The Association for Corporate Growth (ACG) continues its mission of addressing public policy. The most recent endeavor, in March, saw members gather in Washington, D.C. for the second year to attend the Middle Market Growth Policy Summit.
Even though bad weather made for a much more intimate group, with less than 100 organization members in attendance, the message was loud and clear: policymakers and the public need to be educated about private capital, says ACG chairman Charles Morton.
Guests were presented with supporting data meant to dispel some of the misperceptions people outside of the M&A world have about private equity, Morton adds.
With elected officials weighing in on issues regarding private equity and its relationship with Capitol Hill, including revenue via tax reform, the event served as a platform for ACG to grandstand with the hope of changing perceptions. For example, the ACG released a book at the event titled "Driving Growth: The Impact of Private Capital on the U.S. Economy," which also details sales and job growth of private-backed companies versus other companies in the U.S. by state and congressional district.
Morton spoke to Mergers & Acquisitions about the summit and plans to get lawmakers on ACG's side of the negotiation table.
What public policy issues pertaining to the middle market does the Growth Policy Summit address?
We're in the middle of a broad discussion over tax reform and how it affects very large businesses and special interest groups. Our fear is that the middle market is overlooked. We intend to participate in a discussion that will include taxing S corporations the way C corporations are taxed, which would create a second level of tax and hurt a lot of middle-market businesses. Then there's the capital gains tax rates increasing, taxing income made from offshore investments. With all of these discussions, middle-market businesses have a lot of invested interest in the outcome. Limiting or completely removing the deductibility of interest on corporate debt, for example, would dramatically limit the ability of companies to fund expansion. If you're conducting business overseas, in the current environment, you would be taxed just overseas. But there have been talks that U.S. companies with overseas investments should also be subject to taxation in the U.S.
How has private capital investment helped the economic performance of companies?
We have been able to slice and dice the growth economy around Congressional districts by conducting analysis of the ways private capital funds business and drives the American economy. So for example, based on the most current data, one out of 20 jobs in America is provided by private capital-backed businesses, impacting millions of families across the country in almost every Congressional district. GrowthEconomy.org updates and refines the data so we get more confident about our conclusion that private-capital-backed businesses grow jobs at roughly 3.5 times the rate of non-private-capital business. From 1995 to 2010, private-capital-backed companies grew jobs 64.4 percent, while other companies in the U.S. economy grew jobs by 18.3 percent.
What do you hope to convey to policy makers?
This event reflects part of a multi-year strategic effort by ACG to be the voice of the middle market and change the public debate about the role and importance of private equity. It's going to take a long time, and effort on a lot of different fronts, but we've made enormous strides in the past year. For example, we started to do advocacy work on Capitol Hill, finalized our first policy agenda, which we will also unveil on March 7, and we've been very successful at getting media coverage.
Why is it so crucial to involve policy makers, such as speaker David Schweikert (R-Ariz.)?
David is an important player on Capitol Hill when it comes to these discussions because he understands the PE industry better than many members of Congress. He is able to understand what we're saying and educate his colleagues. Our real goal is to try to be certain that the public debate over private capital is well informed and does not resort to caricatures or shouting. We've come through a period when the industry was subject to partisan attacks and we had not been as active on Capitol Hill as we should have been.
What solutions does ACG support as a means of generating $1.6 trillion in new revenue, as the federal government looks to do?
The thing I fear, frankly, is, given the effort to raise revenue, it will be counterproductive. By changing the characterization of carried interest, the amount of money involved is relatively minor. It distracts attention from the broader collection of efforts that could help balance the budget and facilitate growth. The easiest way to increase revenue is to have growth. Much like a doctor, a politician's first commitment should be to do no harm. There are lots of things they can do to impede growth, but there are certain things the government can do to encourage growth. The EB-5 visa program, for example, rewards folks overseas who make investments in U.S. companies with easier access to obtaining a green card. That's a very good program to encourage investment in the U.S., and its popularity is exploding.
The Small Business Investment Company (SBIC) program has encouraged a wonderful public/private partnership that has encouraged low-cost leverage to investment vehicles that invest in small businesses in the U.S. It generates returns both directly and indirectly. Those are just two examples of policies in which the government is doing something positive to encourage growth. My sense is that our policy agenda reflects this. It discourages the government from doing things that are counterproductive. Our goal is simply to educate.
We think that by people understanding the role of private capital, it makes it easier for folks to embrace policies that are good for the country.