In most cases P.E backed companies will outperform their quoted company peers in terms of value creation, right?
As investors increasingly look beyond the simplistic measures P.E firms usually use to highlight their value creation ( ie changes in annual operating cashflow, valuation multiples and net debt) and focus more on operational improvements; new metrics seem to be required.
INSEAD's Global Private Equity Initiative look to have come up with an interesting new way to measure value creation by breaking down investment return into 5 categories.
Changes in 4 of these: Revenue, Margin, Multiple and Cashflow can be put down to changes in industry or company -specific performance whilst a 5th category -Capital Structure, looks at the effects of incremental leverage on investment returns.
This focus on operating capability seems a better way of really measuring value creation by PE firms - or does it?
Full Article and links to more of INSEAD's GPEI work here