Do PE-Backed firms underperform in the long-run?

: evidence on the post-exit operating performance of PE-Backed french firms

Abstract

We study the post-exit performance of formerly PE-Backed firms using a novel hand collected sample of 90 French firms with exits either through trade sale or IPO in the period between 2001 and 2010. This study represents an attempt to improve the understanding of the long-term impact of Private Equity investments in portfolio companies. Our main finding is of a comparable to slightly worse operating performance measured by EBITDA Margin, ROIC and ROA relative to an industry and size matched control group of firms never PE-Backed in the three years post-exit. We find evidence suggesting that the decline in performance is higher for trade sales, for secondary buy-outs and for smaller firms. The relative poor performance seems to be driven by a deteriorating working capital management and rising material costs in percentage of sales. In addition, we find little support for previous criticism that Private Equity firms increase their returns at the expenses of the long-term value of portfolio companies as illustrated by the lack of significant change in sales growth adjusted by our control group. Our findings are more consistent with an erosion of Private-Equity mechanisms of improved governance, monitoring and operational efficiency.

Date of Award	2013
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Pramuan Bunkanwanicha (Supervisor)