Operational Value Creation in Private Equity: A Comprehensive Analysis of Operational Value Creation across Industries

Abstract

This paper investigates differences in operational value creation within private equity funds across industries. The analysis is based on 266 buyout transactions across six different industries between 2014 to 2017. Evidence is found that portfolio companies’ EBITDA growth, fixed asset growth, efficiency-, and profitability optimization vary significantly across industries. The industries show proof of different operational value creation possibilities across revenue growth, EBITDA-margin improvements, and optimization in NWC efficiency. Additionally, this paper finds proof that some industries require larger tangible- and intangible investments in fixed assets to accelerate future growth than other industries. Furthermore, we find evidence that industries like Manufacturing experienced superior operational performance improvements in primary buyouts compared to secondary buyouts. In contrast, other industries like Business Support Service did not show any significant performance differences across buyout types. Finally, our findings indicate that firm and fund-specific characteristics like company size, country and geographical proximity of the PE fund experienced similar trends across industries, nonetheless, some industries seemed more affected by these characteristics than others. This paper may serve as guidance for PE-practioners, as it proofs that operational value creation possibilities differs across industries.