Value Creation in Private Equity: A Case Study of Outperforming Buyouts in the Nordic Countries

Abstract

A number of studies have reported that the returns from acquisitions made by private equity (PE) firms have exceeded those of the public markets, e.g. the S&P 500. The outperformance displayed in the buyouts made by private equity firms is perplexing, particularly given the underperformance and high failure rate typically reported in studies of traditional corporate mergers and acquisitions (M&A). This dissertation strives to shed a light on the dichotomy by examining the activities in a select sample of buyouts during the pre-buyout phase, holding period, and the exit transaction.

The study makes a number of significant contributions. It contributes to the theoretical and conceptual understanding of private equity buyouts by materially extending previous models of value creation into a novel taxonomy and cohesive structure. It contributes empirically by filling an important research gap concerning the subset of buyouts that exhibited exceptional outperformance compared to peer firms in PE portfolios. The inductive multiple–case study approach in combination with access to proprietary interview data permitted an in-depth analysis of the factors conducive to buyout value creation. The analysis indicates the key factors resulting in the outperformance were timing the entry and exit transaction to the business and industry cycles, identifying and executing the apposite business strategy, utilizing alternative modes of debt financing, discerning the pre-buyout target firm characteristics, implementing a pervasive array of operational improvements, and lastly, achieving high-levels of employee motivation and commitment across the organization.