The Effect of Industry Specialisation and Secondary Buyouts on Value Creation in Nordic Private Equity

Sammanfattning: This thesis consists of two parts. Part 1 focuses on the potential benefits of industry specialisation within Nordic private equity (PE). Using a unique dataset of 259 transactions conducted by 77 different PE firms during the period 2008-2014 in the Nordics, I show that industry specialisation has an advantage in certain situations. An advantage to industry specialisation exists when it comes to margin improvements. Targets of industry specialised PE firms show higher post-buyout profitability improvements compared to non-specialised PE firms' targets. Furthermore, in certain demanding situations, when the target firm has low pre-buyout profitability, the advantage to industry specialisation is even stronger. Neither advantage, nor disadvantage, is found with regards to turnover growth. Part 2 is dedicated to investigating potential value creation differences between secondary buyouts (SBOs) and primary buyouts (PBOs) in the Nordics. Namely, differences in target firm operational performance improvements post-buyout, the amount of leverage used, and multiples paid. Operational performance improvements and changes in leverage are tested with the same sample as in Part 1. I find that target firms in SBOs generate significantly lower turnover growth post-buyout compared to PBOs. No significant differences for improvements in profitability and changes in leverage are found. Further, I show that SBOs are significantly more likely during favourable debt markets, i.e. when debt is cheap. A second sample is used for testing pricing differences. The sample consists of 329 deals, 250 PBOs and 79 SBOs, during the period 1998-2018 in the Nordics. No significant differences in multiples between the two types of deals.