Operational Value Creation in Scandinavian Private Equity

Morten Møller & Jonathan Sass Sørensen

Student thesis: Master thesis


Utilizing firm-specific financial data on 188 buyouts from 2011 – 2016 this thesis investigates whether superior operational performance is observed in Scandinavian portfolio companies of Private Equity (PE) funds, relative to a constructed control group. Moreover, the scope of existing literature in the region is extended by exploring potential drivers of value creation. Specifically, the impact of firm- and fund-specific characteristics is explored in the second part of the study. In answering the research questions, the thesis applies a twofold econometric approach. The initial analysis on relative performance in buyouts is analysed using the Difference in Difference estimation technique. The magnitude of value creation is measured using two different event windows and econometric specifications. For the subsequent investigation on drivers of value creation, various specifications of the Linear Probability Model are performed. In both layers of the analysis the dependent variables are grouped into three categories, namely: Growth measures, Return measures and Efficiency measures. Partial support is found in favour of superior value creation in PE-owned companies. Most compelling evidence is found on the Growth measure. Ambiguous evidence is found on the impact of firm- and fund-specific characteristics. A short-term positive effect of CEO replacement is found, though a convergence towards the mean is observed over time. Suggestive evidence is found for a differential operational focus, contingent on the geographical scope of the acquiring fund. Similarly, the impact of investment experience is found to be positive, though the magnitude and sensitivity differs across the investigatory parameters. The thesis acknowledges that inherent measurement errors may prevail as a consequence of the designed empirical study. Despite this, the study contributes to the existing literature on three parameters. First, indicative evidence is found of superior performance amongst PE-backed firms in the Scandinavian region. Second, a foundation is established for further research on the impact of firm- and fund-specific characteristics. Third, PE practitioners may reap insights about how the focus and experience of the fund alter the operational value creation.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2019
Number of pages132