Private Equity Firms Are Buying Manufacturers for the Multiple. Most Ignore the Lever That Actually Moves It.

Article Summary

For most of the last decade, private equity could count on help from the market. McKinsey’s analysis of buyout deals entered in 2010 or later and exited by 2021 found that roughly two-thirds of total returns could be attributed to market multiple expansion and leverage. Buy a solid manufacturer, hold it for a few years, and a rising market and cheap debt did much of the work.

That help is gone. Bain & Company’s Global Private Equity Report 2026, published in February 2026, found that deals in the 2010s needed only about 5% annual EBITDA growth to generate a 2.5X return over five years. Today, Bain reports, “typical deals now require around a 10% to 12% average annual growth in EBITDA to generate the same benchmark 2.5X return.” Holding periods for buyout funds have stretched to around seven years, up from an average of five to six years between 2010 and 2021.

Bain’s Rebecca Burack, head of the firm’s Global PE Practice, put it plainly: “Generating attractive returns now requires significantly more operational improvement and revenue growth.” McKinsey’s research points the same way: general partners that focus on creating value through operations achieve internal rates of return up to two to three percentage points higher, on average, than peers.

For a manufacturer in the $25M to $100M range, whether it’s already PE-backed or preparing for a sale, the implication is direct. Cost-cutting and financial engineering can only carry so much of a 10% to 12% annual growth requirement. The rest has to come from revenue, and specifically from a growth engine a buyer or board can see, measure, and believe will keep working after the deal closes.

Why Doesn’t the Old Multiple Math Work Anymore?

Because the tailwinds that made it work have faded. When interest rates were low and valuations were climbing, a firm could buy a company, improve it modestly, and sell it into a higher-priced market. McKinsey attributes roughly two-thirds of returns on buyout deals entered in 2010 or later and exited by 2021 to multiple expansion and leverage, which means most of the value came from market conditions and financing rather than from the business itself.

Bain’s 2026 report describes the new reality in a phrase: “12 is the new 5.” Deals that once needed about 5% annual EBITDA growth now need 10% to 12% to reach the same 2.5X return over five years, and firms are holding companies longer, around seven years at exit. Hugh MacArthur, chairman of Bain’s Global PE Practice, summarized the shift: “With the tailwinds that propelled the industry forward in the 2010s gone, the dynamics mean that most players will have to substantially raise their value creation game.”

What Lever Actually Moves the Multiple?

Predictable revenue growth. Cost programs and margin improvements matter, and most PE playbooks are good at them, but a business can only cut its way to so much EBITDA growth before it starts cutting into its ability to grow. At 10% to 12% a year, sustained over a seven-year hold, the math eventually depends on the top line.

What a buyer pays a premium for isn’t just growth. It’s growth they can believe will continue. A manufacturer that can show where its revenue comes from, how demand turns into orders, what its close rate is, and how much of its business repeats is a lower-risk asset than one with the same revenue and no explanation for it. We wrote about the specific decisions behind that in The Marketing Decisions That Change What a Manufacturing Company Is Worth When It Sells.

Why Does the Commercial Side Get Overlooked?

Because it’s harder to see. Operations improvements show up on a plant tour and in a cost report. The commercial side of a mid-market manufacturer, meaning how it generates demand, wins deals, and keeps customers, usually lives in scattered places: a CRM that’s partly maintained, a sales team that carries key relationships in their heads, and marketing reporting that measures activity rather than revenue.

That makes it easy to leave alone. It also makes it one of the largest sources of untapped value in the business. We call the connections between marketing, sales, finance, and operations the Growth Chain: the handoffs where growth actually gets won or lost. In most manufacturers, nobody has mapped those handoffs, so nobody can say where growth is breaking, and the lever that would do the most to move the multiple goes untouched through the entire hold.

What Does a Buyer Want to See in the Growth Engine?

Numbers that hold up under diligence. A buyer or board evaluating a manufacturer’s growth story will usually ask for a defensible close rate, the cost of acquiring a new customer, how concentrated revenue is among the top accounts, and how much of the business repeats year over year. We covered the close rate question specifically in You Can Name Your Margin to the Decimal. You Can’t Name Your Close Rate.

Most mid-market manufacturers can produce their operating numbers instantly and their growth numbers only with a week of spreadsheet work, if at all. That gap is a signal to a buyer. A company that can’t explain its own growth invites a discount in the price, a longer earnout, or a harder negotiation, because the buyer has to price in the risk that growth won’t continue once the founder or a key salesperson is no longer driving it.

What Should a Manufacturer Do Before or After a PE Deal?

Start by measuring the growth engine the way a buyer would, before a buyer does. That means establishing a consistent close rate, understanding which customers and channels produce profitable revenue, checking how concentrated the business is, and mapping where demand gets lost between marketing, sales, and operations. For a company already owned by PE, it means treating the commercial side as a value creation lever with the same discipline the operating side already gets.

None of that requires a new system on day one. It requires agreement on the numbers that matter and a clear owner for each of them. If the leadership team couldn’t hand a buyer a clean, explainable view of how the company grows today, that’s usually the first thing worth fixing, and it’s where a diagnostic conversation typically starts: not with a campaign, but with a clear picture of which parts of the growth engine a buyer would trust and which ones they’d discount.

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