N°25-92: Pricing, Returns, and Sources of Value Creation in Buyouts

This paper examines the determinants of pricing in buyout transactions and their implications for deal returns and value creation. We use a  proprietary dataset of 1,592 transactions initiated by 344 private equity funds between 1999 and 2018. We find that entry multiples positively relate to deal competition and industry factors such as growth and trading multiples. Exit multiples are negatively correlated with fund cycle stage and positively linked to buyer competition, with no significant relationship to prevailing industry conditions. Entry pricing is negatively related to deal performance. Higher entry valuations are associated with a greater reliance on EBITDA growth, while the scope for multiple expansion diminishes.