The report, conducted by Cass Business School, revealed that private equity-backed firms outperformed their peers by more than 9 per cent one year after their initial public offering (IPO).
The research – which covers the period from January 1995 to December 2006 – also showed that private equity-backed businesses outperformed the FTSE ALL Share Index by 20 per cent over the same period
The report was commissioned jointly by the British Private Equity and Venture Capital Association (BVCA) and the London Stock Exchange (LSE).
BVCA’s chief executive Simon Walker claimed the report proves that private equity is beneficial to businesses by growing their value.
The findings showed that a typical venture capital-backed IPO spends up to five times more on R&D as their non private equity-backed counterparts. In addition, private equity-backed IPOs spend twice as much on capital expenditure in relation to total assets as non private equity-backed companies.
Walker said: “The figures on spending on R&D and capital investment underline the big contribution that private equity and venture capital make to creating both businesses and an economy that are more innovative.”
Nick Langford, head of UK business development for equity primary markets at the LSE, commented: “These findings underline the importance of the complementary relationship between private equity and venture capital and our markets.
“In particular, the success of AIM has provided a choice of exit routes catering to companies of different sizes and sectors and at different stages in their development,” he said.
The new research may do little to cheer up AIM investors and the LSE, as the value of funds raised on AIM dropped by more than 60 per cent in the first quarter of 2008 compared with the same period the year before.
According to Grant Thornton Corporate Finance the largest drop was seen in the value of primary issues, suffering a 70 per cent fall on the previous year. However, there was still more than £1.13 billion raised on AIM during what Grant Thornton’s capital markets director Philip Secrett described as: “One of the most challenging backdrops for the market since its inception.”
