Simple market and manager-driven return measurements that can be more meaningful and easier to calculate than PME.
Module Category: Market or Sector Drivers
Key Concept: ValueBridge.net describes how private equity returns can be driven by various broader market forces. These include the market’s influence on:
- Enterprise valuation multiples (Module 13 and Module 14)
- Addressable market growth and revenue (Module 15 and Module 16)
- Relative leverage versus sector peers (Module 17)
- EBITDA margins, COGS, and SG&A (Module 18)
- Foreign exchange rates (Module 21)
Combining these elements, or deducting them from total ROI, creates new measurements of Market-driven and Manager-driven returns. Depending upon the value creation components selected, the new value drivers can measures a private equity GP’s financial and operational value-add, or it can measure outperformance versus other investment alternatives (basically, an opportunity cost measurement, like Public Market Equivalence, or PME).