Does Private Equity Affiliation Add Economic Value to Portfolio Firms Post-Exit? A study on post-IPO performance of PE-backed firms in the U.S.

Nikolai Grødum Grønberg

Student thesis: Master thesis


There exists vast amounts of literature on private equity (PE) companies and how they add value to their portfolio firms. One of the most widely referenced sources of value creation is that the owners are able to implement superior governance mechanisms, stemming from the high debt load and their own industry expertise. The goal of this thesis has been to identify whether previous PE-affiliation adds economic value to a company after the PE-firm exits, using buy-and-hold returns of each company’s shares as a proxy for performance. Focusing on PE-owned companies which underwent initial public offerings on NYSE and NASDAQ between 2002 and 2010, I identified a sample of 51 firms. I also identified a sample of 51 non-PE-backed companies which underwent IPOs in the same timeframe. I tested the performance of the two samples against each other using Wilcoxon rank-sum tests. The tests were performed one day (underpricing), 12, 36 and 60 months post-IPO, in order to gauge the performance of PE-backed companies versus that of a matched sample of non-PE-backed companies. The average results appear to be largely in favor of the performance of non-PE-backed companies at all points in time except for the 12 month point, where the results are similar. After 36 months, the gap between the two samples was found to be statistically significant at the 5% level. At this point in time, PE-backed companies thus perform significantly worse than their non-PE-backed counterparts. The other points in time were not found to be significant, meaning that I cannot conclude that the difference is not due to chance. I also performed tests on three sub-hypotheses. The first sub-hypothesis investigated whether the amount of insider shares sold at the offering had any effect on the gain of the share price at the first trade date, as a higher amount of insider shares sold could signal a limited upside. The second attempted to find out whether the amount of shares subject to lockup had any effect on the performance at the one year point, due to exiting taking longer for the PE-firm. The third investigated whether the choice of exchange to list on had any effect on the performance post-IPO. Up until 2013, NYSE had more stringent governance requirements than NASDAQ, which I 4 hypothesized would better retain the governance mechanisms enacted by the PE-owners. The tests found no significance. To conclude, I found no evidence of any superior performance of private equity-backed companies, with the results at the three year point even indicating significantly worse performance than the non-PE-backed sample. Thus, I find no evidence that previous PE-affiliation adds any sort of economic value to portfolio-firms post-exit.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2015
Number of pages92