Do PE firms create value? How?

Revenue growth is the largest driver of PE value creation, contributing on average 54% of value creation. Multiple expansion contributes significantly at 32%, while margin expansion plays a smaller role at 14%. Given the recent downward pressure on multiples, revenue growth has become an even more critical driver of success.

Buy-and-build is central to PE value creation. Companies with a more active buy-and-build strategy deliver higher returns across all performance quartiles. When done right, buy-and-build bolsters all three value creation drivers: revenue growth, margin expansion, and multiple expansion.

Companies with higher revenue growth rates generate significantly higher investment returns. Growth amplifies other value drivers as well, particularly exit multiples. Fast-growing companies typically command 30-50% higher multiples at exit.

Margin expansion is most impactful when PE firms target operationally challenged businesses rather than already-efficient businesses. 78% of deals with negative entry EBITDA margins achieved margin expansion.

Multiple expansion is more common for smaller deals under $100M EV. This reflects both lower initial valuations and uplift as companies achieve scale. By sector, TMT, Science & Health, and Services see the largest expansion.

There are many more insights for you to explore — we’ve only scratched the surface here! Email any questions about the report or the data to [email protected].