Value Creation in Private Equity Owned Danish Portfolio Companies

Mark Cords Vangstrup & Anders Aske Holm

Student thesis: Master thesis


Private Equity funds (PE-funds) and their unique business model has in recent years drawn a lot of attention from the media and general public in Denmark. This is due to the increasing significance of the Danish companies which have been traded by PE-funds in the last couple of years. By extension, the increased attention has led to a several cases where the media has portrayed PE-funds negatively, which has led to an increasing suspicion regarding their business model. This has ignited the public discussion of whether the PE-funds create any value at all for others than themselves or if they are just unethical capitalists of which the latter seems to represent the current public opinion. This study seeks to uncover whether or not this opinion is really justified by examining the value creation within the acquired portfolio companies of the PE-funds. The study is based on a sample of 47 Danish portfolio companies traded between 2003 and 2018. In order to quantify the ability to generate economic value within the companies, the study applies the well-known and recognized measure Economic Value Added (EVA). In addition, a further decomposition of the EVA is performed in order to gain an understanding of where the generated economic value originates from. The decomposition has been quantified by the key figures ROIC and WACC, which represents the operational- and financial value creation respectively. In order to determine whether the PE owned portfolio companies manage to outperform the market, and thus the PE-fund ownership seem to generate value, the performance of the companies have been compared with relevant peer groups separately. Subsequently these comparisons have undergone statistical testing to either reject or accept various hypothesis of whether the differences are significant or not. The findings of the analysis show that the value creation in portfolio companies do manage to outperform the market with a statistical certainty of 95% and thus the PE-fund ownership structure seem to create value for the acquired portfolio companies. Furthermore, the findings of the decomposed analysis of the EVA shows that operational value generated outperforms the market with a statistical certainty of 99%. However, there is no statistical evidence for the portfolio companies outperforming the market in regards of the financial value created through reduction of the WACC. In conclusion, this implies that the generated value seems to originate from improvements of the operational profitability in the portfolio companies.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2019
Number of pages220
SupervisorsMichael Jakobsen