What Do Private Equity Firms Say They Do?

Paul Gompers, Steven N. Kaplan, Vladimir Mukharlyamov

NBER Working Paper No. 21133
Issued in April 2015
NBER Program(s):Corporate Finance, Productivity, Innovation, and Entrepreneurship

We survey 79 private equity investors with combined AUM of over $750B about their practices in firm valuation, capital structure, governance, and value creation. Investors rely primarily on IRR and multiples to evaluate investments. Their LPs focus more on absolute performance. Capital structure choice is based equally on optimal trade-off and market timing considerations. PE investors anticipate adding value to portfolio companies, with a greater focus on increasing growth than on reducing costs. We also explore how the actions that PE managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.

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Document Object Identifier (DOI): 10.3386/w21133

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