Private equity and value creation

: an Iberian outlook of portfolio companies

Abstract

$11.7 trillion. The private equity industry had around $11.7 trillion in assets under management in 2022. These entities are a huge piece of today’s economy and society having a meaningful and impactful decision-making power. This paper reports the findings from the analysis on the existence of value creation and the company-level mechanisms behind it in companies that received private equity ownership. The paper uses a comprehensive dataset with 568 Portuguese and Spanish transactions and explores a wide range of financial and operational indicators and an extended time window from 2001-2018 to understand if there is indeed value creation and what are the mechanisms behind it. The key findings, which we believe are our main contribution, support the view of private equity ownership as a growth-enabling period allowing companies to pursue locked opportunities and projects. We find this growth-oriented perspective as the main mechanism behind value creation. An idea that is consistent with the resource-based view (RBV) theory as the theoretical framework to explain private equity value creation that overlaps the cost reduction approach of agency theory. All in all, our research confirmed the idea that private equity ownership has a positive impact on their portfolio firms. However, regarding the mechanisms behind value creation, we do not find enough evidence to accept the standardized operational and financial engineering through which these entities create value. The evidence also highlights that these entities are skilled investors in selecting targets with a good business model and/or a competitive advantage.

Date of Award	14 Jul 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Ricardo Cunha (Supervisor)