Growth Equity Investment Patterns and Performance

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.

Authors

Paul Lavery, Adam Smith Business School, University of Glasgow
William L. Megginson, University of Oklahoma
Alina Munteanu, University of Oklahoma