Efficiency and working capital improvement after acquisition : do private equity firms focus on working capital management to improve static efficiency after buyout?

It is not easy to track increment in efficiency and its reasons for an organization, especially after acquisition. However, several techniques are used as proxies to evaluate them. Working Capital Management is one of the constructive techniques to gauge and improve a firm’s performance. There is significant evidence about the negative relationship between working capital, presented in the form of cash conversion cycle and efficiency of an organization, measured as return on assets, indicating that a reduction in working capital can lead to increment in performance. Focusing on this relationship, private equity firms pay more attention on improving working capital in their target firms which results in improved operational efficiency. In this paper, I obtain significant results on the role of private equity firms in improving efficiency after acquisition. The results depict a decrease in cash conversion cycle for PE-backed firms after acquisition, paired simultaneously with an increase in return on assets. The sample being used consists of 30 PE-backed firms compared with 30 similar non-PE backed firms. Regression is used as the major tool for qualitative and quantitative analysis. Key-Words: Private Equity, Efficiency, Working Capital, Operational Performancenhhma