The Relationship Between Private Equity Returns, Duration and Firm Size & Skill

Abstract

This paper investigates the relationship between private equity transaction returns, durations, firm motivations and firm size/skill to suggest that the existing conclusion to the debate on the nature of private equity - ‘the heterogeneous view’ - is limited, shallow and incomplete. The paper argues that a private equity firm’s ‘skill’ is the most important factor that determines its success and suggests that private equity’s nature is one of short-term ‘shock therapy’; but that the majority of private equity transactions are prevented from embodying this state to the limitations of their sponsoring private equity firm’s skill in achieving high transaction returns and short transaction durations.A three-pronged approach is taken to provide evidence for this theory: examining secondary literature on the private equity industry and corporate governance to develop the context of the research question; analysing empirical evidence on a global database of 11,704 private equity transactions from 1969-2012 to investigate it; and analysing case-study evidence to provide supplementary information on specific aspects of the study. Practical recommendations for the Oxford Private Equity Institute, private equity firms and corporations are proposed along with further research possibilities.