Private equity in Finland : an assessment of value creation and drivers for buyout activity

Abstract

Studying over 80 buyouts from 1999-2015 in Finland, we analyse companies subject to a buyout before and after acquisition, relative to a carefully constructed benchmark. Both groups are analysed across four dimensions: A) Operating performance, B) Insolvency risk, C) Employment and D) Total Factor Productivity (TFP). Firstly, private equity investors do not appear to select companies that grow faster than benchmark, but rather companies with an efficient asset base. We proceed to prove that portfolio companies achieve significantly higher growth in turnover after acquisition. Secondly, financially healthy companies appear more likely to become subject to buyout activity, but private equity investors do not appear to utilize the strong financial position by increasing debt levels subsequent to acquisition. Thirdly, portfolio companies increase employment substantially more than benchmark in the three years after acquisition, but seemingly at the expense of lower wage growth. Finally, Private Equity investors appear to target efficient companies. However, the portfolio companies are unable to sustain their competitive advantage after acquisition.