EBITDA is not just one of our favorite acronyms in the Private Equity world, it’s the basis of value.  Purchase prices are based on EBITDA and sale prices are based on EBITDA.  Operating Partner groups and Resource groups came into existence a few years ago because PE firms recognized that they could add resources and expertise to help their portfolio companies grow EBITDA and earn a better exit.

In 2017, a record-breaking $621 billion was raised for private equity funds — and in 2018, PE firms are expected to receive approximately $750 billion in allocations from existing and new investors. As PE capital steadily increases, SME merger and acquisition activity is forecasted to follow suit; experts estimate that deal making will hit $1.6 trillion in 2018 — $200 billion higher than 2017.

Referring to Chief Outsiders as a staffing company is quite descriptive. After all, they’ve placed CMOs into over 600 companies. With an increasing number of these placements in Private Equity portfolio companies. These CMOs join client executive management teams and immediately assume the roles of the marketing leader. What’s different from most placement firms is that these CMOs are fractional, and interim. They serve multiple companies at once, and are in and out of a business, having built their engine for growth, often in less than 12 months.

In the private equity world, there’s a fairly well-established recipe for success that works in most instances – keep an existing customer base, grow new business, manage expenses, maximize revenues – and sell for a higher multiple within three to five years.

During a recent private equity forum in New York City, operational partners came together and discussed industry concerns at length, including a particularly pressing hot topic. PE fund competition is fierce — and that's skewing the way EBITDA affects returns and heavily influencing what it takes to come out ahead at an investment's exit point. 

Industry data research center Preqin reports that private equity managers have raised approximately $260 billion so far in 2017. This amount is predicted to surpass $369 billion by end of year, breaking the PE fundraising record set in 2007. The recent flood of money flowing into PE funds is driving up purchase prices to a point that renders superior returns much harder to achieve — and strong EBITDA growth in and of itself is no longer sufficient for success.