TitleValue creation in small- and midsize private equity buy-outs
Publication Type03. Journal Papers
Year of Publication2016
AuthorsLahmann, A., Stranz W., & Velamuri V. K.
JournalQualitative Research in Financial Markets

Purpose: Private equity firms add value through various types of value creation measures in their portfolio firms to achieve abnormal returns. Established literature has shown that value creation measures differ across portfolio firms due to the different development stages of the firm and different buy-out types. Despite the fact that the majority of deals belongs to the small and mid-size segment, prior studies mostly analyzed large private equity buy-outs or mixed samples. Hence, specific levers of value generation in small and mid-size private equity deals are not yet well understood. 

Design/methodology/approach: To explore value generation measures in small and mid-size buy-outs a single case study format was applied studying the carve-out of QUNDIS from Siemens Building Technologies by CAPCELLENCE as an exceptional successfully private equity deal within this segment.

Findings: The analysis shows that operational and governance improvements are common value creation measures in all buy-outs. The results suggest a lower leverage for smaller private equity deals indicating that financial engineering is less important. Furthermore, in small and mid-size deals the strategic focus is growth contrary to downsizing and refocusing in large buy-outs.

Research limitations: Results of a single case study should be generalized cautiously since they are perceived as less robust compared to empirical methods or multiple case studies. However, this method is appropriate for explorative studies.

Originality/value: The paper is original in exploring certain value creation measures applied by private equity firms in their portfolio companies in the small and mid-size segment.