How margin expansion drives value in PE deals

Margin expansion: overrated or misunderstood? It only drives 14% of PE value creation, the weakest of the three levers. But here’s the catch: 𝗶𝘁 𝗺𝗮𝘁𝘁𝗲𝗿𝘀 𝗺𝗼𝘀𝘁 𝘄𝗵𝗲𝗻 𝗮𝘀𝘀𝗲𝘁𝘀 𝗮𝗿𝗲 𝘂𝗻𝗱𝗲𝗿𝗽𝗲𝗿𝗳𝗼𝗿𝗺𝗶𝗻𝗴. In deals with negative EBITDA margins, 78% achieved expansion with a median jump of 1,250 bps. That’s why public-to-private transactions and carve-outs lead the way, and why Energy, Industrials, TMT, and Healthcare deliver the strongest opportunities. So is margin expansion a weak lever, or the hidden ace for the right kind of deal? 👉🏿 Full analysis here: https://okt.to/qEhtIm

Happy to announce our latest Capital Currents report, “M&A Playbook for Corporates and Private Equity Growth,” is now live! European corporates are sitting on €2.6 trillion in bank deposits. Private equity firms are eager to divest assets. This should be a match made in heaven, but a changed approach is needed to unlock the opportunity. In this report, we highlight five critical steps corporates can take to boost their readiness for impactful deal-making, and we explore practical strategies for PE firms aiming to strengthen their appeal as attractive targets. See how you can turn market potential into real success: https://owy.mn/4mR5AlX

What drives market-beating returns? It's not just luck. Factor investing is a strategic approach that targets specific, proven drivers of return. Our latest graphic breaks down the four core factors: 🔹 Value: Buying great companies at a discount. 🔹 Momentum: Riding the wave of recent winners. 🔹 Quality: Investing in stable, financially sound businesses. 🔹 Size: Tapping into the growth potential of smaller companies. Understanding these factors can help you build a more robust and intelligent portfolio. #kalpicapital #FactorInvesting #SmartInvesting #InvestingStrategy #PortfolioManagement #Finance #WealthManagement

In investing, the real alpha is rarely made by agreeing with the crowd. It is created when you see something the market hasn’t fully recognized yet. Over the years, I have seen how small shifts in a business can create outsized results if spotted early. Sometimes it is a change in the product mix that pushes a company into a higher margin category. Other times, it is operating leverage a business running with excess capacity suddenly entering an upcycle, where every extra rupee of revenue adds disproportionately to profits. Deleveraging is another powerful trigger. When companies reduce debt, interest costs fall, net profit rises, and return ratios improve often much faster than the market anticipates. Industry cycles too can surprise. Government policies can also act as catalysts. A small change in regulation can reshape the economics of an entire industry overnight. Similarly, hidden efficiencies in asset turns or working capital can free up cash and improve returns without requiring headline growth. Corporate actions demergers, management changes, or mergers often unlock value when read in the right context. What ties all these triggers together is timing and perception. Markets are often slow to adjust to subtle but powerful shifts In my experience, the best investments were rarely the most obvious ones. They were the ones where you had to look deeper, think independently, and hold conviction when the market had not yet caught on. In the end, the edge comes not from information alone, but from interpreting it differently and trusting your conviction before the market does. #Investing #EquityResearch #Finance

📌 Day 19 of 50 - Decoding Valuation Terms: 💡 Operating Leverage – The Double-Edged Sword in Business Have you ever wondered why some companies see profits skyrocket🚀 with just a small bump in sales, while others barely move? 👉 The answer lies in Operating Leverage. 📚 What is it? Operating leverage measures how sensitive a company’s operating profit (EBIT) is to changes in sales. It comes from the presence of fixed costs in the cost structure. 📎 High Operating Leverage High fixed costs (e.g., factories, tech platforms, airlines). Small increase in sales → disproportionately large increase in profits. BUT in downturns, losses also multiply. 📎 Low Operating Leverage Low fixed costs, more variable costs (e.g., trading firms, outsourcing). Profits are more stable, but growth potential is limited. 💡 Key Takeaway Operating leverage is like a financial accelerator: it magnifies whatever direction the business is moving in. Question for you: Do you think high operating leverage is a strength (because of scalability) or a weakness (because of cyclicality)? #Valuation #Finance #OperatingLeverage #BusinessStrategy #Investing

I thought you might find this article on GP-led secondaries/continuation funds insightful. It argues that the rise in GP-led deal volume is a structural trend rather than a temporary one, highlighting key factors that could reshape the buyout landscape. The analysis suggests significant growth in this market over the next decade, making it essential reading for understanding future investment strategies. You can read the full article here: 

Market Capitalization: A Window Into Company Value When we think about a company’s worth, one of the first terms that comes up in finance and investing is Market Capitalization — often shortened to market cap. It’s a simple yet powerful concept that helps investors, analysts, and businesses understand size, stability, and growth potential. What is Market Capitalization? Market capitalization is the total value of a company’s outstanding shares of stock. It is calculated as: Market Cap = Share Price × Total Number of Outstanding Shares This metric reflects how the stock market values a company at a given point in time. It’s not the same as a company’s book value or assets — it’s purely based on investor perception, confidence, and market demand. Where is it Used? Market capitalization is widely used in: Investment Decisions: To classify companies into large-cap, mid-cap, or small-cap, each with its own risk-return profile. Portfolio Management: To diversify investments and balance risk. Mergers & Acquisitions: To assess the relative size of companies. Market Indices: Indexes like the S&P 500 or Nifty 50 weigh companies by their market cap. When Should You Use It? You should consider market cap when: Comparing companies across sectors. Designing or rebalancing an investment portfolio. Evaluating risk levels — larger caps often mean stability, smaller caps often mean growth potential but higher volatility. Tracking how market sentiment shifts with economic changes. Why is it Important? Market capitalization matters because it: Defines company size: A key factor in risk assessment. Indicates investor confidence: Rising market cap often signals optimism. Shapes investment strategies: Many funds and ETFs are structured around market cap categories. Provides a benchmark: Essential for comparing businesses in the same industry. Final Thoughts Market capitalization is more than a number — it’s a reflection of how the world views a company’s value at any moment. For investors, it acts as a compass, guiding portfolio strategies and risk management.

Yes, the M&A market has had its headwinds so far in 2025, but we are seeing some real opportunities as we head into the final third of the year. Here’s what I’m seeing for the rest of 2025: • Bigger deals are back. Fewer transactions overall, but more in the $5B+ range, particularly in financial services, energy, and telecom. • Private credit has gone mainstream. It’s no longer just an alternative, it’s a co-equal financing source alongside traditional bank syndicates. • Regulators are reshaping the deal clock. U.S. merger investigations are stretching past 12 months, and new outbound investment rules plus Europe’s FSR are adding fresh layers of complexity. • Portfolio focus is winning. Spin-offs, carve-outs, and targeted bolt-ons are driving more value than empire building. • AI and energy transition are magnets. Data centers, chips, grid assets, and power supply are at the center of strategic dealmaking. What does that mean for companies and investors? • Build regulatory risk into the deal model from day one. • Keep financing optionality—banks and direct lenders should both be at the table. • Use earnouts, RWI, and contingent terms to bridge valuation gaps. • Have a carve-out playbook ready, those who can execute fast will win. • And don’t ignore AI: not just in targets, but in how you run diligence and integration. M&A success in 2025 won’t come from chasing the headline deal. It will come from preparation, creativity, and the ability to navigate uncertainty with discipline. #MergersAndAcquisitions #DealMaking #PrivateEquity #CorporateStrategy #Leadership #Regulation #Finance #ArtificialIntelligence #EnergyTransition #Law #BigLaw #Finance #InvestmentBanking #Consulting

#Attracting #private #equity (#PE) #investment requires a mix of #strong #fundamentals, #growth #potential, and #trustworthiness. PE firms are looking for opportunities where their capital can create significant #long-term #value. Here’s a detailed breakdown: --- 1. Build a Strong Business Foundation Clear Business Model: PE investors want to understand how you make money and your scalability. Stable Revenue & Profits: Consistent financial performance reduces perceived risk. Operational Efficiency: Optimized processes, supply chain, and cost control show professionalism. --- 2. Show Growth Potential Market Opportunity: Demonstrate addressable market size and room for expansion. Innovation & Differentiation: Highlight unique products, services, or technology. Scalable Model: Investors like businesses that can grow without proportionally increasing costs. --- 3. Strong Governance & Transparency Clean Financials: Audited statements, clear reporting, and no hidden liabilities. Corporate Governance: Board structure, policies, and compliance must be strong. Risk Management: Demonstrate awareness of risks and plans to mitigate them. --- 4. Attractive Capital Structure Reasonable Debt Levels: Avoid over-leveraging. PE prefers healthy debt-equity ratios. Equity Stake Clarity: Clear ownership structure and minimal disputes. Exit Potential: PE wants to realize returns in 3–7 years, so show potential exit options (IPO, strategic sale, secondary buyout). --- 5. Strong Leadership & Team Credible Management Team: PE invests in people as much as the business. Succession Planning: Shows company can sustain growth beyond current leadership. Vision & Strategy: Clearly articulate where the company is heading and how PE capital will accelerate growth. --- 6. Show ESG & Sustainability Awareness Many long-term PE investors now prioritize environmental, social, and governance practices. Demonstrating responsible operations increases credibility and attractiveness. --- 7. Build Relationships & Network Attend industry conferences, PE forums, and investor meetings. Use advisors or investment bankers who can connect you with suitable PE firms. Have a compelling pitch deck: clear, concise, and data-backed. --- ✅ Key Insight: Attracting PE is about trust, growth potential, and structured opportunity. Even if your business is doing well financially, without vision, governance, and scalability, PE investors may hesitate.