The success of private equity firms in delivering returns to investors means that asset prices have been bid up to all-time record highs, and private equity firms hold record amounts of dry powder. Today’s inflated EBITDA multiples render the traditional cost-cutting and efficiency gain playbook for value creation less effective than ever before. It's no longer just about picking a winner and taking it to the finish line. You need to be more creative with how you create value.
Our research and experience tells us that private equity’s approach to value creation is still predominately focused around operational improvement, cost and volume growth. There is simply not enough focus on pricing within the top line. And this is despite the fact that, as an industry, private equity already knows that value creation through pricing has the highest ROI of any lever.