Value creation or superior selection? Evidence on Private Equity firms' impact on the operational performance of Nordic portfolio companies

Abstract

PURPOSE OF THE STUDY:

In this thesis, I examine the impact of private equity ownership on portfolio companies from two different angles. First, I analyse the additional value private equity companies have created after taking Nordic companies private into their portfolios. Second, I study whether private equity companies have been able to acquire superior companies, potentially by exploiting asymmetric information. In addition, this study assesses the differences behind relative operational performance between portfolio firms and peer groups across different financial times.

DATA AND METHODS:

The data of this thesis consist of 300 private equity deals occurred in the Nordic countries between 2005 and 2012. Both the deal data and company-level figures are hand-collected from multiple sources, including Zephyr database and private equity firms' webpages. Using this novel combined data set, I analyse various operational parameters to see how firms with private equity ownership structure perform in contrast to industry peers. The analysis focuses on t-tests and OLS regressions.

FINDINGS OF THE STUDY:

I find strong evidence that, on average, multiple operational parameters have improved in portfolio firms after an acquisition by a private equity firm. These parameters include profitability, revenue growth, and more efficient use of both cash and working capital. The results are also consistent across different financial times. In addition to possible value creation, certain operational parameters provide indicative evidence that private equity firms can be able to acquire firms that have superior potential in comparison with their respective peers.