The transformation of private equity : Value Creation in the second wave of private equity

Sammanfattning: Purpose: The aim of this thesis is to provide evidence to what actions private equity owners take to enhance its portfolio firm’s value creation. It also shines light on how these actions are carried out, as well as the underlying reasons for them. Research question: What actions are taken by private equity owners in order to create value in their portfolio firms? Theoretical framework: The theoretical framework for this thesis is based on Kaplan & Strömberg’s (2009) categorization of actions actuated by the new ownership into financial-, governance-, and operational engineering. This theoretical platform will act as the foundation for the analysis of what changes that follows a leveraged buyout and how they are connected to the portfolio firm’s value creation. Research methodology: The thesis adopts a multiple case study design based on a mixture of quantitative- and qualitative methods. Conclusions: The thesis provide indications that the way private equity ownership creates value for its portfolio firms has changed from being a result of primarily financial engineering to being an outcome of governance- and operational engineering. Even if there still is evidence of that financial engineering is a requirement for the private equity firm, arguments can be made that the value that is added by the leveraged buyout indirectly derives from governance engineering and directly from operational engineering. The changes with highest influence on value creation are improvements of the portfolio firm’s capital efficiency and strategy.