As billions of euros flow through Europe each year, whether through Brussels’ subsidies or international trade, we wonder who monitors what happens to all of this money. So we, Follow the Money, asked you: ‘What is Europe’s most obscure cash flow?’ Over the last few weeks, we received dozens of pitches and research topics, and the one which came out on top was this: the influence of private equity on European society.
‘The bird is freed,’ tweeted tech-billionaire Elon Musk shortly after acquiring social media platform Twitter for a whopping 44 billion dollars in early November. Musk, who made waves online over the past few years with his strong stance on free-speech absolutism, promised to turn a platform which he claimed had ‘languished’ for a long time into a profit-making machine.
Musk wasn’t able to cough up the cash all by himself and turned to several banks and private investors such as software company Oracle’s founder Larry Ellison and the Saudi Prince Alwaleed bin Talal. As the take-over is financed in part with debt, Twitter’s financial overhead has skyrocketed from 5.5 billion dollars before to 18.5 billion dollars after the deal. And with a range of banks and investors in the wings, it will need to pay it off quickly to keep them happy.
When alien money is injected by a private investor seeking to make his investment as profitable as possible, social and environmental concerns will fall by the wayside
In an effort to free up cash flow under the guise of renewal, Musk announced massive lay-offs shortly after acquiring the company, with nearly half of its total workforce destined to be shown out. So while the bird might be ‘freed’ from the constraints of content moderation and ‘politically correct’ advertisements, it will be caged by astronomical debt for the foreseeable future – and many of its workers are suddenly unemployed.
The above example illustrates what happens when alien money is injected into a company by a private investor seeking drastic changes in order to make his investment as profitable as possible. This practice has demonstrated time and time again that social and environmental concerns will fall by the wayside. And, most importantly for us, this practice not only occurs in the United States, but also in Europe.
That is why Follow the Money and others, such as IrpiMedia (Italy), Oštro (Slovenia) and Correctiv (Germany), have chosen the influence of private equity on European society as the winning pitch in our Pitch Europe.
Fuelled by extremely low interest rates, the private equity industry has been booming in recent years. According to a global private equity report from financial thinktank Bain & Company, ‘Private equity blew the doors off in 2021 as trillions in pandemic-related stimulus produced a historic surge in dealmaking and exits.’ And with governments handing out corona stimulus packages, global buyout deal investments went above 1 trillion euros.
So it will probably not come as a surprise that a large part of the European workforce is employed by companies owned wholly or in part by private equity funds. According to Eurostat data aggregated by Invest Europe, the European lobby for private equity and venture capital, 4.3 per cent of Europe’s total 233 million workforce are employed by private equity backed companies. Of course, these are statistics provided by the financial lobby itself and ought to be scrutinised, but the increasing influence of private equity on the European economy has come into view through just one stark statistic.
Fund sizes have been increasing and regulatory bodies are warning about hidden investments, shadow banking and other forms of underregulated investment methods. The above graph shows funds raised for buyouts in Europe amongst investors, so the size of private markets – of which private equity takes up a significant chunk – might be much larger globally. The American bank Morgan Stanley predicts that global private markets are expected to grow from 7.2 trillion dollars in 2020 to about 12.5 trillion dollars in 2025. Preqin, a trader in financial data, even goes so far as to forecast a growth to 23.3 trillion dollars in 2027.
Of course, all of the numbers and statistics mentioned above need more investigation. And that is exactly what we are going to do. With ‘Pitch Europe’, we will explore the reality behind these numbers and find out what the effects of private equity are on European society: the workforce, climate, the future of our economy, and social rights. We can safely say that private equity is a player deeply tied into the fabric of the European economy and one that is here to stay. As such, it should be scrutinised – thoroughly.
Settling on a pitch
Some of you might be wondering what happened to the other pitches. There were of course four others and they too were very good. They took us to the European emissions trading system, the battle of interests surrounding the construction of European wind farms, the possible money flows between lotteries and NGOs, and the ‘megalomaniacal’ EU project FIWARE. Any of them would have made for a great collaborative investigation.
However, to settle on a pitch which had the best chance of resulting in a fully fledged pan-European investigation, we asked several of our international colleagues to chip in. Journalists from various media such as IrpiMedia (Italy), Oštro (Slovenia) and Correctiv (Germany) examined the pitches and held a collaborative session to discuss the pitches with one another. During these talks, the pitch that proposed to investigate the influence of private equity on European society, came out as the clear winner.
To give you an insight into why we made this decision, let us tell you why some of the others didn’t make it. Firstly, the two pitches concerning renewables: the ins and outs of the emissions trading system (Brussels’ way of taxing Europe’s biggest polluters) and the wind farm industry. It quickly became clear that both topics have been extensively tackled by other media and that there was very little room left for this collaboration to truly make its mark.
Secondly, the ‘Fiware’ proposal. This pitch asked us to look at the Fiware project which was set up in Brussels as an inclusive IT-platform for local, regional and national governments and organisations to better work together in the digital sphere. The pitch alleged that the project has been deemed a financial failure and that its dealings deserved to be exposed. We wholly agree and our Politico colleagues even went so far as to hail it as ‘the ideal project for the Brussels bubble [..] if it had been pitched ten years ago’. However, we fail to see the topic's urgency at this point and have therefore not chosen it as the winner.
Lastly, the lottery project has a very narrow European scope, with most bigger European lotteries being active in either the Netherlands or Belgium, leaving little room for our other partners to join the collaboration.
Now that we’ve settled on the winning pitch, it is time to come up with a solid research plan. So, in the next few months, Follow the Money’s newsroom in collaboration with our international partners will do exactly that. We would like to thank all of the voters and participants of the EU Pitch – especially those who went above and beyond to perfect their pitch by providing additional sources and material.
More to come soon!
EU Pitch jury: IrpiMedia (Italy); Oštro (Slovenia); Correctiv (Germany); deTijd (Belgium); POLITICO Europe (EU); Follow the Money (The Netherlands).
With thanks to Salsabil Fayed