Is Bigger Always Better? A Study of Value Creation in Private Equity

Abstract: This article investigates value creation in leveraged buyouts conducted in Scandinavia during the period between 1997 and 2012, with the emphasis on differences in such value creation dependent on target sizes. This is done by conducting an event study on 199 buyouts using accounting-based performance metrics. The results found indicate excess value creation of private equity portfolio companies in general, evidence prevailing irrespective of target size. More specifically, the authors find improvements in operational efficiency and changes in investment policies to be more prevalent within larger targets, while no such statistical differences can be inferred with respect to differences in growth. Numerous plausible explanations are presented, with the overarching picture indicating larger targets to be more conducive to value creation.