Applying the Private Equity Model in Another Organizational Setting - A Study of Nordic Firms

Abstract: This paper examines a group of 16 Nordic public firms and finds that traditional Private Equity practices can be successfully applied in other organizations. These firms hold acquired subsidiaries in a highly decentralized manner and use typical Private Equity practices, such as operational engineering, to create value. In contrast to Private Equity however, the firms never divest and their legal structure is therefore more similar to the one of a traditional conglomerate. Through analyzing these firms' operational and shareholder return, this paper also finds significant outperformance. The analysis shows that the ROCE for these firms is 7 percentage points higher than the respective sector averages 2006-2017. Furthermore, the shareholder return has a positive monthly alpha of 0.6% for 2002-2017 as measured by the CAPM, and 1.7% as measured by a four-factor model. Collectively, this paper provides evidence for the possibility of applying value-creating PE strategies in new organizational settings, particularly in public firms.