#1 - I was today years old when I realized I didn't really know the definition of "secular" #2 - I don't disagree that multiples are expanding, however I'd argue that when looking at the Bain data in aggregate, some of that multiple expansion is driven by an increasing share of tech/software deals in PE, which tend to command higher multiples for the reasons you mentioned. Isolate the industrial sector, for example, and the rise in multiples probably doesn't look as dramatic. So in addition to more dry powder, low interest rates, etc, the rise in EBITDA multiple across PE as a whole can also be attributed to some mix shift in terms of industry focus.
Thanks for commenting! That is an excellent point. Crazy to think that less than a couple of decades ago it was considered "too risky" for private equity, and now it commands a premium. Read an article citing Thoma Bravo founder Orlando Bravo where he states that in the early 2000s software was not a desirable niche: “We entered at a time when valuations were low and the risks were high.” Getting in early gave firms like Bravo and Vista a huge advantage. (www.wsj.com/articles/orlando-bravo-rides-software-deals-to-heights-of-private-equity-industry-11600767001)
Good one. Higher exit multiples can be justified if a larger company acquires a smaller one usually. Other than that : same multiple (and sensitivity analysis) is good or is played 😉. These Refinitiv tables/reports : are they available without subscription?
Excellent comment. You're likely familiar with Bradley Jacobs (given your detailed comments :), but he is a fantastic example. He built multiple multi-billion dollar companies via roll up strategies that ended in IPOs where the mass scale achieved resulted in multiple arbitrage. Mentioned here www.asimplemodel.com/reference/133/what-is-private-equity-fundless-vs-funded/ and here www.asimplemodel.com/reference/14/billion-dollar-entrepreneur/
Forgot to mention the tables, they are available as part of Bain & Company's Global Private Equity Report (which is fantastic reading every year). Link: www.bain.com/globalassets/noindex/2021/bain_report_2021-global-private-equity-report.pdf (see pages 13 and 14)
Hi Pravesh, thanks for the comment! I am working on a series of videos that answer this case study (www.asimplemodel.com/model/83/leveraged-buyout-model/lbo-case-study-babyburgers-llc/). The solution is available here: www.asimplemodel.com/curriculum/9/lbo-case-study-solution/ (the latter is subscriber content on ASM)
#1 - I was today years old when I realized I didn't really know the definition of "secular"
#2 - I don't disagree that multiples are expanding, however I'd argue that when looking at the Bain data in aggregate, some of that multiple expansion is driven by an increasing share of tech/software deals in PE, which tend to command higher multiples for the reasons you mentioned. Isolate the industrial sector, for example, and the rise in multiples probably doesn't look as dramatic. So in addition to more dry powder, low interest rates, etc, the rise in EBITDA multiple across PE as a whole can also be attributed to some mix shift in terms of industry focus.
Thanks for commenting! That is an excellent point. Crazy to think that less than a couple of decades ago it was considered "too risky" for private equity, and now it commands a premium. Read an article citing Thoma Bravo founder Orlando Bravo where he states that in the early 2000s software was not a desirable niche: “We entered at a time when valuations were low and the risks were high.” Getting in early gave firms like Bravo and Vista a huge advantage. (www.wsj.com/articles/orlando-bravo-rides-software-deals-to-heights-of-private-equity-industry-11600767001)
Nice Video!
Thanks!
Good one. Higher exit multiples can be justified if a larger company acquires a smaller one usually. Other than that : same multiple (and sensitivity analysis) is good or is played 😉. These Refinitiv tables/reports : are they available without subscription?
Excellent comment. You're likely familiar with Bradley Jacobs (given your detailed comments :), but he is a fantastic example. He built multiple multi-billion dollar companies via roll up strategies that ended in IPOs where the mass scale achieved resulted in multiple arbitrage. Mentioned here www.asimplemodel.com/reference/133/what-is-private-equity-fundless-vs-funded/ and here www.asimplemodel.com/reference/14/billion-dollar-entrepreneur/
Forgot to mention the tables, they are available as part of Bain & Company's Global Private Equity Report (which is fantastic reading every year). Link: www.bain.com/globalassets/noindex/2021/bain_report_2021-global-private-equity-report.pdf (see pages 13 and 14)
@@ASimpleModel I guess is should try my luck at roll ups! 😉🤞
@@ASimpleModel thanks Peter
Hello there, great video! Can you do a video where you project the right value of a company through LBO would be very interesting to watch.
Thanks!
What is the "right value"? 😁
Hi Pravesh, thanks for the comment! I am working on a series of videos that answer this case study (www.asimplemodel.com/model/83/leveraged-buyout-model/lbo-case-study-babyburgers-llc/). The solution is available here: www.asimplemodel.com/curriculum/9/lbo-case-study-solution/ (the latter is subscriber content on ASM)
@@jd5787 haha, the ultimate question... available in hindsight only :)
@@ASimpleModel "the answer is... 42" 😂 (hitchhiker's guide to the galaxy for the unfamiliar readers)
@@jd5787 "The ships hung in the sky in much the same way that bricks don’t."