Value Creation in Danish Private Equity Owned Companies

Magnus Fabiansen & Ferduos Safi

Student thesis: Master thesis

Abstract

The objective of this thesis is to examine the value creation in Danish private equity owned companies. We will use two distinct approaches to investigate this: a case study and an empirical analysis. We will primarily look at the operational engineering performed by the private equity firms.
First, a short introduction of the thesis is presented along with the subjects of interest. This is then followed by a brief explanation of the chosen methods and theories. We then introduce the field of private equity and highlight the areas of importance for this thesis.
The result of our case study showed that the private equity firm EQT was unsuccessful in creating value for its portfolio company Zebra A/S. It did support the company's growth and managed to substantially increase the number of stores. However, this was at the expense of a significantly lower profitability, and large increases in the company's debt. While Zebra A/S has improved its overall reach, its financial situation has gotten worse since before EQT. Last year Zebra A/S required further financing to pay its bank obligations.
The results of the empirical analysis showed that on average the private equity firms did not create value for their portfolio companies measured through EVA. We have shown that the specific strategy chosen by the company and private equity firm, seems to be an important determent in whether or not the private equity firm creates value. We have also shown that the chosen strategy has an impact on the companies leverage. Companies where the focus has been on growth, generally experience a large increase in its financial gearing.
With the combination of the results found above, we conclude that the private equity firms generally do not succeed in creating value for their portfolio companies. Companies focusing on growth generally experience lower profitability and EVA, while having an increase in leverage. On the other hand, companies focusing on reducing the cost or restructuring, generally seen an increase in both profitability and EVA.
Lastly, our results show the competitivity of evaluating the value creation in private equity firms and adds to the literature about the subject.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2020
Number of pages155