Value creation in SME private equity buy-outs

Abstract

PurposeThe purpose of this paper is to analyze specific levers of value creation in small and mid-size private equity deals. Private equity firms add value through various types of value creation measures in their portfolio firms to achieve abnormal returns. Established literature has shown that value creation measures differ across portfolio firms due to the different development stages of the firm and different buy-out types. Despite the fact that the majority of deals belongs to the small and mid-size segment, prior studies mostly analyzed large private equity buy-outs or mixed samples.Design/methodology/approachTo explore value generation measures in small and mid-size buy-outs, a single case study format was applied studying the carve-out of QUNDIS from Siemens Building Technologie by CAPCELLENCE as an exceptional successfully private equity deal within this segment.FindingsThe analysis shows that operational and governance improvements are common value creation measures in all buy-outs. The results suggest a lower leverage for smaller private equity deals indicating that financial engineering is less important. Furthermore, in small and mid-size deals, the strategic focus is growth contrary to downsizing and refocusing in large buy-outs.Research limitations/implicationsResults of a single case study should be generalized cautiously, as they are perceived as less robust compared to empirical methods or multiple case studies. However, this method is appropriate for explorative studies.Originality/valueThe paper is original in exploring certain value creation measures applied by private equity firms in their portfolio companies in the small and mid-size segment.