Real options in private equity firms

Real options existing in private equity firms have not been extensively studied previously. The objective of this study is to provide opening research on the subject as only a few relevant studies have been made before. The aim is to recognize different real options that private equity firms have in their organizations, funds, and their portfolio companies. In addition to recognizing these real options, the value of these real options is discussed. Also, this research discusses how real options are used in private equity firms in practice. \n \nBroad introductions to both real options and private equity are presented to understand how real options work and what types of them may exist in private equity firms. The research process of finding and recognizing real options in private equity firms is based on the state-of-the-art literature review that further proved the gap in the academic literature for this subject. Five interviews provided an empirical viewpoint for the study. In the interviews the practical use of real options, existence of previously recognized real options, and new real options existing in private equity firms were discussed and found. \n \nThe findings of this research suggest that the use of real options seem not to be used in practice in private equity firms. Even when talking about things related to real options, the actual term is not often used. In this study, a total of 29 different real options were recognized, of which 18 were not previously found in the academic literature. Lastly, the demonstrative examples show that these real options are valuable for private equity firms.