Private equity shifts from multiple expansion to margin pressure

The 2010s buyout model, which relied on falling interest rates and multiple expansion to drive over 50% of returns, has stalled as borrowing costs rise (a16z). Bain & Company reports that a typical 2015 buyout required only 5% annual EBITDA growth to achieve a 2.5x return over five years, whereas today's deals demand 10–12% growth to reach the same outcome (a16z). Golub Capital, a major lender to private equity, observed that software borrowers saw revenue growth decline from 9% to under 3% in two years, forcing firms to focus on margin improvement rather than top-line expansion to cover interest payments.

Firms are increasingly moving away from the "fixer-upper" strategy of the 2010s, with roughly half of US private equity exits in 2025 consisting of sales to other sponsors. In East Africa, Creadev, the investment arm of the Association Familiale Mulliez, avoids the typical venture exit timeline entirely, instead executing secondary buyouts like the 2025 acquisition of Lapaire Glasses to assume long-term operational control of physical clinic networks (Finance Historian, Finance Historian). Meanwhile, software-heavy funds are attempting to reduce operational costs by replacing legacy vendors like DealCloud and iLevel with open-source agent stacks that automate portfolio monitoring and covenant tracking (Morse Bridge Substack).

This transition reflects a broader divergence between venture capital and buyout strategies. While venture-backed companies like Revolut and Anduril target revenue growth rates between 46% and 100%+, buyout-backed middle-market companies carry net debt levels 2.5 to 3 times higher than the median S&P 500 firm, often reaching 4.7–6.0x adjusted EBITDA.