Value creation analysis for private equity funds in Norway 2021

The lifetime of PE funds is limited, and they normally take ownership in companies for a defined period of 5-15 years. This means that the size of the portfolio owned by PE funds will vary over time. In periods when many investments have been made, the portfolio will grow significantly, and in periods with many exits, it will be reduced. In this analysis, we take this source of variation into account by following the same portfolio companies over time. In other words, from year to year some portfolio companies will be added, while some disappears from the portfolio we analyse.

In the figure below, however, we have looked at the complete portfolio from earlier years against the current portfolio, measured in number of employees and value creation. The number of employees in the portfolio companies was 69,000 in 2008 and has been relatively stable since then. From 2019 to 2020 a lot of portfolio companies were sold and resulted in a decrease in the overall employment from 77,000 to 73,000. In 2021 there has been considerable growth in employment, both organic and through new investments. This has resulted in increased employment in the portfolio which grew to 86,100.

After a decrease in 2020 the value creation of the 2021-portfolio increased considerably in 2021. The increase coincides with the strong growth in employment. The increase in value creation is both inorganic, through new companies receiving investments from funds. In addition, the existing portfolio companies experienced growth organically. The figure below shows historical development in value creation in the portfolio. It shows a relatively steady increase from 2008 until 2012 and thereafter a slight decline for each of the following four years. The decline relates to lower activity for offshore service suppliers. From 2016 to 2019 value creation grew considerably, from NOK 35 billion to 64 billion. From 2019 to 2020 value creation fell as a result of many companies going out of the portfolio, in combination to a moderate decrease in value creation of portfolio companies.