Determinants of the performance of private equity backed SMEs: an empirical analysis at the European level

Abstract

This paper extends previous research to investigate the determinants of the operating performance of small and medium-sized enterprises (SMEs) backed by private equity (PE). The paper is based on a sample of 208 unique private equity-backed firms operating at the European level. A multivariate linear regression model is estimated, in which the private equity-backed firms’ operating performance—as measured by ROA, Revenues/Total Assets, and EBIT/Total Assets—is a function of a variety of factors. These include whether or not the firm is an SME, the presence of family shareholders, and various features specific to the expertise of the private equity investor, as well as the industry, country, and years covered. The analysis is limited to private equity deals that occurred in the European Region between 2005 and 2017. According to the results, the effectiveness of private equity in improving the operating performance of target companies in the three years post-investment is impacted by whether or not the backed firm is an SME. This research paper aims to further existing publications on the link between the involvement of the private equity investor and the status of the backed firm as an SME.

Keywords:

• Private equity
• SMEs
• operating performance determinants
• multivariate linear regression model
• financial crisis and covid-19 impacts

JEL CLASSIFICATIONS:

• G32
• L25
• M13

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Orbis Bureau van Dijk.

2 This criterion of family firm is consistent with the definition provided by Holderness and Sheehan (1988).

3 https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/getting-tangible-about-intangibles-the-future-of-growth-and-productivity.