Value creation analysis for private equity funds in Norway 2021

Today’s portfolio companies of PE funds employ approximately 86 100 persons.⁴ Most of these employees are found in the buyout segment, because this segment consists of large, established companies. The venture and seed segments comprise early-stage companies that focus on technology development and the first step in the commercialization process, and therefore employment is naturally significantly lower in these segments.

In 2021 the portfolio companies employed 86 100 workers. Among these, nine out of ten are in the buyout segment. Despite being more companies in the seed stage, the venture companies employ 50 percent more people. The figure below shows the distribution between the different phases.

The portfolio companies’ employees are distributed across 449 companies in total. Most of these are in the seed stage, with 171 companies. The buyout segment follows right behind, with 168 companies. In the venture segment we find 110 portfolio companies. Since 2016 there has been a strong growth in the number of seed investments, primarily by publicly managed seed funds. In addition, there has been a strong growth in the number of portfolio companies in the buyout segment, which outnumbers the venture segment with a margin now.

There has been steady, solid growth in employment among the current portfolio companies over the last 20 years. At the start of the millennium, there was almost 17,000 employees in the portfolio companies – a number that has grown to 86,100 by the end of 2021. That means that the number of jobs has more than quadrupled over the last two decades. This corresponds to a yearly employment growth of 9,6 percent on average throughout the period. During the last decade alone, more than 50,000 jobs have been created in the portfolio companies. This illustrates how successful one has been at expanding the enterprises and creating jobs in companies owned by PE funds. During the last year, growth in employment has been high, partially driven by growth within ICT and industrial services.

The pandemic has caused a lot of temporary layoffs and uncertainty in the labour market. Despite this, the employment of private equity portfolio companies has continued to grow. In 2021 employment grew by six percent, while the growth was eight percent in 2020. In comparison, employment grew by eight percent per year in the three years before the pandemic, as shown in the figure below. This illustrates how portfolio companies has the ability to grow and scale in troubled times.

In the employment statistics, ICT and consumer goods dominate. ICT and consumer goods together stood for almost 50 percent of total employment among the Norwegian portfolio companies. We also find high levels of employment within petroleum and industrial goods and services. Even though employment in petroleum and industrials is almost at the same level, value creation is more than twice as high within petroleum. After petroleum and finance, ICT companies have the highest value creation per employee. This reflects relatively high value creation in emerging ICT companies, combined with high levels of employment.

During the last decade, employment in portfolio companies within renewable energy and consumer has only grown moderately, compared to other sectors. Portfolio companies within life science employ 3,800 persons, despite a modest contribution to value creation. The low level of value creation compared to the number of employees reflects the large investments, uncertainty, and the long commercialization process within pharmaceuticals, as well as high employment in the health care sector. Companies within the finance industry have a meagre contribution to employment, despite relatively high value creation.

Portfolio companies grow both through organic growth and through strategic acquisitions and restructuring. In 2021, 59 percent of employment growth of 6 percent was organic. In other words, the portfolio had an organic growth of about 3.5 percent, whereas 2.5 percent of employment growth was due to strategic mergers and acquisitions. In 2020, the share of organic growth was at the same level, whereas in 2019 the share of organic growth was 65 percent.