Venture Capital and Value Drivers

There are four interrelated drivers of value that can be used to unlock value from a company in a private equity transaction, being a focus on: Revenue, Margin/Cost, Efficiencies and Exit Multiples.

Over the last few years, globally, the transaction entry multiples have been increasing and since 2014 valuations has remained above 10x EBITDA and 11x seen in 2017 and 2018, based on Leveraged Buy Out ("LBO") data out of the United States ("US").

With the high valuations seen in the market I have started assuming lower exit multiples being achieved in future for assessment and planning purposes, something I have also seen US and UK investors doing.

This trend does place additional pressure on the private equity market and managers of investee companies as pure multiple increase will likely not drive value creation (as it has historically) and a focus on fundamentals and efficiencies will be required.