Operational Performance in PE Backed IPOs

Mads Dahl Mortensen

Student thesis: Master thesis

Abstract

The concept of Private Equity funds has existed since the 70ths in the US and grew during the 80ths. In the 90ths Private Equity funds really made their impact by entering the European market and in the 00ths the number of funds and fundraised cash grew rapidly - including Scandinavia. During the last couple of years Private Equity funds has been discussed publicly and accused of using quick fixes in order to gain short termed growth thus quickly increase profits. This study will undergo an examination of whether Private Equity funds only creates short termed value in their acquired target companies or if their ownership has a long termed positive influence – even after their exit. This thesis investigates how PE-backed Nordic companies performs operational post an IPO – on a Nordic stock exchange. The study is divided into a qualitative and a quantitative analysis. The focus of the qualitative analysis is to identify the operational initiatives that PE-funds applies on their target companies, and how these initiatives is combined with value creation. The operational value drivers are divided into two categories. The direct value drivers and the indirect value drivers. The direct value drivers are the ones that directly affects the value creation and are often long termed - for example changes in strategy. The indirect drivers are on the other hand, drivers that affects the direct value drivers. Based on the analysis of the drivers a selection of nine parameters was made and included in the quantitative analysis. The quantitative analysis consists of a sample of 63 companies. They were tested on nine parameters, and the nine parameters was divided into three categories; probability, productivity and growth. This distinction was made to conclude whether a significant improvement in operational performance had occurred after an IPO compared to peers. Overall, the result of the quantitative analysis was that the PE-backed companies had made a significant improvement in their operational performance in the years after their IPO. These results were adjusted for the peers development in their period after IPO. Based on these results it is concluded that PE-ownership gives target companies competitive advantages that leads to long term operational value creation.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2020
Number of pages128
SupervisorsMichael Jakobsen