A recent study has revealed that South Korea's top five private equity firms have struggled to significantly boost the return on equity (ROE) of companies they have acquired, despite increasing revenue and net income.

The analysis, conducted by Leaders Index, a corporate research firm, examined the performance of 28 companies acquired by the five largest private equity funds in South Korea. While these companies experienced growth in both revenue and net income post-acquisition, the increase in ROE was relatively modest.

The five PE firms included in the study were Hanwha Investment & Securities, MBK Partners, STIC Investments, IMM Private Equity, and IMM Investment. ROE, a key metric measuring a company's profitability relative to shareholder's equity, showed an average increase of only 1.5 percentage points over the three years following acquisition.

Among the five, IMM Investment demonstrated the most significant improvement in ROE, with an average increase of 40.1 percentage points. However, MBK Partners and STIC Investments saw a decline in ROE for their portfolio companies. MBK Partners, currently embroiled in a takeover battle with Korea Zinc, experienced a 2.2 percentage point decrease in average ROE over the three-year period, primarily due to the underperformance of companies such as Nepa and Homeplus.

While revenue for companies acquired by PE firms increased by 7.2% and net income grew by 5.7% over the three-year period, the relatively modest increase in ROE has raised questions about the effectiveness of these firms in creating long-term value for shareholders.

The findings suggest that while PE firms have been successful in growing the top and bottom lines of their portfolio companies, they have faced challenges in improving operational efficiency and profitability. This could be attributed to various factors, including industry-specific challenges, economic conditions, and the complexity of integrating acquired businesses.