Private Equity Effect on Portfolio Companies’ Operational Performance: A Survey Among Danish Leveraged Buyouts Transactions From 2001-2011

Christian Bundgaard Ypkendanz

Student thesis: Master thesis


This thesis studies the operational impact of private equity ownership on 79 leveraged buyout (LBO) transactions occurred in Denmark between 2001-2011. It combines earlier research on private equity and theory related to the topic, hereunder agency theory, in order to make a more nuanced picture on how private equity owned companies are performing in terms of profitability and growth compared to a control group of comparable companies not subject to such an ownership change. Factors that can have an effect, on private equity owned companies’ operational performance are furthermore discussed and tested, including Boucly et. al. (2009) credit constrained hypothesis and in-house operational partner’s hypothesis. In order to make sure that the results of the hypothesis test are valid, importance factors of the test are discussed and if possible tested for. This robustness check is done by changing the time period in which the model is regressed over, and changing the control group in which the portfolio companies are compared to.
The results in this thesis is not homogenous with most earlier international studies and finds that private equity ownership has a significant negative effect on return on asset, asset turnover rate and gross profit return on asset, but not any significant effect on profit margin. In addition, it finds that private equity has a significant positive effect on asset growth. Portfolio companies which were likely to be credit constrained before the buyout, were the main contributor to the negative effect on profitability, likewise was it the main contributor to the increased asset growth. Private equity is therefor able to help companies, who have been credit constrained by their earlier owners to grow. But they are not able to grow profit in the same way, which leads to a lower return.
The results indicate that private equity ownership do not have a positive effect on the operational performance in the post buyout period. Furthermore, the analysis does not find any empirical evidence for private equity superior governance, which have the most used argument in favor for private equity in earlier studies.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2016
Number of pages108