Quantifying Operational Alpha in Indian Private Equity Control Deals

Abstract

I examined 11 Indian private equity control deals between the year 2015 and 2025 and conducted a Difference-in-Differences regression to study the effect of PE intervention on the operational metrics of the target company, in absence of leverage. PE-backed non-NBFC firms showed incremental improvements in EBITDA margins by 3.1 percentage points compared to matched controls following the PE investment. The changes in leverage ratio proved to be insignificant, indicating that value creation is purely through governance and operational enhancements. Similar PE control ownership among housing finance companies is linked to a 1 percentage point increase in the ROA ratio, attributed mainly to cost discipline. Evidence of operational improvement is further shown through a few qualitative cases of Crompton Greaves, Max Healthcare and Mphasis Limited. The results provide the first causally determined estimate of operational alpha in the Indian PE control investments and indicate that in the absence of financial engineering, governance and operational engineering can be sufficient to derive a strong and economically meaningful performance of target companies.