Çağatay Bircan

Seminar

Summary
Date: 
March 23rd 2020

Time: 1.00 - 2.00pm Venue: Room 3.21, Old Building, LSE (map)
Speaker: Çağatay Bircan (EBRD)
Seminar Title: Value Creation in Private Equity

Abstract: We study how private equity (PE) firms generate returns for their investors, by using detailed confidential textual data to study their value creation plans and actions. We show that PE firms follow a rich variety of plans and manage to implement most of them. They actively monitor their investments and introduce new plans to create additional value or turn around deals that are not performing up to scratch. The number of initial value creation plans does not explain the variation in returns investors eventually receive. But the share of plans that a fund successfully implements is a strong and positive predictor of returns.  We also show that PE firms improve operational efficiency: productivity increases as PE-backed companies ramp up investment, employment, sales, and reduce their price markups, which allows them to gain substantial market shares. The majority of the operational improvements instigated by PE firms persist even after they fully exit their investments. Finally, we show that most of these operational changes help explain eventual returns.