How private investors develop their portfolio companies

Commercial private equity as an investment industry have quickly grown since its formation in the late 80’s, and now account for a significant part of the investments made both globally and in Sweden. In 2014 the Swedish commercial private equity companies had a combined turnover of 311 billion SEK, accounting for around 9 % of Sweden’s GNP. The sector has been studied extensively by the investment industry and scholars alike due to its extraordinary growth rate. Despite this fact, very little research has been made on the private investment sector that invests in private equity. Why even fewer studies have been made in an attempt to investigate the similarities or differences between the two. Due to this research gap, this thesis’ purpose is to shed some light on this relatively unstudied area, in an attempt to understand how private investors act when developing their portfolio companies through active ownership. This is done by studying one private investment company and the development initiated by them in four of their portfolio companies. Specifically, during the five first years after having acquired the companies. This multiple case study was performed using a combination of semistructured interviews, observations and archive analysis, with access to board material and strategical documents. Due to the confidential nature of such documents, the studied companies have been masked. The main findings of this study is a 5-step development process, that was compiled based on the actions initiated by the investment company in its four portfolio companies. This process first focuses on the strengthening of the organization, senior management and the core activities of the company. Thereafter the focus shifts toward the more strategically important issues, as well as increasing the efficiency for the the most profitability-critical areas of the company. This is to be done gradually with a prioritization focusing not on immediate profits, but on building a stable company that will thrive in the long-run. This process needs to be flexible, where the developers needs to adapt the process for the company that is to be developed. The development process can be used as a guideline when developing a company though require competent business developers that can identify the right actions needed for each improvement area. Not all companies have access to such competence within the company, nevertheless, it can be obtained through recruiting external members to the board of directors. Where one of the final findings of this report is the need to have the right composition in the board, which is crucial when developing a company as an active owner.