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How Do Private Equity Investors Create Value?

The rapid growth in the scale and success of Private Equity has brought with it increased focus. Ernst & Young’s study of the largest deals exited in 2006 provides new facts and perspectives on how Private Equity investors create value.

Analysis of the top 100 exits in each of the US and Western Europe, ranked by entry enterprise value (EV) reveals that Private Equity-owned businesses outperform the market:

• Average annual EV growth rates of 33% in the US and 23% in Europe against public company equivalents of 11% and 15% respectively.
• Average EBITDA growth rates that were 17% higher than equivalent public companies.
• Average growth of over 80% in enterprise value over an average hold period of approximately three years.

Despite public comment that Private Equity ownership is synonymous with short-term cost-cutting, the study shows the bulk of growth coming from organic revenue growth, and acquisitions. Cost reduction is the third most important element, but employment levels remained the same, or higher, at exit versus entry in 80% of US deals and 60% of European deals.

So what are Private Equity’s ‘secrets of success’? To discover these, complete the short request to download your electronic copy of “How Do Private Equity Investors Create Value? A Study of 2006 Exits in the US and Western Europe.”