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The Performance of Private Equity-backed IPOs and the Effect of M&A-activity - A European Study

Johansson, Linus (2011) FEKP90 20111
Department of Business Administration
Abstract
PURPOSE
The purpose of this paper is to investigate how private equity backed IPOs perform once they go public. That is, to investigate whether or not these private equity firms have created highly competitive, high performance portfolio companies and to see if the portfolio companies are able to retain those qualities even after going public. These results are then to be compared with previous research done on the general IPO and its short- and long-term performance. It also sets out to measure what effect M&A-activity during the fund holding period may have on the fund companies after being exited onto the public market. METHODOLOGY
The performance of the private equity-backed IPOs has been measured as the abnormal return using two... (More)
PURPOSE
The purpose of this paper is to investigate how private equity backed IPOs perform once they go public. That is, to investigate whether or not these private equity firms have created highly competitive, high performance portfolio companies and to see if the portfolio companies are able to retain those qualities even after going public. These results are then to be compared with previous research done on the general IPO and its short- and long-term performance. It also sets out to measure what effect M&A-activity during the fund holding period may have on the fund companies after being exited onto the public market. METHODOLOGY
The performance of the private equity-backed IPOs has been measured as the abnormal return using two methods, cumulative abnormal returns and buy-and-hold abnormal returns. Two types of benchmarks have been used, S&P Europe 350 as well as an industry-specific version of that index. LITERATURE REVIEW
Theories used in this study are based partially on previous research on the private equity industry as well as general IPO theory, such as long-term underperformance and the “hot issue” anomaly. Some M&A-theory has also been used to explain the effects of M&Aactivity, with regards to e.g. indigestion. EMPIRICAL FOUNDATION
This quantitative study is based on a raw sample of 318 private equity-backed IPOs in Europe during the period 1994 2007. These IPOs outperformed both its industry peers as well as the market with 18.02% and 14.75%, respectively, on a three-year basis. CONCLUSIONS
Private equity-backed IPOs perform abnormal returns, both shortand long-term. This goes against previous research on the general IPO, which outperforms the market short-term and underperforms long-term. However, it is in line with previous research on reversed LBOs. (Less)
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author
Johansson, Linus
supervisor
organization
course
FEKP90 20111
year
type
H1 - Master's Degree (One Year)
subject
keywords
management, Företagsledning, Management of enterprises, M&A, Private Equity, Performance, BHAR, IPO
language
Swedish
id
1979912
date added to LUP
2011-05-24
date last changed
2012-11-13 11:20:16
@misc{1979912,
  abstract     = {PURPOSE
The purpose of this paper is to investigate how private equity backed IPOs perform once they go public. That is, to investigate whether or not these private equity firms have created highly competitive, high performance portfolio companies and to see if the portfolio companies are able to retain those qualities even after going public. These results are then to be compared with previous research done on the general IPO and its short- and long-term performance. It also sets out to measure what effect M&A-activity during the fund holding period may have on the fund companies after being exited onto the public market. METHODOLOGY
The performance of the private equity-backed IPOs has been measured as the abnormal return using two methods, cumulative abnormal returns and buy-and-hold abnormal returns. Two types of benchmarks have been used, S&P Europe 350 as well as an industry-specific version of that index. LITERATURE REVIEW
Theories used in this study are based partially on previous research on the private equity industry as well as general IPO theory, such as long-term underperformance and the “hot issue” anomaly. Some M&A-theory has also been used to explain the effects of M&Aactivity, with regards to e.g. indigestion. EMPIRICAL FOUNDATION
This quantitative study is based on a raw sample of 318 private equity-backed IPOs in Europe during the period 1994 2007. These IPOs outperformed both its industry peers as well as the market with 18.02% and 14.75%, respectively, on a three-year basis. CONCLUSIONS
Private equity-backed IPOs perform abnormal returns, both shortand long-term. This goes against previous research on the general IPO, which outperforms the market short-term and underperforms long-term. However, it is in line with previous research on reversed LBOs.},
  author       = {Johansson, Linus},
  keyword      = {management,Företagsledning,Management of enterprises,M&A,Private Equity,Performance,BHAR,IPO},
  language     = {swe},
  note         = {Student Paper},
  title        = {The Performance of Private Equity-backed IPOs and the Effect of M&A-activity - A European Study},
  year         = {2011},
}