Growth Equity Investment Patterns and Performance

55 Pages Posted: 30 Nov 2023

See all articles by Paul Lavery

Paul Lavery

Adam Smith Business School, University of Glasgow

William L. Megginson

University of Oklahoma

Alina Munteanu

University of Oklahoma

Date Written: November 16, 2023

Abstract

We present the first large-sample analysis of growth equity (GE) investment using a sample of 1,512 UK private companies over 2000-2021 and compare the post-investment performance of investee firms to matched companies that did not receive GE investment. The United Kingdom is an ideal empirical setting for this study because it is the second largest private capital market and financial information is available for all UK limited companies. GE target companies are younger, smaller, more intangible-asset intensive and more rapidly growing than the general pool of UK private companies. Target firms then dramatically outperform a matched sample of non-GE backed private companies after investment with respect to sales and asset growth, employment, and earnings growth. Much of this extra expansion is financed by significantly faster growth in leverage than for non-GE backed firms. This higher leverage causes GE backed companies to encounter financial distress more frequently than matching firms, but treated firms can navigate distress—including bankruptcy—relatively more successfully than matching distressed firms. We also compare GE-backed companies to British private companies receiving venture capital or private equity (buyout) investment.

Keywords: Private equity, Growth equity, Buyouts, Firm performance, Firm survival

JEL Classification: F140, G01, G23, G28, G32, G34

Suggested Citation

Lavery, Paul and Megginson, William L. and Munteanu, Alina, Growth Equity Investment Patterns and Performance (November 16, 2023). Available at SSRN: https://ssrn.com/abstract=4635307 or http://dx.doi.org/10.2139/ssrn.4635307

Paul Lavery (Contact Author)

Adam Smith Business School, University of Glasgow ( email )

University Avenue
Glasgow, Scotland G12 8QQ
United Kingdom
07979140811 (Phone)

William L. Megginson

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

Alina Munteanu

University of Oklahoma ( email )

Norman, OK 73019
United States

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