Beyond the Buyout: How Private Equity Ownership Impacts Norwegian Companies

Abstract

Private equity (PE) has experienced remarkable growth in the past decade, with its share of the global public equity market rising from 4% in 2010 to 9% in 2022. This trend is also evident in Norway, where PE investments have grown significantly. This expansion raises questions about how PE buyouts impact the companies they acquire.

This thesis examines the effects of PE buyouts on the growth, profitability, productivity, and capital structure of Norwegian companies, focusing on short- and medium-term impacts. The analysis is based on 160 buyout deals for the short-term and 123 for the medium-term horizon, using data from Argentum Fondsforvaltning, Orbis, and SDC Platinum, combined with accounting data from Norwegian Corporate Accounts. We apply propensity score matching and a difference-in-differences framework to compare PE-backed firms with similar non-PE-backed firms.

The results show that PE ownership drives significant growth. Over four years, sales grow 20.3%, assets 38.5%, and employment 25.4% more than in comparable firms. However, this growth comes at the expense of short-term profitability, with ROA declining in the first two years after the buyout. Productivity metrics, such as revenue per employee, show no significant improvement, suggesting a focus on growth rather than efficiency. Over time, profitability begins to recover, following a J-curve pattern as initial investments mature. The leverage increases by 38.8%, while the equity ratio remains stable, indicating that additional debt is used to finance growth rather than replace equity.

This study helps to understand the role of PE in value creation, particularly in the Norwegian market. The findings differ from earlier research, which emphasize cost-cutting as main drivers of profitability. Instead, they align with more recent studies that show that modern PE buyouts are shifting toward growth-focused strategies, such as scaling operations and increasing revenue.