Private Equity and Capital Expenditures: What Happens After the IPO?

Sammanfattning: Using a sample of 1023 Initial Public Offerings (IPOs) in Europe between 2007 to 2017, we analyse how capital expenditures (capex) change following an IPO for Private Equity backed (PE-backed) IPOs compared to other IPOs. We find that PE-backed IPOs experience significantly more positive change in capex from the third year and forward compared to other IPOs, and no significant difference the first two years. For the capex to sales ratio, we only observe this significant result in the third year. The motive for analysing this is the criticism PE-firms have received in the media, claiming that they "flatter the books" before an IPO. The result to some extent supports the criticism, but we cannot prove causally that the results originate from "flattering of the books", as the effect could be a result from other factors. This paper is relevant for both investors considering participating in PE-backed offerings, as the projected capex levels are important in the firm valuation, and for the further discussion about the governance of PE-backed firms.