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How do private equity investors create value: About the private equity exit study - EY - Global

How do private equity investors create value? (European Study)

About the private equity exit study

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The 2010 study provides a view into the performance and methods of private equity, based on the analysis of just over 375 of the largest European businesses PE has exited over the last six years.

Focusing on the largest businesses owned by private equity

To avoid performance bias, and to ensure a focus on the largest businesses owned by PE, exits were screened to capture those that had an enterprise value at entry of more than €150m. This criterion was also applied to our estimate of the current size of PE portfolios.

In total, we have identified 381 exits of businesses that met our criteria over the six years 2005-10. This independent study is built on public data and confidential, detailed interviews with former PE owners of the exited businesses.

The owners of these European-based businesses were not all European-based themselves; this is not a study on the performance of European-based PE investors, rather an analysis of the impact of PE on European businesses.

We assessed business performance for the duration of PE ownership i.e., from entry to exit, based on key performance measures, including change in enterprise value, profit (defined throughout this report as earnings before interest, tax, depreciation and amortization, or EBITDA) employment, productivity and valuation multiple.

To better measure aggregate economic impact, we used weighted averages. Overall, we have performance data for 271 businesses or 71% of the total population. Comparing mix by type of exit, deal size etc. there is no discernible bias in composition to the whole population.

Finally, in order to evaluate the performance of PE-owned businesses against comparable public companies, we have compiled data on public companies by country and sector over the same time period as the PE exits in our sample.

The data was then aggregated to compare PE performance to that of public companies. The ability to incorporate data obtained from top PE investors is an important feature of the study. Another is the scope and depth of our research, with a database of over 375 European PE exits.

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