Value Creation in Private Equity, CEFS and Capital Dynamics Report 2010

Value Creation in Private Equity

By Prof. Dr. Dr. Ann-Kristin Achleitner, CEFS;
Dr. Katharina Lichtner and Dr. Christian Diller, Capital Dynamics

The last 18 months have been characterized by an unprecedented financial crisis. The subprime crisis has led to a change in the banking sector that has never been seen before. In particular, debt issuance has decreased substantially while leverage seemed to be available in abundance in early 2007, debt volumes have come down by two thirds since then.

These developments question the business model of private equity and raise crucial questions:

- To what extent is private equity value creation driven by operational improvements and what is the dependency on leverage?

-  How did value creation happen in the past?

- What is private equity value creation likely to look like in the next cycle?

To answer these questions, Capital Dynamics teamed up with Prof. Dr. Dr. Ann-Kristin Achleitner, Co-Director of the Center for Entrepreneurial and Financial Studies at the Technical University of Munich (CEFS), and her research team1 in a joint study to cover this topic. The study screened a comprehensive data set of private equity transactions for its value drivers, offering indepth insight into private equity value creation during the last 20 years. In addition, the methodological framework for calculating the value drivers was further improved.

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