How can private equity firms create value through improvements in the operating performance?

Abstract

This thesis is an attempt to measure the impact that the Private Equity companies can have on their portfolio companies' operational performance. We try to determine whether companies under LBO can over-perform listed companies in terms of operating improvements. We firstly use Kaplan's work (1989a) to evidence that on average, companies under LBO successfully over-perform benchmarks in the 1980s. We also present the key drivers accounting for the superior operating performance. In addition, we highlight some potential biases that may impact Kaplan's findings. We then examine whether those findings still hold for the most recent wake of Private Equity transactions. We find that operating improvements remain large but are in line with the industry average. Eventually, we focus on the largest and most mature Private Equity firms that have managed to persistently generate operational improvements and study their operating business models and key initiatives to identify best practices.