What Do Private Equity Firms Say They Do?

66 Pages Posted: 1 May 2015  

Paul A. Gompers

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Vladimir Mukharlyamov

Georgetown University - McDonough School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: April 27, 2015

Abstract

We survey 79 private equity investors with combined AUM of over $750B about their practices in firm valuation, capital structure, governance, and value creation. Investors rely primarily on IRR and multiples to evaluate investments. Their LPs focus more on absolute performance. Capital structure choice is based equally on optimal trade-off and market timing considerations. PE investors anticipate adding value to portfolio companies, with a greater focus on increasing growth than on reducing costs. We also explore how the actions that PE managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.

Suggested Citation

Gompers, Paul A. and Kaplan, Steven N. and Mukharlyamov, Vladimir, What Do Private Equity Firms Say They Do? (April 27, 2015). Harvard Business School Finance Working Paper No. 15-081; Harvard Business School Entrepreneurial Management Working Paper No. 15-081. Available at SSRN: https://ssrn.com/abstract=2600524 or http://dx.doi.org/10.2139/ssrn.2600524

Paul A. Gompers (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6297 (Phone)
617-496-8443 (Fax)

Harvard University - Entrepreneurial Management Unit ( email )

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Steven Neil Kaplan

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4513 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Vladimir Mukharlyamov

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

HOME PAGE: http://explore.georgetown.edu/people/vm462/

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