Learnings from Private Equity - investment performance

A common notion among investors and deal makers is that Private Equity firms outperform their Corporate counterparts on investment returns. In our 'Learnings from Private Equity' series we test some common PE myths to see what the data tells us, and what we can learn.

First installment: Testing 4 common PE myths

In today’s short publication we attempt to prove or disprove some common myths and see whether Private Equity firms:

  • Tend to buy at higher multiples than Corporates
  • Typically target small to mid-sized companies
  • Have gone on a buying spree during COVID-19
  • Spot trends ahead of others
What transactions from the last five years tell us

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Deloitte Value Creation Services

Our typical value creation mandates, bringing a PE perspective

When: Prior to- or in parallel with diligence to test the initial equity thesis and challenge the upside potential

What: An outside-in assessment leveraging benchmarks, insights from comparators and testing initial value hypotheses

Why: Provides the investment committee with an initial litmus test of the initial valuation potentia

When: As part of the diligence phase, in parallel or subsequent to the financial, tax, and other diligence work

What: Internal and external assessment to build confidence over growth outlook, forecast cost development and assess market & operational risks as well as opportunities

Why: To confirm the investment’s underlying equity thesis and obtain an objective opinion on risks and opportunities

When: Post-deal but ideally pre-Day 1 to embed the right objectives into integration and transformation plans

What: Establish & execute a fully validated set of upside initiatives that form the basis of an integration programme or transformation

Why: Defines key focus areas and tangible levers for the program to ensure the assumed value and synergies are being created and realized

When: When a business or unit underperforms or when a step change is required in competitiveness

What: An outside-in assessment of performance potential and opportunities, leveraging an ‘external investor’ perspective

Why: Takes an unconstrained view of improvement potential, relying on facts and experiences from outside the business to push the envelope

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