Value Creation Drivers in Private Equity Buyouts: Empirical Evidence from Europe
The Journal of Private Equity, Spring 2010
Posted: 1 Nov 2009 Last revised: 2 Mar 2010
Date Written: January 12, 2010
Most of the existing research on value creation drivers in private equity buyouts is restricted to the US and the UK, whereas continental European countries are not included. In addition, most of the generally applied methods for measuring the importance of different value creation drivers do not comprehensively account for all relevant aspects, such as a clear separation between operating and financial risk. This article tries to fill these research gaps and analyzes value creation drivers in European (Continental Europe and the UK) buyouts from the perspective of private equity sponsors using a unique dataset of 206 realized transactions. Our methodology allows us to separate the value contribution of leverage on private equity sponsors’ returns from operational improvements and market effects. The results of the empirical analysis show that one third of the private equity sponsors’ returns can be attributed to the use of leverage, whereas two thirds are due to operational and market effects. Moreover, value creation drivers are analyzed with respect to different time periods, transaction size and general market conditions. Our results provide important insights into the private equity business model in Europe.
Keywords: private equity, leveraged buyouts (LBOs), value creation
JEL Classification: G24, G34
Suggested Citation: Suggested Citation