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Value creation in private equity : have Norwegian private equity companies created value in their portfolio companies?

Andresen, Martin; Sandnes, Even
Master thesis
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URI
http://hdl.handle.net/11250/168227
Date
2009
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  • Master Thesis [4656]
Abstract
This paper investigates value creation in 31 private equity-owned companies in Norway

between 1993 and 2007. Its purpose is to find evidence on increased value capturing for

these companies relative to non-private equity-owned companies. We have looked at the

development of companies that have been engaged in a full leveraged buyout process with

Norwegian private equity firms from entry to exit.

Value creation is made through several different drivers, which are thoroughly presented in

this thesis. The empirical analysis in our thesis has been focusing on value creation through

direct drivers since these drivers may easily be analyzed using publicly available data. By

doing statistical tests on ratios that help explaining these drivers, we were able to present

evidence on whether private equity-owned companies have been able to outperform their

comparables during the private equity firms’ holding period.

Our results suggest that private equity firms have been successful in obtaining significant

revenue expansion and cost reductions/margin improvements for their portfolio companies

on an isolated basis. In terms of improved asset utilization and financial engineering we are

unable to provide any adequate significant results. In addition, it seems like buyout

companies do not experience any significant changes in employment or changes in levels of

wage expenditures.

The industry-adjusted results suggest that buyout companies do not significantly outperform

their corresponding peers in regard to revenue expansion and cost reductions/margin

improvements. Buyout companies seem to have a somewhat stronger improvement in capital

productivity than their peers, implying an outperformance from the buyout companies.

Moreover, our results do not support any significant changes in long-term debt share during

the holding period of private equity firms or large differences in long-term debt levels

relative to their peers at entry, exit and exit +1. Finally, industry-adjusted employment

growth and changes in levels of wage expenditures do not support any categorical beliefs

about massive lay-offs or drastically reduced wage expenditures during the holding period of

a private equity firm.

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