A Convenient Truth: Private Equity and Portfolio Company Growth

Abstract

This study examines the growth in private equity backed portfolio companies in the UK over the period from 1995 to 2012 using a dataset selected from the population of private and public companies in the UK including companies that received private equity backing. On the basis of real cumulative average growth rates (CAGR rolling 3 and 5 year periods), we find a consistent pattern of PE backed buyouts showing higher growth rates than non-PE backed buyouts for the first four years post buyout. Strongest increases in initial growth are displayed in respect of equity, total assets and value added. The growth rate remains positive throughout the post-buyout period for all variables except for sales and employment that become negative in year 7 post buyout. For the sub-period 2008-2011, PE backed buyouts are significant and positively associated with growth in all variables for both CAGR3 and 5 year periods, suggesting the PE backed firms’ growth has held up better than non-PE backed private companies. Board size is consistently significant and positively associated with all measures of growth, with significant and negative relationships between average director age and number of multiple directorships and all growth measures. Controlling for other factors, the extent of UK experience of PE firms is significant and positively associated with growth in value added, assets, sales, equity and employment. Foreign PE firms are significant and positively associated with growth in asset and equity but significant and negatively associated with employment growth.

Keywords: Private Equity, Growth, Performance