DP14676 Value Creation in Private Equity

Author(s): Markus Biesinger, Cagatay Bircan, Alexander P. Ljungqvist
Publication Date: April 2020
Keyword(s): financial returns, Growth investing, Machine Learning, private equity, secondaries, value creation, venture capital
JEL(s): G11, G24, G30, G32, L26
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14676

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.