Do Private Equity Owned Companies Outperform? - A Study on the Swedish Market

Abstract: In this paper, we first examine the private equity market in Sweden since its birth in the late 80s, and by gathering an extensive dataset of 368 transactions from 1988 to 2015, map how the industry has evolved over time. We conclude that not only has the number of companies held by private equity firms increased rapidly, but so has the breadth of industries targeted. To further understand the effect private equity has on the economy, we analyze the operating performance for a subset of 230 private equity owned companies acquired between 1999 and 2013, and find that they outperform companies in the same industry, especially regarding growth, but also in terms of improvements to the EBITDA margin. This is achieved at the same time as the number of employees and wages increase more than for comparable companies, in contrast to common arguments from critics of private equity. Moreover, by distinguishing between local and international private equity funds, we can see that the international funds' share of the market have increased rapidly, but we do not find any differences in terms of operating performance among companies held by local or international funds. Furthermore, we find that companies that previously were a subsidiary of a larger company within the same industry, have the most profitability improvements during private equity ownership, while companies acquired from private owners, have the least improvements. Finally, we find that companies that have improved the most during private equity ownership, tend to be sold to other private equity funds, rather than to other types of buyers.