Value creation in Private Equity

Private equity still suffers from certain misconceptions, particularly the notion that value creation relies primarily on cost and workforce reductions. In reality, the data shows the opposite trend: companies backed by private equity funds create, on average, more jobs than the rest of the economy. This asset class is thus fully integrated into the real economy, with a tangible impact on corporate growth.Private equity’s outperformance relative to public markets is driven by several structural factors. The first is growth. Funds select companies positioned in high-growth markets and capable of gaining market share, enabling them to grow faster than the economy as a whole. This dynamic is complemented by active governance. Unlike public investors, private equity funds sit on boards of directors and participate directly in strategic decisions, with a detailed understanding of performance metrics. Another key factor is the alignment of interests. Management teams and company executives invest alongside the funds, which fosters management focused on creating sustainable value. This approach is part of a long-term strategy, as funds are evaluated over several years—typically between five and seven—unlike public markets, which are often subject to short-term pressure.The funds also provide operational and strategic support to companies, leveraging internal expertise to support their development. They further promote external growth by assisting companies with sector consolidation strategies aimed at creating larger-scale industry leaders. The judicious use of financial leverage is another driver of performance, enabling the optimization of the financing structure when conditions are favorable. Finally, value creation incorporates exit planning from the outset, with the goal of divesting the company under favorable terms, particularly to strategic buyers. In an increasingly competitive environment, performance no longer relies solely on financial engineering, but on the funds’ ability to deploy proven operational methodologies, often formalized in the form of playbooks. These approaches cover the identification of attractive sectors, the origination of opportunities, and the transformation of companies. Value creation is concretely based on several complementary levers. Organic growth allows for benefiting from dynamic markets and gaining market share. Improving operating margins relies on optimizing internal performance. Financial leverage enables higher returns when debt is used in a disciplined manner. Re-rating corresponds to an improvement in the valuation multiple between entry and exit. Finally, consolidation strategies, or “buy and build,” help strengthen the competitive position while optimizing the average acquisition price.Private equity’s outperformance is therefore not the result of opportunistic or one-off effects, but rather a combination of industrial, financial, and strategic levers developed and refined over several decades. It is based on the ability to support companies in their transformation and growth, with a focus on creating sustainable value.