4. The portfolio companies’ value creation
4.1. NOK 73 billion in value creation
The total value creation from companies in the portfolios of Norwegian PE funds was NOK 73 billion in 2021. Throughout the period 2001-2021, the growth in value creation has been higher than the growth in employment, which indicates a good development in productivity.
The start of 2021 was heavily influenced by shutdowns and disease control measures due to the pandemic. This affected several portfolio companies and reduced their activity. The following reopening of society later in 2021 caused the overall economic activity level to rise considerably. Some portfolio companies within the petroleum industry experienced a drop in value creation, especially service suppliers. In the other end you have food industry, ICT and consumer industry which experienced strong growth. Overall, the Norwegian portfolio companies have had an astonishing growth of 15 percent yearly since 2001. Today the value creation of these portfolio companies makes out 2.6 percent of value creation in Norwegian business and industry.
Figure 7: Value creation in Norwegian portfolio companies. 2001-2021, current prices. Source: Menon Economics
4.2. Development in value creation by industry
ICT, industrial services and consumer goods dominate PE funds’ portfolios in Norway. The figure to the below shows value creation by industry in 2011 and 2021, respectively.
Figure 8: Value creation by industry in 2011 and 2021. NOK billion. Source: Menon Economics
The industry that sticks out as the growth locomotive is ICT, with almost a four-fold increase in value creation since 2011. The ICT industry is a big contributor to value creation for PE funds’ portfolio companies with some companies experiencing enormous growth. Portfolio companies within the finance industry also stands out, as the industry with the largest relative growth during the period. Further, the construction industrial goods and services have experienced a strong percentage growth the last decade. In addition, value creation in the renewable industry portfolio have more than doubles during the period. Several companies which traditionally have operated within the petroleum industry have turned a significant part of their operations towards renewable energy. As a result, the growth in the industry is underestimated here.
The variation in development shows that PE funds’ investments often entail significant risk. In addition, it is important to point out that a negative development in value creation is not tantamount to a negative development in profitability. For example, this way of presenting the development does not consider at what time the PE funds took ownership, or whether parts of the company have been sold in the meantime. This will then result in reduced value creation because the company's operations are smaller.