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Abstract

What, if anything, do private equity firms do with businesses they acquire? We find evidence of significant operational changes in 101 restaurant chain buyouts between 2002 and 2012. Analysis of health inspections conducted for over 50,000 stores in Florida shows that food safety and sanitation improve after private equity takeover, especially in areas related to food handling, kitchen maintenance and consumer advising. Supporting a causal interpretation, this effect is stronger in directly owned stores than in franchised locations—“twin restaurants” in the same chain

over which private equity owners have limited control. Restaurants also reduce employee headcount and lower menu prices. This evidence suggests private equity firms are not simply financial engineers but rather active operators that improve management practices in the firm. Moreover, efficiency gains do not come at the expense of product quality.