Does the Market Remember? How Underperforming IPOs of Portfolio Companies Impact Future Exit Options of Private Equity Funds

Sammanfattning: The unprecedented rise in private equity as an asset class has drawn the attention of scholars, practitioners and the general public alike. Notwithstanding, the determinants of the exit route, a crucial part of the value creation of private equity funds, remains partly unanswered. With this thesis, we intend to shed light on how underperforming IPOs of private equity portfolio companies impact subsequent exit options of the respective private equity fund. We analyse a sample of 4,041 private equity exits from January 1999 to September 2019 for companies headquartered in the USA, of which 626 are IPOs. Using multivariate regressions, we examine the influence of IPOs, that significantly underperform their respective industry index, on the private equity fund's future probability to exit portfolio companies via an IPO. With our tests, we can confirm prior research on exit determinants, i.e. market conditions and company characteristics. However, our analysis suggests that there is no significant impact of underperforming IPOs of portfolio companies on future exits of the respective selling private equity fund.