Bain Capital: "12 Is The New 5" PE Faces Higher Hurdles

Core Insights - Higher interest rates and changing market conditions have significantly impacted private equity deal-making, with the report indicating that "12 is the new five," meaning that current deals require faster EBITDA growth than in the past [1] Group 1: Market Conditions - In 2015, firms could achieve a 2.5x return with a 5% annual EBITDA growth due to cheaper debt and rising valuations; now, with higher borrowing costs, deals require approximately 10% to 12% annual EBITDA growth for the same return over five years [3] - The private equity industry is currently facing challenges with 32,000 unsold companies valued at $3.8 trillion, leading to a more difficult fundraising environment for general partners (GPs) [5] Group 2: Investment Strategies - Limited Partners (LPs) are shifting their focus towards private credit, special situations, asset-backed finance, infrastructure, real estate, secondaries, and semi-liquid and evergreen vehicles [5] - Many GPs are holding assets longer to allow time for strategies to increase EBITDA, but this approach may incur costs as internal rates of return (IRR) tend to plateau around the seventh year and decline thereafter [6] Group 3: Future Outlook - Continuation vehicles are providing some relief for GPs under pressure to monetize assets, although they currently account for less than 10% of exit value and are not a long-term solution to liquidity issues [7] - The outlook for 2026 appears promising with an easing interest rate environment, a flowing deal pipeline, and a more robust public offering market, leading GPs to expect more exits and reduced reliance on alternative liquidity mechanisms [7][8]