Private Equity in Emerging Markets: Evidence from India: Operating Value Creation and its Determinants for Private Equity Portfolio Firms

Alexander Vitols & Pontus Alexander Andersson

Student thesis: Master thesis


Historically, private equity (PE) has been a largely local endeavour, but investors are now turning towards emerging markets, seeking excessive returns out of their comfort zone. India stands out as being one of the key emerging markets. PE investments are increasing with roughly 30% per annum, but almost no research exists on the topic. While PE performance and its determinants have gained increasing traction among scholars, there are gaps in the literature for emerging markets. This study adds to literature by exploring if value is created in the PE-backed portfolio firms, and what determines differences in firmlevel performance. Further, we extend the extant literature by disaggregating our sample on two types of PE investments: growth capital and buyouts. By studying India, we explore the applicability of scholarly findings in the context of an institutionally different market. This presents a unique perspective since the relative performance and determinants of the same is largely unexplored, serving as a blueprint when more emerging markets open up for PE investments. We collect a novel dataset with financial data of 119 PE-backed firms, each matched with a reference firm, totalling 238 observations. Here we report that PE-backed firms are growing faster, but seemingly without improving margins, albeit with substantial heterogeneity. The overall winners appear to be experienced, specialised sole investors who refrain from investing in firms with previous PE ownership. At a deal-level, club deals and secondary buyouts seem to negatively affect value creation in our sample. While there naturally are common denominators, which affect both of our investment types, we find certain discrepancies. There is a local and a reputational advantage for PE funds investing in buyouts, and for growth capital investments, it seems to be beneficial to invest in older companies. Our study also has implications for practitioners and academicians alike. Investors should allocate PE capital keeping these determinants in mind, and further research can study the applicability of our findings in other emerging markets.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
Publication date2018
Number of pages120
SupervisorsSteffen Brenner