Value creation in SMEs: The role of PE

The purpose of this work is to analyze how private equity industry developed over the last decades and how it managed to create value in leveraged buyout transactions (LBO). Moreover, an important focus will be posed on European and Italian markets, describing the characteristics that distinguish these environments and describing the most relevant market portions: the Small and medium enterprises (SMEs), that barely account for the 80% of the business operating in Europe and also in Italy. A firs overview of PE industry, in general terms and referring to worldwide and US markets will thus introduce the argument and explain the main topics that will be further analyzed in the text. The wide literature review presented in the second chapter will be accompanied by the study of a real business case, thanks to the kindness of Eng. P., Busnardo and Dr. L., Lorenzon from Gradiente SGR Spa, that helped me providing data and support for the analysis for a greater outcome. The increasing importance of LBO transactions, and more in general of the PE industry over the years, despite the crash of junk bonds at the end of 1980s and the peaks and downturns of this market, stimulated authors and researchers to analyze how these funds create value in private transactions. Notwithstanding the widespread literature in this field, there is a lack of research regarding small and medium deals, except for few attempts, offering an overall view of the various mechanisms by which value can be created only in large and mega buyouts. Therefore, this work seeks to contribute to the emerging literature, focusing on SMEs deals that present several common characteristics when referred to the large buyout sector, as well as some different and specific factors that must be included when covering this topic. The approach adopted, based on previous researches, were to classify in a systematic way the levers, the measures, and the actions implemented by PE companies to create value in their targets, and the overall factors affecting LBOs differentiating the description for SMEs deals and large and mega deals. The goal of this work has thus become the possible understanding of specific value creation levers that may differ from size and deal type. After stating the key variables that describe Italian SMEs market, I offered an overview of the most cited and used levers known in the market, separating them for the business part that they can affect. I have hence finished my work trying to figure out how these levers are implemented in a concrete way, analyzing the documents that Gradiente SGR kindly provided. I have finally closed the circle by verifying what the literature remarked as being specific levers implemented relatively more in small and medium deals and compared it with my real business case.