Exporting provides significant opportunities for business growth and value creation and is often viewed as a first step on the path to internationalisation. Companies that export are generally not only more competitive at domestic and international level but strengthen their operational resiliency through diversification of markets. Empirical literature shows that more productive and innovative firms are more likely to enter foreign markets, and, exporting firms are more productive compared to non-exporters as they gain exposure to new sources of knowledge. However, becoming an exporter can be a complex task requiring financial resources, expertise, new market entry strategies and international networks.
As exports and economic growth are interconnected, private capital can play a vital role in investing in businesses to boost their export performance and supporting the expansion of established businesses or start-ups into foreign markets. This contributes to economic growth, innovation and the competitiveness of the economy as a whole.
The following papers present academic evidence on how private equity and venture capital affects export performance and internationalisation of their investee companies. Research shows that PE and VC-backed companies are more likely to begin exporting and tend to export at higher intensity compared to non-PE/VC-backed firms. During economic downturns, PE-backed firms demonstrated greater resilience in export activity, supported by better access to financial resources owing to business relationships of their owners. The studies also identify the active ownership model, which drives operational improvements and productivity gains and non-financial value-added contributions such as international expertise and strategic guidance as key routes through which PE/VC firms impact the portfolio companies’ ability to access export markets and boost their export activity beyond financial resources.
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Lavery at al. (2021) using a comprehensive data on UK PE-backed firms between 2004-2017 study the impact of PE buyouts on the export activity of portfolio companies relative to non-PE-backed firms. The authors document that following a private equity buyout, non-exporting target firms are more likely to start exporting (“export propensity”), while target firms are also more likely to boost their export value and export intensity in comparison to non-target firms. Furthermore, the paper shows that less productive PE-backed firms are more likely to improve their exporting performance following a buyout compared to control firms. One reason put forward for this, suggested by the authors, is that PE improves productivity at target firms, which then leads to higher export activity.
In a later study, Lavery at al. (2024) analyse the resilience of exporting under the PE ownership in crisis periods such as the global financial crisis (GFC) and the COVID-19 pandemic, relative to non-PE-backed peers. The authors find that the exporting behaviour of PE-backed companies during economic downturns is more resilient compared to that of matched peers. This resilience is evident in both aspects of exporting activity: an increase in export value (“export intensity”) and a higher probability of becoming an exporter (“export propensity”). When comparing both periods, the authors document, that the exporting behaviour of PE-backed companies was significantly more resilient to the effects of the GFC relative to a control group than to the effects of the COVID-19 pandemic. One potential explanation for this varying degree of impact is that during the pandemic access to financing for affected businesses was not restricted, due to economic stimulus measures, unlike during the GFC, when credit was severely constrained.
Wilson at al. (2022) employing a large sample of UK firms between 1998 and 2013 of which PE-backed companies constitute a subsample, report that PE has a positive impact on the propensity and intensity of exports for portfolio companies relative to non-PE-backed firms. The authors draw on the active ownership model of the PE industry, in which PE firm work closely with company leadership to drive operational and strategic improvements to create value. Furthermore, the authors find that improved export behaviour of PE-backed companies is positively associated with “board characteristics, expertise and diversity”.
Herrera-Echeverii at al. (2022) using a database of 22 OECD countries and 12 aggregated industries examine the impact of private equity and venture capital investments on export in cross-country setting. The results of the study show that PE has a positive effect on export performance and export market share by industry. However, the magnitude of this impact is more pronounced in industries with higher productivity, value-added, and infrastructure.
Turning to export performance and internationalisation of purely VC-backed companies, Lockett at al. (2008) in their pan-European study, find that VC involvement positively influences export intensity of the businesses they back. The authors argue that VC firms provide more than just financial resources to enhance export activity, highlighting governance and strategic support as significant drivers. They go on to differentiate between early-stage VC-backed firms, who benefit particularly from value-added activities such as international expertise and strategic advice from their investors, while for later-stage companies, monitoring resources appear to be most effective in enhancing export performance.
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Bibliography
Herrera-Echeverri, Hernan and Nandy, Debarshi K. and Fragua, Daniel, The role of private equity investments on exports: Evidence from OECD countries, Journal of Multinational Financial Management, Volume 65, 2022, Available at: https://doi.org/10.1016/j.mulfin.2022.100739
Lavery, Paul and Spaliara,Marina-Eliza and Görg, Holger, Private equity buyouts & firm exporting in crisis periods: Exploring a new channel, Journal of Corporate Finance, Volume 89, 2024, Available at: https://doi.org/10.1016/j.jcorpfin.2024.102686
Lavery, Paul and Serena, Jose-Maria and Spaliara, Marina-Eliza and Tsoukas, Serafeim, Private Equity Buyouts and Firm Exports: Evidence from UK Firms (August 10, 2021). BIS Working Papers No 961, Available at SSRN: https://ssrn.com/abstract=3841484
Lockett, Andy, Wright, M., Burrows, A., Scholes, L. and Paton, D. (2008) The export intensity of venture capital backed companies. Small Business Economics, Vol.31 (No.1). pp. 39-58. Available at: https://doi.org/10.1007/s11187-008-9109-y
Wilson, Nick and Uddin, Moshfique and Wright, Mike, Exporting by Private Equity-Backed Portfolio Companies (2022). British Journal of Management, 33: 266-285. Available at: https://doi.org/10.1111/1467-8551.12566
Learn more about the BVCA's Research Advisory Group
These studies have been compiled with the support of the BVCA Research Advisory Group, a committee of senior academics and practitioners who enable us to access a wider pool of research. The BVCA Research team would like to thank all members of the Group for their input, guidance and advice.