Private equity firms dodge cost-cutting and aim for revenue growth
01 March 2021
Private equity is mimicking venture capital, banking on revenue growth instead of cost-cutting.
Why it matters: PE firms may struggle to maintain historical returns, particularly if the bull market slows its rampage and they're stuck with overpriced and overleveraged portfolios.
Driving the news: Bain & Co. this morning released its annual private equity report, highlighting how private equity has been paying dizzying prices:
- U.S. buyout multiples last year averaged 11.4x EBITDA, a record.
- A majority of U.S. leveraged buyouts last year were done above 7x debt-to-equity ratios, also a record.
- Some of this is driven by tech, which keeps seeing its sector-leading deal share increase.
- Per Bain & Co: "The simple math says that GPs buying companies at these prices will have to generate more value if they are to make good on return expectations — and they will have to do so in a highly volatile and uncertain business environment. A Bain analysis of hundreds of funds in which we co-invest shows that multiple expansion and revenue growth (not margin improvement) are by far the biggest drivers of PE returns."
But, but, but: Private equity would be quick to remind us that a bear market would mean new buying opportunities and that bondholders were mostly happy to amend-and-extend the last time things went bad.
The bottom line: When everything is going up and to the right, a venture-like returns model for private equity can work. But when things slow, PE investors may quickly remember why their VC peers are loathe to leverage portfolio companies.
Transcripts show George Floyd told police "I can't breathe" over 20 times
Section2Newly released transcripts of bodycam footage from the Minneapolis Police Department show that George Floyd told officers he could not breathe more than 20 times in the moments leading up to his death.
Why it matters: Floyd's killing sparked a national wave of Black Lives Matter protests and an ongoing reckoning over systemic racism in the United States. The transcripts "offer one the most thorough and dramatic accounts" before Floyd's death, The New York Times writes.
The state of play: The transcripts were released as former officer Thomas Lane seeks to have the charges that he aided in Floyd's death thrown out in court, per the Times. He is one of four officers who have been charged.
- The filings also include a 60-page transcript of an interview with Lane. He said he "felt maybe that something was going on" when asked if he believed that Floyd was having a medical emergency at the time.
What the transcripts say:
- Floyd told the officers he was claustrophobic as they tried to get him into the squad car.
- The transcripts also show Floyd saying, "Momma, I love you. Tell my kids I love them. I'm dead."
- Former officer Derek Chauvin, who had his knee on Floyd's neck for over eight minutes, told Floyd, "Then stop talking, stop yelling, it takes a heck of a lot of oxygen to talk."
Read the transcripts via DocumentCloud.