Exporting by Private Equity‐Backed Portfolio Companies

Abstract

AbstractPrivate equity (PE) funds typically invest in and acquire established companies (via buyout mechanisms) and implement value creation strategies that realize efficiency improvements and exploit entrepreneurial growth opportunities. This paper explores the relationships between PE backing of bought‐out companies and their post‐acquisition strategy to stimulate sales growth through exporting. Importantly, we explore the routes through which PE funds, as ‘active investors’, affect the acquired companies’ ability to enter and expand export markets. First, through providing access to financial resources, increasing capital and operational expenditure, to boost both efficiency and improve managerial processes; and second, by bringing expertise and relational capital via managerial change and board representation to their acquisitions. Using a panel dataset covering the period 1998–2013, involving 2.6 million company‐level observations of which around 10% are actively engaged in exporting, we find that PE‐backed firms are more likely to engage in exporting (export propensity) and be internationalized post‐buyout than a control sample and that the effect is larger than for listed companies. Moreover, in relation to export performance we find a positive export performance differential (export intensity) for PE‐backed buyouts.