Working Papers
Abstract:
We present the first large-sample analysis of growth equity (GE) investment using a sample of 1,512 UK private companies over 2000-2021 and compare the post-investment performance of investee firms to matched companies that did not receive GE investment. The United Kingdom is an ideal empirical setting for this study because it is the second largest private capital market and financial information is available for all UK limited companies. GE target companies are younger, smaller, more intangible-asset intensive and more rapidly growing than the general pool of UK private companies. Target firms then dramatically outperform a matched sample of non-GE backed private companies after investment with respect to sales and asset growth, employment, and earnings growth. Much of this extra expansion is financed by significantly faster growth in leverage than for non-GE backed firms. This higher leverage causes GE backed companies to encounter financial distress more frequently than matching firms, but treated firms can navigate distress—including bankruptcy—relatively more successfully than matching distressed firms. We also compare GE-backed companies to British private companies receiving venture capital or private equity (buyout) investment.
Keywords: Private equity, Growth equity, Buyouts, Firm performance, Firm survival.
JEL Classification: F140, G01, G23, G28, G32, G34.
Presentations: Corporate Finance Days 2024 (Scheduled), PERC Oxford (Scheduled), EFiC 2024 (Scheduled), 2024 Financial Management Association European Conference (Scheduled), AFS Annual Conference (Scheduled), 8th Entrepreneurial Finance (ENTFIN Munich) (Scheduled), ENTFIN Doctoral Colloquium (Scheduled), FEBS Paris (Scheduled), Academy of International Business (Scheduled), Université Paris Dauphine (2024), University of Oklahoma (2023).
Featured In: Financial Times.
Munteanu, Alina. Different Commercial Databases, Different Growth Equity Narratives?.
Abstract:
This study provides a first of its kind cross-database analysis of growth equity (GE), a minimally researched private equity asset class. I find that reported GE absolute performance metrics are comparable to those previously documented for buyout funds, in contradiction to the late-stage venture capital (VC) – growth equity similarity hypothesis. Also, I show that GE funds’ returns have been, on average, in excess of initial capital committed by limited partners. As to relative performance, GE funds appear to have consistently outperformed public equities over the last twenty-two years. In line with existing literature, the results confirm that internal rates of return bear little explanatory power of variation in public market equivalents. Lastly, I show significant patterns of variation across well-established commercial data providers, particularly at the transaction level. The disparities extend to fund-level data and include sample sizes, geographic distribution, and other fundamental characteristics. Pairwise correlations combined with rank sum tests refute any possibility of similarity across databases.
Keywords: Private Equity; Growth Equity; Venture Capital; Fund Performance.
JEL Classification: G23, G24, G29.
Presentations: University of Oklahoma (2023).