The Performance of Private Equity-backed IPOs and the Effect of M&A-activity - A European Study
(2011) FEKP90 20111Department 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)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/1979912
- author
- Johansson, Linus
- supervisor
- organization
- course
- FEKP90 20111
- year
- 2011
- 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 00:00:00
- 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}}, 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}}, }