Institute, in Eugene Oregon, is one example of a small company using private equity cash to hire new talent. HSI does emergency care training and creates training materials that help businesses meet OSHA requirements. "Four years ago we had just 20 employees and now we have, nearly 70, so that's a 215% growth and we're still growing. In this economy, that's quite a feat" says CEO Bill Clendenen "For the average Joe searching for a job, when entrepreneurs, like myself, grow their business, that means more jobs and that means more opportunities".

Clendenen admits that while he had a large customer base, he didn't have the money to expand in order to meet all the customer needs. If HSI could grow to serve more customers, it could make a lot more money. That looked like a pretty good investment to the folks at Riverside, a private equity company based in Ohio. "HSI is a company that's fundamental, they save lives and they make money doing it. The company is nicely profitable, its growing and has a recurring revenue stream. Customers buy the products year after year, over and over again, That's very attractive to us as investors" says Riverside Co-CEO Stewart Kohl. Riverside invested in HSI in 2006.
An infusion of investor cash in 2003 turned Sensus Metering Systems, in Raleigh, North Carolina, from a small business that manufactures electric, gas and water meters, into a high growth, cutting edge company that's focused on "Smart meter" technology. Hundreds of new employees have been added. In 2010 alone Sensus added 69 new employees, and expects to keep growing and hiring.

In past years, it was more common for company leaders to turn to banks for business loans. Many still do, says Gary LaBranche of The Association for Corporate Growth, but in the middle of the recession, getting those loans was a lot tougher "Banks had tightened or essentially ceased lending... credit were generally unavailable or difficult to acquire. 

As a result, many found their way to private equity companies and other private capital investors who were interested in investing in successful growing companies and who saw the opportunity to help those companies grow into the future".

Experts say we can expect to see more than a million new jobs created by private companies over the next couple of years, with much of that being done through private equity. As the private equity market grows, so grows the job market. "The impact private equity has had on the economy still has yet to be tapped, Van Mieghem says. 

"It's an exciting time right now because the private equity firms are becoming a lot more active, especially with some of the improvements in the economy. They've gotten this money that they need to invest and its creating a good situation and a lot of activity in the market compared to the last couple of years".

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