Common Traits and Performance of Private Equity Owned Firms: A Nordic Perspective

Abstract

Article 1: By comparing each of 102 Scandinavian non-listed buyout targets with reference groups consisting of 20 European firms matched on industry and total asset size, we find strong evidence of a relationship between operating characteristics and the likelihood of being acquired by a buyout fund. The results are inconsistent with both the agency cost and the underperformance arguments explored in earlier the literature that is mainly focused on listed targets. Our analysis suggests that superior growth and revenue generation characterize Scandinavian non-listed private equity target companies. At the same time they seem to be struggling to control costs and optimize their capital structure, causing unstable medium-term performance. A questionnaire-based survey of Scandinavian PE fund managers supports these findings, but also stresses the importance of long-term prospects for potential target companiesArticle II: By comparing the performance of 36 Norwegian companies owned by private equity funds with comparable listed firms, we find evidence of superior crisis management capabilities in the private equity owned firms. Multifaceted analyses of financial indicators suggest that the main drivers are the funds active ownership and their professionals ability to implement strategic changes and drive operational efficiency. The results also suggest that private equity owned firms are better suited than publicly listed peers to leverage their capital structures, despite the increased bankruptcy risk. We believe this ability mainly is due to the private equity owned firms superior profitability, their relative ease of adjusting strategy and capital to the changing circumstances, and the long-term relationships private equity funds have with banks.