New research conducted by Bain & Company was described in its latest PE Outlook report. The globally focused report said that Bain, along with Oliver Gottschalg, a professor at the École des Hautes Études Commerciales in Paris, and PERACS, a provider of quantitative analytics for the PE industry, found that most buyout funds, including the top-quartile performers, produce a mix of big winners and losers. Examining the successful deals closely can be useful way to find reliable information on which to base future success.
Bain said that in order to mobilize the right resources and processes to ensure that a higher proportion of their investments will become run-away winners, some leading firms are subjecting their past deals to a detailed forensic examination. A forensic investigation can serve a multitude of purposes.
It can help lay a strong foundation for the launch of a new fund or set the right course for investing an immature fund. Such a probing dissection of nearly 100 of its past deals helped one major global PE firm define its deal “sweet spot” and mobilize its resources and processes around factors that make a deal successful.
The report says that examining “the scores of variables that influenced each deal, it is possible to find real measures that influence returns, such as leverage, multiple expansion, revenue growth and margins”. The PE industry’s strongest funds got there not because of the specific size and types of deals they target, rather than success is driven by the “alpha-generating capabilities of the GPs that manage them”.
Further details on forensic examination were not provided in the report. It is to be assumed that Bain provides this kind of consulting for PE funds interested in examining their past data for future success.