Value Creation in Danish Private Equity Owned Entities

Abstract

This dissertation analyzed the financial value creation of 16 Danish private equity-owned companies compared to a peer group of 48 comparable firms. Based on an extensive financial analysis of 13 metrics contributing to this development, the study found indications that, on average, the private equity-owned companies demonstrated greater financial value creation than the peer group post-acquisition. This improvement was mainly driven by operational enhancements, including growth, capital adjustment, profitability, and operational cash flows. The analysis revealed that the private equity-owned companies exhibited higher revenue growth compared to the control group throughout the analysis period. Additionally, they displayed improved net working capital adjustment, indicating a focus on optimizing inventory management, accounts receivable, and supplier credit negotiation. Furthermore, the private equity-owned firms showed enhanced profitability by minimizing non-labor and non-depreciation-related costs relative to revenue. Despite initial challenges in adjusting fixed capital, significant investments in production optimization were made, resulting in lower marginal production costs. The study also found that the private equity-owned companies achieved higher EBITDA margins compared to the control group. This, combined with improved working capital adjustments, indicates average relative enhancements in operating cash flows. Overall, the findings suggest that private equity ownership in Danish companies leads to improved financial value creation compared to non-private equity ownership. The study contributes unique insights into the operational improvements achieved by private equity-owned firms and highlights their positive impact on growth, capital utilization, profitability, and cash flows.