Private equity’s playbook—cheap debt, multiple expansion, and clean exits—no longer works. From 2015–2021, low rates (0.5%–2.5%) fueled leveraged buyouts and growth. By 2023, rates rose ~500 bps, pushing borrowing costs to 7–9% and compressing returns.
At the same time, private credit is tightening, refinancing is harder, and EBITDA growth is less reliable. Margins are under pressure from inflation, labor, and financing costs, while overly optimistic growth assumptions are breaking down. Hold periods are extending beyond 6–7 years, with some exceeding 8.
The result: value creation has shifted from financial engineering to operational performance. Across sectors—SaaS, industrials, consumer, and financial services—returns now depend on improving the underlying business.
This exposes a core challenge. Private equity excels at deal-making and capital structuring, but driving operational improvement requires deeper, industry-specific expertise. Many firms lack the resources or deploy them too late.
Going forward, success will hinge on execution: improving cash flow, margins, pricing, and cost structures. Buyers are prioritizing sustainable earnings over multiple expansion.
Private equity is entering a transition. The next winners won’t be those who structure the best deals—but those who can actually run the business.