Management control systems in private equity investments: case study of a Finnish private equity fund

摘要

Objective of the studyThis thesis examines how private equity investors employ management control systems in strategy implementation during their ownership of buyout targets. Private equity investments differ from industrial acquisitions in that they have a predefined lifespan, an intention and even a schedule to be sold further. Private equity funds also tend to have more complex governance structures. However, management control systems in private equity investing have gained scarce attention among academic research. Notably, there is a lack of longitudinal single case studies sensitive to actual context of private equity and its contingent factors. The research illustrates the lifespan of a cleantech fund and uses Simons' (1995) Levers of Control framework to analyze, how private equity investor implemented strategy into the target companies by using management control systems. Distinctive motivation behind this research is the expansion of scope from governance of a single buyout company to a wider private equity context. This scope is sensitive to factors that potentially influenced management control systems beyond the boundaries of a single target company.Method and frameworkThe research adopts a longitudinal, retrospective single case approach together with an exceptional method of systematic combining. Systematic combining differs from traditional linear approach by its non-linear, continuous back and forth integration of theory and empirical observations in order to match theory and reality. It is appropriate for research on subjects that have slight body of existing research. Expansion of research scope in aforementioned way raised the need to integrate additional and relevant theoretical insights into the framework. Consequently, literature reviews on private equity and management control systems were complemented with theoretical concepts that shed light on entrepreneurship, ownership and capabilities.FindingsThis research generated multiple findings and insights. Generally, management control systems supported alignment of the whole fund with the perceptions and wishes of the original investors. The examined fund management implemented management control systems and especially interactive controls in remarkably various ways for a growth business. The case demonstrates how management control systems were not designed and used in isolation from factors such as ownership, parent organization and capabilities. Parent company and its customers as potential investors were taken into account in early formulation of beliefs and boundary systems. Furthermore, the fund had a distinct investment "philosophy" with indirect implications for diagnostic and interactive control systems. Private equity buyout research also has a tendency of limiting scope to single organizations. Such scope limits realization of investor's potential. Notably, this exceptional case illustrates how private equity investor had a comprehensive entrepreneurial plan that defined exploration and orchestration of resources acquired through buyouts.