E&Y Study Shows Private Equity Backed Companies Crushing Public Markets

A new study released by Ernst & Young examined 539 Private Equity deals that exited from 2006 to 2012.  These are my key takeaways from the study:

  • PE backed firms crushed public companies and have done quite well in spite of the recession.  The PE exits from 2006 – 2012 outperformed investor returns on publicly held companies by a multiple of 5.4 over the same period.  For PE exits from 2010 – 2012, many of which were entered into prior to the recession, annual EBITDA growth averaged 11.8% compared to 5.5% in public markets.
  • Organic revenue growth is increasingly the primary driver of growth in EBITDA.  For PE exits from 2010 – 2012, organic revenue growth (as opposed to EBITDA growth through acquisition or cost-cutting) accounted for 45% of the growth in EBITDA versus 39% in the pre-recession years of 2006-2007.  In 2010-2012 alone, organic revenue growth accounted for over 50% of the growth in EBITDA.
  • Multiples, which were depressed during the recession, have rebounded.  For PE exits from 2010 – 2012, EBITDA growth accounted for 70% of the PE returns with the other 30% being from increasing multiples.
  • Holding periods are up.  For PE exits in 2012, the average holding period was 5.1 years, up from 3.4 years in 2006.

Here is the link to the full study: EY PE Study 2006 to 2012

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