The impact of Private Equity on firms’ supply chain: focus on capital expansion and turnaround investments

Private equity (PE) funds have started looking beyond their original short-term horizon. They have expanded their investment time-frame and gradually moved their focus from exploiting leverage and market timing of the deals to generating structural value in their portfolio companies. The impact of their takeovers has been largely studied in terms of operating and financial performance, but not in the set of action programs implemented in the supply chain (SC). This case-based research provides a first investigation of the changes in the SC of manufacturing companies when PE funds intervene, both during expansion investments and restructuring investments, based on an in-depth analysis of seven Italian PE funds and five consultancy companies engaged by the PE funds. Our results show that the supply chain of target companies is deeply affected by these interventions with significant differences in the case of expansion or restructuring investments. In expansion investments, high attention is given to the downstream part of the supply chain, with limited effect on the workforce. On the contrary, in restructuring investments, the workforce is deeply affected and the upstream of the supply chain is subject to transformations. Manufacturing technology is usually not changed in both cases. These results inform researchers and practitioners on the relevance of PE interventions for a company supply chain.