Private equity has done a great job rebounding from the financial crisis. Or maybe not. According to a report from Bain & Co, multiple expansion drove half of the creation in PE deals since the 2009 recession, while the contribution from margin expansion was much lower.
Bain looked at 65 mature buyout transactions since the crisis and discovered that 71 percent of the deals fell short of their projected margin. In fact, margins missed the boat not by a little but by an average of 330 basis points below the deal model forecast, Bain said. The booming market masked the shortfall, Bain said in “Integrating Due Diligence to Build Lasting Value.”
Private equity’s approach to due diligence caused the shortfall, Bain said. PE firms view due diligence as a series of unrelated questions about the company’s strategy, its commercial prowess or cost structure, Bain said. This effort is siloed, which limits the buyer’s understanding of how each aspect of the business fits together. Basically, PE firms are letting themselves get too focused on the details and are missing the company’s overall story. Read the report to find out how firms should approach due diligence.
Yesterday, I mentioned the AIC and its strategy to fight all the negative press hitting private equity right now. I believe in freedom of discussion.
So, here’s a story from Bloomberg on private equity’s ownership of Aveanna Healthcare, which provides at-home nursing for the sick and disabled, mostly children who may need near around-the-clock care to stay alive. This story is tough, Hubsters. I have reached out to Bain Capital and J.H. Whitney for comment.
Toby Mitchenall of PEI has a story this morning on why firms should consider selling a stake. They looked at EQT, which chose the IPO route, and BC Partners, which sold a chunk to Blackstone. Each deal raised around 500 million euros ($556 million). The PEI story goes into the motivation for selling minority stakes, which include transitioning ownership of the firms and growth.