Value creation analysis for private equity funds in Norway 2022

The total value creation from companies in the portfolios of Norwegian PE funds was NOK 92 billion in 2021.² This corresponds to approximately 2.9 percent of the value creation in the Norwegian mainland economy.³ Consistently, the growth in value creation has been higher than employment, which suggests a positive productivity development.

Overall, the portfolio companies had a value creation growth of 20.8 percent from 2021 to 2022. By comparison, the average annual value creation growth was around 12 percent in the period 2011-2021. An important reason of the strong growth was likely that society, for the first time since the start of the coronavirus pandemic, was open throughout the entire year of 2022. Another key driver was the high petroleum prices, which led to a sharp increase in value creation in the petroleum industry, including the supplier industry.

Petroleum, ICT and industrial services dominate PE funds’ portfolios in Norway. The figure to the below shows value creation by industry in 2012 and 2022, respectively.

The industry that stands out as the growth engine is ICT, with almost a quadrupling in value creation since 2012. The ICT industry is a major contributor to value creation in private equity funds' portfolio companies and also includes individual companies that have experienced enormous growth. Portfolio companies within other sectors also stand out as those with the highest relative growth during the period, illustrating the diversity in the portfolios. Furthermore, portfolio companies within consumer goods, the food industry, and construction have also had strong percentage growth during the period. In addition, companies within renewable energy have seen a doubling in value creation. There are also several companies that have traditionally operated within the petroleum industry that have made a significant shift towards renewable energy, suggesting that the growth here is underestimated.

The variation in development indicates that there is significant risk associated with the investments made. At the same time, it is important to point out that value creation does not directly indicate the profitability of the company. Companies can indeed have high value creation but low profitability. Additionally, this presentation does not take into account the timing of when the private equity fund invested in the company, or if parts of the company have been sold. This would then result in reduced value creation because the company's operations are smaller.