Dan Rasmussen, a Harvard graduate and former Bain Capital team member, analyzed what worked and what didn’t in private equity.
After examining 2,500 deals representing $350 billion in invested capital over 30 years Rasmussen came to two key conclusions; (1) private equity is mostly a levered small-cap strategy with 95% of leveraged buyouts involved companies with an enterprise value (debt plus equity) below $1.1 billion, or roughly the upper bound of the small-cap universe and(2) The difference between success and failure usually came down to purchase price.
For private equity firms, “The 25 percent of the cheapest deals accounted for 60 percent of the profits,” Rasmussen said. “The most expensive 60 percent of deals accounted for 10 percent of profits.”
According to Forbes, "a study of returns from 1965 to 2013 showed a leveraged small-cap strategy would have returned 25% a year, well more than private equity, where 10-year rolling annual returns have swung between 10% and 15% for the past decade."
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