Private equity outshines public companies despite credit crunch
Ernst & Young study highlights long-term strengths of private equity model
Private equity-owned businesses around the world excelled in 2007 and beat
public company benchmarks for the third consecutive year, Ernst & Young said in
a new study.
In How do private equity investors create value? Beyond the credit crunch,
Ernst & Young reports that the enterprise value (EV) growth of private
equity-owned businesses fared better than that of public companies, despite
tightening credit conditions. The global study looked at the world’s 100 largest
private equity exits in 2007, including 44 in Canada and the United States.
“Private equity continued to be successful in 2007,” said Joe Telebar,
transactions advisory services partner at Ernst & Young in Toronto. “Our
findings show private equity is creating real, sustainable value with its
In 2007, the annual EV growth rate for the 100 largest global private equity
exits was 24% — double the EV growth rate of public company counterparts. This
applied to exits of all sizes within the study sample, including the mega-deals.
Private equity exits also outperformed the public company benchmark across all
major industry sectors and in virtually every market around the globe, with 2007
exits growing EBITDA 33% faster than their public counterparts.
Private equity’s proven ability to outperform public companies on key metrics
despite the challenges plaguing global markets is a good sign for the future,
Telebar noted. “Private equity investors have really shown they can deliver
profits, value and investment returns. We’ll likely see exit volumes contract
somewhat, but when the market recovers, private equity firms will be
well-positioned with thriving businesses ripe for exit.”
In particular, Telebar highlighted middle-market deals as promising private
equity opportunities for the months ahead. “The smaller deals showed the
strongest growth in EV. It will be interesting to see where this trend goes, as
middle-market deals will likely be comparatively easier to finance.”