Operational Value Creation in Capital Fund Owned Portfolio Companies

Abstract

This thesis examines the impact of private equity ownership on the operational performance of portfolio companies across different industries in Europe from 2003 to 2023. Through the lens of a conceptual value creation framework and quantitative analysis of data on private equity buyouts, this study seeks to identify and delineate how industry characteristics and other contextual factors influence the effectiveness of private equity interventions. The analysis utilizes a sample of 299 matched entry/exit transactions, employing statistical tests and models to measure the differences in the operational performance metrics: revenue, EBITDA, EBITDA-margin, and CAGR between PE-backed firms and their non-PE counterparts.

The findings suggest that private equity ownership significantly affects the operational performance of portfolio companies on an aggregate level. Still, the extent and nature of this impact vary across the underlying industries. The paper's findings highlight that while private equity intervention can drive operational improvements, the effectiveness of such interventions is conditioned by industry-specific dynamics and other contextual factors. These results contribute to a deeper understanding of the strategic considerations that private equity practitioners must consider when designing value creation plans for portfolio companies.

This thesis contributes to the academic discussion by initially testing whether tests on more recent transactions than those covered in the literature still display significant evidence of a positive effect of PE ownership. It further provides a clearer picture of the complex interplay between private equity and operational performance, suggesting directions for future research that could further improve the understanding of contextual factors and value creation levers' impact on operational performance.