Dressed for Long-Term Success - Evidence from Sweden Regarding the Long-Term Value Creation of Private Equity Sponsors

Sammanfattning: The long-term value-creating ability of Private Equity (PE) sponsors has received a lot of attention during recent years and a large number of studies examine this by evaluating the post-IPO stock performance of previously PE-sponsored firms. At the same time, many studies analyse what value-creating initiatives that PE sponsors are implementing in their portfolio firms during the holding period, in order to maximize their payoff at the time of their exit. However, there is currently a lack of literature attempting to connect these areas by examining the relationship between what PE sponsors do during their holding periods and the performance of the target firm after the sponsors have exited their position. This study aims to fill this void by examining what value-creating strategies implemented by PE sponsors that have an impact on the post-IPO stock performance of portfolio firms. By considering Swedish PE buyouts between 1996-2019, for which the sponsor subsequently exits via an IPO, this study finds that PE-sponsored firms increase both the productivity of the workforce, and the overall profitability, relatively more than their peers during their holding periods. Additionally, it is found that the workforce of PE-sponsored firms grows slower than the workforce of non-PE-sponsored firms, while the wages in the target firm are positively influenced by the buyout. This study further suggests that overall, the operational structures imposed by the PE sponsors generate lasting value in the form of superior yearly excess returns during the one- and two-year period following their IPO, when compared to an appropriate control group. However, this study cannot with certainty confirm what effect the specific value-creating initiatives identified in the considered sample have on the post-IPO returns.