The Operating Performance of Private Equity Exits -The search for a long-term private equity effect

Abstract: This thesis assesses the existence of a post-exit private equity effect on operating performance. Previous studies have mostly been focused on U.S. based companies exited through reversed leveraged buyouts which could cause selection bias. By studying the Swedish market of private equity exits, we mitigate this bias by studying exits regardless of the new ownership form. Our dataset consists of 40 exits occurring between 1996 and the first half of 2006 and we measure the post-exit development up to six years after the exit. We find that previously private equity owned companies continue to significantly outperform their competitors up to three years post exit. Subsequently, the difference in performance starts to decrease and is almost completely gone six years after the exit. We also find that the post-exit ownership has no significant effect on the post-exit operating performance. Our findings are in line with some previous research conducted on U.S. data, which also finds the fading pattern of the post-exit private equity effect. However, our findings are contrary to a similar previous study conducted on Swedish data. We explain this mainly through the richer dataset with more included measures, companies and a longer event window, as well as the fact that we control for post-exit ownership. The cause of the post-exit private equity effect is argued to be related to the efficiency measures and governance structure applied by the previous private equity owner.