The Operating Impact of Buyouts in Sweden: -A Study of Value Creation

Abstract: We analyze the magnitude and determinants of private equity sponsored buyouts’ impact on the operating profitability in Swedish buyout companies exited between 1998 and H1 2006. Whereas previous empirical studies have primarily been biased towards reverse LBOs, this paper analyzes buyouts irrespective of exit type. We perform an industry adjusted event study to detect abnormal operating performance and impact on the companies’ employees. Our analysis suggests, in line with previous empirical studies, that buyouts have a significant positive impact on the companies’ operating performance. We find no support that the increased value, on a company level, is created at the expense of the employees. Further, we find that measurable variables commonly associated with the private equity value creation process, such as wage-level reductions, labor force restructuring, leverage and management ownership, have a low explanatory value for the magnitude of the operating impact.