Value Creation in Private Equity

80 Pages Posted: 11 Jun 2020 Last revised: 15 Sep 2020

See all articles by Markus Biesinger

Markus Biesinger

Darmstadt University of Technology; European Bank for Reconstruction and Development (EBRD)

Cagatay Bircan

European Bank for Reconstruction and Development (EBRD)

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR); Stockholm School of Economics; European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

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Date Written: May 18, 2020

Abstract

We open up the black box of value creation in private equity with the help of confidential information on value creation plans and their execution. Plans are tailored to each portfolio company’s needs and circumstances, have become more hands-on, and vary with deal type, ownership, growth strategy, and geographic focus. Successful execution is subject to resource constraints, economies of specialization, and diminishing returns, and varies systematically across funds. Successful execution is a key driver of investor returns, especially in growth, buyout, and secondary deals. Company operations and profitability improve in ways consistent with successful execution, even beyond PE funds’ exit.

Keywords: Private equity, venture capital, growth investing, secondaries, value creation, financial returns, machine learning

JEL Classification: G11, G24, G30, G32, L26

Suggested Citation

Biesinger, Markus and Bircan, Cagatay and Ljungqvist, Alexander and Ljungqvist, Alexander, Value Creation in Private Equity (May 18, 2020). Swedish House of Finance Research Paper No. 20-10, Available at SSRN: https://ssrn.com/abstract=3587559 or http://dx.doi.org/10.2139/ssrn.3587559

Markus Biesinger

Darmstadt University of Technology ( email )

Universitaets- und Landesbibliothek Darmstadt
Magdalenenstrasse 8
Darmstadt, Hesse D-64289
Germany

European Bank for Reconstruction and Development (EBRD) ( email )

One Exchange Square
London, EC2A 2EH
United Kingdom

Cagatay Bircan (Contact Author)

European Bank for Reconstruction and Development (EBRD) ( email )

One Exchange Square
London, EC2A 2JN
United Kingdom
+442073388508 (Phone)
+442073386111 (Fax)

HOME PAGE: http://cagataybircan.com

Alexander Ljungqvist

Stockholm School of Economics ( email )

111 60 Stockholm
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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