Understanding the Effectiveness of Value Creation Strategies Used in Private Equity
Open Access
- Author:
- Sachar, Parth
- Area of Honors:
- Finance
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Samuel Burton Bonsall, IV, Thesis Supervisor
Brian Spangler Davis, Thesis Honors Advisor - Keywords:
- Private Equity
Value Creation
Operations
Leveraged Buyouts - Abstract:
- The purpose of this thesis is to get a better understanding of the effectiveness of value creation strategies private equity firms use in their respective portfolio companies during the investment hold period. Private equity in general is not as transparent of an asset class compared to other investing strategies, thus the broader investing community often does not know how companies benefit from partnering with a private equity firm. The paper therefore starts with a comprehensive introduction of how the private equity industry started in the early 1900s with J.P. Morgan purchasing Carnegie Steel Co. and since evolved into a popular asset class among institutional investors. Moreover, the thesis dives deeper into specific value creation levers firms use, incorporating insights from an operating partner at a leading middle-market private equity firm in the United States. Data presented in this paper provided mixed results regarding private equity’s effect on portfolio company performance a few years post-IPO, however the paper explores many tangible and intangible improvements private equity firms implement that may not provide immediate financial success, but long-term viability. Henry Kravis, Co-Chairman, and Co-CEO of KKR once said that private equity is so much more than its literal definition and that it always has been about building value over the long-term. This paper takes a closer look at exactly how that unfolds.