The Private Equity Value Creation: 2025
Executive Summary
What separates the best private equity deals from the rest? Which sectors consistently outperform, and why? How has value creation changed over the years?
These are just some of the questions that led us to analyze data from over 10,000 private equity investments globally for our latest “Private Equity Value Creation” report. Here's a summary of our key findings:
Revenue growth is the largest driver of PE value creation, contributing on average 54% of value creation. Multiple expansion contributes significantly at 32%, while margin expansion plays a smaller role at 14%. Given the recent downward pressure on multiples, revenue growth has become an even more critical driver of success.
Buy-and-build is central to PE value creation. Companies with a more active buy-and-build strategy deliver higher returns across all performance quartiles. When done right, buy-and-build bolsters all three value creation drivers: revenue growth, margin expansion, and multiple expansion.
Companies with higher revenue growth rates generate significantly higher investment returns. Growth amplifies other value drivers as well, particularly exit multiples. Fast-growing companies typically command 30-50% higher multiples at exit.
Margin expansion is most impactful when PE firms target operationally challenged businesses rather than already-efficient businesses. 78% of deals with negative entry EBITDA margins achieved margin expansion.
Multiple expansion is more common for smaller deals under $100M EV. This reflects both lower initial valuations and uplift as companies achieve scale. By sector, TMT, Science & Health, and Services see the largest expansion.
There are many more insights for you to explore — we’ve only scratched the surface here! Email any questions about the report or the data to insights@gain.pro.
Chapter 01: Value Creation Drivers
Revenue growth is the largest driver of PE value creation. On average, it accounts for 54% of value creation for PE deals. Multiple expansion contributes significantly at 32%, while margin expansion plays a smaller role at 14%.
Multiple expansion's contribution to value creation has declined in recent years. It contributed to ~40-45% of returns in 2019-21, driven by higher exit multiples and attractive entry valuations. However, as exit multiples have come down, revenue growth has clearly become the primary driver of value creation (~65-70%). We expect revenue growth to remain the key driver going forward as multiples remain under pressure in this higher-for-longer interest rate environment.
Top quartile deals have a higher share of value creation through multiple expansion. On average, they realize 40% of their value through multiple expansion compared to just 25% for bottom quartile deals. While growth is paramount, this shows that entry valuations matter too.
Chapter 02: Returns and Loss Rates
Smaller businesses on average deliver higher MOIC compared to larger ones. They benefit from higher growth rates and lower entry multiples compared to large, mature enterprises. On the other hand, larger deals do offer more predictable returns with less variance compared to smaller deals.
By sector, MOIC is highest in TMT (median of 3.1x), followed by Science & Health (2.7x), and Services (2.6x). These three sectors are among the fastest-growing, with strong investor appetite. On the other hand, Energy & Materials and Industrials show more modest returns. These capital-intensive sectors also tend to have longer holding periods (~1 year longer on average).
