Value Creation in German Private Equity Buyouts: Does Pre-Buyout Ownership Matter?

Benedikt Kordtomeikel & Seït Käch

Student thesis: Master thesis


Despite the vast research on private equity buyouts, literature has provided little empirical evidence about the effects of private equity ownership in German companies. Using a dataset of 102 buyout deals in Germany between 2009 and 2013, we investigate whether private equity ownership affects operational value creation in target companies and if this effect is contingent on the pre-buyout ownership type. We provide evidence that the magnitude of operational value creation in the post-buyout period differs among pre-buyout ownership types due to different governance mechanisms and firm-specific characteristics in Germany. In the three years following a buyout, targets expand their margins and grow regarding assets as well as in employment compared to a carefully selected peer group in Germany. Moreover, we provide evidence that value creation and especially growth is concentrated in private-to-private buyouts, where the seller is one or several individuals. The increase in growth in private-to-private transactions is especially prevalent in firms having faced financial constraints in the pre-buyout period. Surprisingly, secondary buyouts, where the seller is a financial investor, also experience higher growth and capital expenditures, whereas firms where the seller is a conglomerate, downsize following the buyout. Our findigs contrast the evidence of literature conducted in the UK and the US, which found private equity firms to create value by prioritizing downsizing initiatives and lower investment levels in their target firms in the post-buyout period. This study supports the results of more recent research in Europe, providing evidence of private equity firms enabling growth by alleviating growth constraints.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2018
Number of pages142