Relationship Between Financial Structure and Performance (FSI)

Summary

• The AUB Observatory monitors Italian companies that exceed the revenue threshold of €20 million [p.2].p.2
• The initial study examined a population of 16.845 Italian companies with revenues exceeding €20 million at the start of 2018 [p.3].p.3
• The initial debt level analysis focused on the 2014-2018 period, when Italian GDP growth was consistently positive [p.4].p.4
• A target sample of 379 private equity deals involving 328 companies between 2007 and 2018 was analyzed [p.5].p.5
• The private equity transactions analyzed consisted of 185 majority deals and 194 minority deals [p.5].p.5

Key insights

1. Higher initial leverage shows a statistically significant negative correlation with company performance over the subsequent 5 years across all growth and profitability metrics [p.4].p.4
2. Even for companies starting with below-median leverage in 2014, an increase in debt levels yields a negative impact on overall corporate performance [p.5].p.5
3. The negative performance impact of increasing leverage is more pronounced in firms that start with higher baseline debt levels [p.5].p.5
4. The entry of a private equity fund has a positive impact on the growth rate of total fixed assets in target companies [p.6].p.6
5. The positive impact of private equity funds on target firm fixed asset growth diminishes as initial target debt levels increase [p.6].p.6
6. Companies with stronger financial structures achieve higher profitable growth in the medium-to-long term [p.7].p.7
7. Private equity funds amplify growth in target companies when investing primarily through equity rather than leverage [p.8].p.8