Operational Value Creation in Secondary Buyouts in the Nordics: An Empirical Study of Private Equity Owned Portfolio Companies

Mads Rosenvang Rasmussen & Nikolai Bårup Enggård

Student thesis: Master thesis


Purpose: The high frequency of secondary buyouts means that these transactions have spurred the interest of academic scholars. However, because secondary buyouts are a relatively new phenomenon the body of literature on this topic is still young and concentrated among a limited number of empirical contributions. With our master thesis we therefore intend to contribute to the current academic debate about the value creation proposition for secondary buyouts. Method: Based on a novel, hand-­‐collected sample of 63 secondary buyouts in the Nordics, we compare the operational performance improvements of the respective portfolio companies during the first round buyout and the secondary buyout. We measure operational performance by breaking down ROIC into its components of profit margin and turnover rate of invested capital for which we develop four testable hypotheses. In that regard, we compare operational performance improvements directly for the same portfolio company over time and engage in an analysis at the deal level. Findings: After adjusting for industry specific effects we find statistically significant results, which show that SBOs offer higher working capital improvements than LBOs measured by working capital to revenue. With regards to revenue growth, profitability and fixed asset utilization we cannot reject that SBOs are similar to LBOs. Our findings therefore suggest that secondary buyouts are not inferior deals in terms of operational performance improvements, compared to first round buyouts. Originality: Our master thesis is of interest to both private equity professionals and academic scholars because we contribute to the limited understanding of operational value creation in secondary buyouts with empirical results and, secondly, because we focus only on secondary buyouts in the Nordics. Keywords: Private Equity, Leverage Buyouts, Secondary Buyouts, Operational Value Creation

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2014
Number of pages118