Growth and Margin: A Delicate Balance

Revenue growth has emerged as a critical lever for returns in the past decade, especially in technology sectors, demonstrating success through investing in growth-oriented assets. However, margin improvement, traditionally viewed as a strong value driver through cost-cutting initiatives in private equity, has surprisingly lagged behind, with many investments even experiencing a decline in EBITDA margins. This trend suggests that private equity teams must reassess the importance of operational due diligence to counteract declining margins, particularly as assets frequently transition between funds, complicating margin enhancement efforts.