Private Equity Value Creation Trends: Revenue Growth Overtakes Multiple Expansion
By
heysidjain
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Summary
The article discusses the shifting dynamics of value creation in private equity, highlighting the decline in multiple expansion's contribution to returns and the rise of revenue growth as the primary driver. It provides insights backed by deal-level data from over 10,000 investments, emphasizing the impact of higher interest rates on multiples.
Key quotes
· 3 pulledMultiple expansion's contribution to value creation has declined in recent years, contributing to ~40-45% of returns in 2019-21.
Revenue growth has clearly become the primary driver of value creation (~65-70%) as exit multiples have come down.
We expect revenue growth to remain the key driver going forward as multiples remain under pressure in this higher-for-longer interest rate environment.
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