𝐌𝐚𝐫𝐠𝐢𝐧 𝐞𝐱𝐩𝐚𝐧𝐬𝐢𝐨𝐧 𝐢𝐬𝐧’𝐭 𝐰𝐡𝐚𝐭 𝐢𝐭 𝐮𝐬𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐢𝐧 𝐏𝐄. It’s not that the toolkit is gone—when entry margins are low, they still improve meaningfully during ownership. But the game has changed: most PE-backed businesses today are already high-margin at entry. There’s simply less room to optimize. Even when margins do expand, it’s often due to operating leverage from buy-and-build, not classic operational improvement. 👉 That’s just one finding from our new Value Creation in PE report. 🔗 Link in the comments
Spot on about the changing margin dynamics in PE, Frister Haveman. From our work at Branded Capital with PE-backed companies, we’re seeing a parallel shift: when operational levers are largely exhausted, brand becomes the untapped value driver. The interesting part: brand-driven value creation actually complements buy-and-build strategies perfectly. I.e. Clear portfolio architecture and unified value propositions can accelerate integration while preserving what made each acquisition valuable. We’ve seen this create sustainable differentiation and uplift that operational improvements alone can’t achieve. With margins already optimized at eentry, where do you see the next frontier for value creation beyond traditional levers? #askingforafriend 😎
Your latest report is one of the very best I've seen on PE value creation drivers - thank you! Interestingly, our own research among PE firms has found that this trend for increasing importance of revenue growth v. multiples is set to continue into the future. PE firms are placing their bets on revenue growth being a larger proportion of value creation in the coming 3 years than it was in the last 3 years. On the falling role of margin expansion, we've also detected a subtle change in how PE-backed companies look at the impact of our pricing work. This was previously considered primarily as margin expansion, but the focus is now more on supporting revenue growth acceleration. And, when we run the ROI numbers, it becomes obvious why.
How do you separate the impact of margin and top line. I would have thought that top line growth will drive margin improvement. Or perhaps even diminish it for example if you scale a business which was niche and family owned but went regional or national..
Frister Haveman great report and overview. While multiple expansion may not drive MOIC in times of general multiple compression trends, it still requires focus and effort to maintain buy-in multiples. Similar on margins. The general game has changed how to expand multiples and increase margins. Only the revenue grwoth game has stayed the same… today, broader operational skills and deeper sector expertise is required to tune all three levers! next report will probably show which players have adapted to their #ValueCreation and #IntegrationAcceleration game.
Co-Founder & Co-CEO at Gain.pro
2moPlease find the full report here: https://www.gain.pro/insight-reports/value-creation