The Effect of Ownership Characteristics on Financial Performance in Private Equity Portfolio Companies: An Investigation of Scandinavian LBOs During the Third Buyout Wave

Petar Ivanovic & Nicolai Nørremark

Student thesis: Master thesis


Using a sample of 174 Scandinavian buyouts in the period from 2011 to 2015, this Master’s Thesis investigates the effect of private equity ownership on financial performance within portfolio companies through a three-layered analysis. The first layer examines whether private equity portfolio companies outperform non-private equity backed companies. The second layer examines specific pre- and post-buyout ownership characteristics, which affect the relative financial performance of buyouts. The third layer investigates whether any combinations of preand post-buyout ownership characteristics yield relative increases in financial performance. The paper utilises a difference-in-differences approach to address the relative financial performance in all three layers. The first layer applies a pair-matching methodology, identifying control firms based on five carefully selected matching criteria. To get a profound understanding of the timing of value creation, this thesis applies two distinct event windows, focusing on the first and third year following a buyout. The event windows are assessed using three groups of financial performance variables, focusing on growth, return and operational performance measures to provide a nuanced analysis of private equity ownership. The findings of this Master’s Thesis contribute to existing research on the topic of private equity in three major areas. Firstly, the thesis provides new empirical evidence on the Scandinavian private equity market, showing that private equity funds are able to generate superior financial performance in their portfolio companies during the third buyout wave. Secondly, pre-buyout ownership characteristics are shown to have an impact on the relative financial performance of the portfolio companies. More specifically, divisional buyouts exhibit superior returns and operational performance, while no abnormal effects are observed when investigating SBOs and private-to-private deals. Thirdly, Scandinavian-based private equity funds exhibit superior returns and operational performance in their portfolio companies but not in growth measures. On the contrary, specialised private equity funds were deemed unable to generate superior financial performance in their portfolio companies, which goes against the specialisation hypothesis. The results are robust across several robustness tests. In sum, this Master’s Thesis covers an unaddressed gap in the literature, namely the financial performance effects arising from both pre- and post-buyout ownership characteristics of private equity fund portfolio companies

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2018
Number of pages134
SupervisorsSteffen Brenner