Private equity companies are seen as high risk investment funds, trying to gain high returns on their investments in a period of around three to seven years. Even if the private equity industry has played an important role in growth or as an external financing source of established companies as well as newly-established companies, private equity investors are not seen as sustainable value creators. In various occasions, private equity funds are even declared as a greedy instrument to earn fast money. In order to analyse whether private equity companies create value in a sustainable way, this study compares the performance of private equity backed initial public offerings (IPOs) with non-private equity backed IPOs. Moreover, it analyses whether private equity backed IPOs outperform the market. This study evaluates the performance of private equity backed IPOs by performing two separate empirical analyses: one focusing on the UK private equity market - the largest private equity market in Europe - and one focusing on the entire European market.
The research conducts a quantitative analysis of secondary data, more specifically by using stock prices of private equity backed firms, non-private equity backed firms and applicable benchmark market indices. Such data was obtained from multiple sources, such as the London Stock Exchange, Bloomberg and Yahoo Finance. In general, the study compares the performance of private equity backed IPOs with non-sponsor IPOs with regard to their price development and abnormal returns. The analysis is based on multiple independent analyses of each IPO. In order to provide a general understanding of this issue and to be able to interpret the research results, the paper discusses the theoretical framework and the findings of other authors. In recent decades, several authors have demonstrated their research on private equity based IPOs as well as the value creation of private equity firms. Based upon these, hypotheses are formulated, which are then subsequently tested using multiple research methods.
In general, the study indicates that the majority of private equity firms do not create sustainable value. More than 50% of the analyzed private equity backed companies were not able to outperform the market benchmark indices. On average, private equity backed firms were able to significantly outperform the market in the UK. However, they were unable to perform equally well on a European level.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Motivation and Problem Definition
- Research Objectives and Contributions
- Course of Investigation
- The Concept of Private Equity
- Asset Class - Private Equity
- Private Equity Backed IPOs
- Literature Review
- Value Creation of Private Equity Firms
- Characteristics of Private Equity Backed IPOs
- Performance of Private Equity Backed IPOs
- First Empirical Research
- Study Objectives
- Research Questions and Hypotheses
- Relevance and Contributions
- Research Methods
- Identification of Private Equity Backed IPOs
- Data Sample
- Limitations
- Descriptive Statistics
- Distribution by Market Value, and Timing of IPO
- Distribution by Industry Sector
- Sample Analyses
- Unadjusted Buy-and-Hold Returns
- Buy-and-Hold Abnormal Returns
- Cumulative Abnormal Returns
- Wealth Relative
- Summary and Conclusion of Findings
- Second Empirical Research
- Study Objectives
- Research Questions and Hypotheses
- Sourcing of Data Sample
- Descriptive Statistics
- Distribution by Country
- Distribution by Offer Size
- Distribution by Industry Sector
- Distribution by Time Period
- Research Methods
- Sample Analyses
- Unadjusted Buy-and-Hold Returns
- Buy-and-Hold Abnormal Returns
- Cumulative Abnormal Returns
- Wealth Relative
- Summary and Conclusion of Findings
- Summary and Conclusion
- Key Take-Aways
- Further Research
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This thesis aims to conduct an empirical analysis of value creation within the private equity sector, focusing specifically on private equity-backed initial public offerings (IPOs). The research seeks to understand the performance characteristics of these IPOs and identify factors contributing to value creation.
- Value Creation in Private Equity
- Performance of Private Equity-Backed IPOs
- Empirical Analysis of Market Returns
- Factors Influencing IPO Success
- Methodology in Private Equity Research
Zusammenfassung der Kapitel (Chapter Summaries)
Introduction: This chapter sets the stage for the thesis, introducing the topic of private equity value creation and its importance. It defines the research problem, highlighting the gap in existing literature concerning the specific performance of private equity-backed IPOs. The chapter lays out the research objectives and the proposed course of investigation, providing a roadmap for the subsequent chapters.
The Concept of Private Equity: This section delves into the fundamental aspects of private equity, explaining its structure, investment strategies, and the role of private equity firms in value creation. It provides a crucial foundation for understanding the subsequent empirical analysis by clarifying the mechanisms through which private equity firms may add value to their portfolio companies. It lays the groundwork for analyzing how these mechanisms influence the outcomes of IPOs.
Literature Review: This chapter reviews existing academic research on private equity value creation and the performance of private equity-backed IPOs. It analyzes various approaches to measuring value creation and examines the characteristics and performance of private equity-backed IPOs in the context of previous findings, setting the stage for the author's own empirical investigation and establishing the context for the original research presented in later chapters. The review identifies gaps in current research that the thesis will address.
First Empirical Research: This chapter presents the first empirical study, outlining its objectives, research questions, and hypotheses. It details the research methodology used, the identification and selection of the private equity-backed IPO sample, and a discussion of any limitations of the data or approach. The chapter then presents the descriptive statistics and results of the analysis, including buy-and-hold returns, abnormal returns, cumulative abnormal returns, and wealth relatives, providing a thorough examination of the performance characteristics of the sample IPOs.
Second Empirical Research: This chapter mirrors the structure of the first empirical research chapter but utilizes a different data sample and potentially different methodology. It explores a unique aspect of private equity-backed IPOs, offering additional insights into the value creation process and performance characteristics. This second study allows for a comparison and potentially offers a more robust analysis considering different data sets. The results add another layer to the overall understanding of the topic.
Schlüsselwörter (Keywords)
Private Equity, Value Creation, Initial Public Offerings (IPOs), Empirical Analysis, Market Performance, Investment Strategies, Portfolio Companies, Abnormal Returns, Buy-and-Hold Returns, Wealth Relative, Industry Sector Analysis.
Frequently Asked Questions: Private Equity-Backed IPOs: An Empirical Analysis of Value Creation
What is the main topic of this thesis?
The thesis focuses on conducting an empirical analysis of value creation within the private equity sector, specifically examining private equity-backed initial public offerings (IPOs). It aims to understand the performance characteristics of these IPOs and identify factors contributing to value creation.
What are the key themes explored in the thesis?
Key themes include value creation in private equity, performance of private equity-backed IPOs, empirical analysis of market returns, factors influencing IPO success, and the methodology used in private equity research.
What is the structure of the thesis?
The thesis is structured into several chapters, beginning with an introduction and a review of the concept of private equity. A literature review summarizes existing research. The core of the thesis consists of two empirical research chapters, each with its own objectives, methodology, data analysis, and conclusions. The thesis concludes with a summary, key takeaways, and suggestions for further research.
What are the main research objectives?
The research aims to empirically analyze the performance of private equity-backed IPOs and identify factors driving their success or failure. This involves analyzing market returns, buy-and-hold returns, abnormal returns, and wealth relatives.
What methodologies are used in the research?
The thesis employs empirical research methods, including the analysis of private equity-backed IPO data. Specific methods involve calculating buy-and-hold returns, abnormal returns, cumulative abnormal returns, and wealth relatives to assess the performance of these IPOs. Two distinct empirical studies are conducted using different data samples to provide a comprehensive understanding.
What types of data are analyzed?
The thesis analyzes data on private equity-backed IPOs. This includes information on market value, timing of IPOs, industry sector, offer size, country of origin, and time period. The data is used to calculate various performance metrics such as buy-and-hold returns, abnormal returns, and wealth relatives.
What are the limitations of the research?
The thesis acknowledges limitations of the data and the methodologies employed. Specific limitations regarding data selection and the scope of analysis are discussed within the relevant chapters.
What are the key findings of the research?
The key findings are presented in the summary and conclusions of each empirical research chapter, as well as in the overall conclusion of the thesis. These findings relate to the performance characteristics of private equity-backed IPOs and the factors that influence their success.
What are the key takeaways from the thesis?
The key takeaways summarize the main findings and their implications for understanding value creation within the private equity sector and the performance of private equity-backed IPOs. These are highlighted in a dedicated section.
What are suggestions for further research?
The thesis concludes with suggestions for future research avenues, identifying areas where further investigation could extend or refine the findings presented.
What are the keywords associated with this thesis?
Keywords include Private Equity, Value Creation, Initial Public Offerings (IPOs), Empirical Analysis, Market Performance, Investment Strategies, Portfolio Companies, Abnormal Returns, Buy-and-Hold Returns, Wealth Relative, and Industry Sector Analysis.
- Quote paper
- MSc Kevin Elsäßer (Author), 2016, Value Creation of Private Equity, Munich, GRIN Verlag, https://www.grin.com/document/385844
