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Private Equity Investments and Value Creation in Small and Medium-Sized Enterprises

In: Modern Finance and Risk Management Festschrift in Honour of Hermann Locarek-Junge

Author

Listed:
  • Benjamin Hammer
  • Nils Härtel
  • Suleiman Naiem
  • Bernhard Schwetzler

Abstract

This chapter examines the enterprise value growth of private equity (PE)-backed buyouts in small and medium-sized enterprises (SMEs). Using a comprehensive sample of PE buyouts from 1997 to 2016 in 59 countries, we find that enterprise value growth rates are significantly higher if the portfolio firm is a small or medium-sized enterprise prior to the buyout. These results also hold for subsequent buyout rounds, i.e., the enterprise value growth of both the primary and secondary buyout is higher if the portfolio firm is a SME prior to the initial buyout. Moreover, we show that good access to finance, management buyouts, and SME investments by large funds have a negative effect on SMEs’ enterprise value growth, whereas a PE firm’s venture capital focus reinforces the positive enterprise value growth of SME portfolio firms. Our results are robust to different tests designed to mitigate selection concerns.

Suggested Citation

  • Benjamin Hammer & Nils Härtel & Suleiman Naiem & Bernhard Schwetzler, 2022. "Private Equity Investments and Value Creation in Small and Medium-Sized Enterprises," World Scientific Book Chapters, in: Tony Klein & Sven Loßagk & Mario Straßberger & Thomas Walther (ed.), Modern Finance and Risk Management Festschrift in Honour of Hermann Locarek-Junge, chapter 7, pages 137-170, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781800611917_0007
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