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

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