A Transaction-based Value Creation Study of Private Equity: A Comprehensive Examination of Impact from Value Creation Levers and Strategic Capabilities

Steffen Bo Stjernholm Lundqvist & Mads Spile Christensen

Student thesis: Master thesis


This thesis applies a holistic analytical framework to examine what drives differences in value creation within the private equity industry, providing much-needed insight for academics and practitioners alike. To estimate levers contributing towards value creation as well as determining their moderating factors, a transaction-based value creation methodology based on Times Money multiples is applied. The analysis is based on a global sample of 1,356 private equity transactions of matched entries and exits spanning from 1998 to 2018, thereby incorporating very recent data. An average Times Money multiple gain of 3.84x was estimated across the overall sample. The composition of value created was further deconstructed into 44% stemming from leverage effects, 15% stemming from multiple expansion, and 34% stemming from operating improvements. A residual estimated value creation of 7% was a combination effect of simultaneous transaction multiple and EBITDA changes. Empirical evidence is provided for overall value creation, as well as its partial effects, to differ across portfolio company, deal, fund, and market level characteristics. Value creation was especially sensitive to differences in size, ownership stakes, fund type, exit type and leverage. Empirical insights and methodological progressions in conjunction promote a new branch of research within private equity. In addition to these contributions, the understanding of private equity funds is advanced, demonstrating real differences across fund types previously assumed homogeneous. The results of general findings and moderating subcategories together carry applicable implications for private equity practitioners. By application of robustly evidenced differences, value creation planning processes undertaken by general partners can be better proportioned to match different contexts with regards to the utilisation of value creating levers. By employing a combination of uniquely compiled data alongside a new methodological approach comprised of comprehensive frameworks and rigorous testing procedures, a new direction for private equity research is proposed. Subsequent research will thereby address unexploited information on private equity investments and apply improved standards within transaction-based value creation studies.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2018
Number of pages142