Bain Capital’s Stephen Pagliuca sees lower exit multiples globally, but Japan remains a bright spot

Record high asset valuations, a crowded market with more managers seeking to put capital to work have combined to make deal-sourcing challenging for private equity sponsors, said Stephen Pagliuca, co-chairman of Bain Capital.

That might sound overly humble for a private equity investment firm with total asset size of US$39.75 billion, which realised US$87 billion revenue from portfolio companies in 2016. But Pagliuca said private equity investors can no longer pin their hopes high on selling their investments at high valuation multiples of the portfolio company’s earnings.

A sustained period of loose monetary policies in Europe and US has resulted in companies’ Ebitda (earnings before interest, depreciation and amortisation) multiple rising to record high levels. Hence, private equity firms need to grapple with the reality of exiting their investments at lower multiples than the levels they bought them at.

“We are underwriting deals to flat or even lower exit multiples, which means that we need to find companies where we genuinely think we can grow revenues and earnings to make up for lower exit multiples,” said Pagliuca.

A prominent figure in the private equity space, who also co-owns the successful NBA franchise Boston Celtics, Pagliuca said his investment team also go after companies that have a strong presence in the consumer sector.

In 2016 June Bain Capital bought into South Korean cosmetic skincare maker Carver Korea, eyeing the company’s well-received products that sold well in China. Bain Capital subsequently sold the business to Unilever in September 2017 at a profit.