Fund Shack Private Equity Podcast · 2026-07-02 · 26 min
Key moments - from our scoring
Substance score
60 / 100
Five dimensions, 20 points each
Emilio Domingo, Chief Commercial Officer at Bain & Company, unpacks the firm's 2026 private equity report, which challenges the narrative that market recovery is straightforward. While 2025 showed strong headline numbers - rising deal values and exit multiples - the underlying mechanics reveal a much tougher environment. The report's central finding, "12 is the new 5," reflects that buyouts now require 12% EBITDA growth to achieve the 2.5x returns that 5% growth generated in the 2013-2023 period. This shift stems from the collapse of multiple expansion as a return driver; Bain's analysis of nearly 1,000 exited deals shows 50% of returns came from revenue growth and 50% from multiple expansion, with margin expansion contributing almost nothing despite intensive management focus. Headwinds like price erosion, inflation, and supply chain shocks have made it nearly impossible to improve margins. Domingo discusses the importance of full potential diligence, front-loaded transformation, and the emergence of Chief Transformation Officers as structural responses. He also addresses AI partnerships between private equity firms and providers like OpenAI and Anthropic, positioning AI as a scale amplifier that will further separate winners from losers. The conversation centers on how private equity's inherent innovation capacity and activist governance may give it an edge in AI deployment compared to corporates constrained by compliance.
It means that to achieve a 2.5x money multiple return today, buyouts need 12% annual EBITDA growth, whereas from 2013-2023 only 5% growth was required to hit the same return - reflecting the loss of leverage and multiple expansion as return drivers.
Despite intensive management focus, margin expansion has been nearly eliminated by structural headwinds including price erosion, inflation, and supply chain shocks; most PE-backed companies buy and exit at roughly the same EBITDA margin (around 15%), turning the margin bucket into a 'leaky bucket.'
Full potential diligence is an independent, unconstrained assessment of a portfolio company's maximum potential conducted pre-investment to avoid inherent bias; it enables front-loaded transformation and day-zero value creation execution, which mathematically maximizes IRR by starting returns immediately rather than delaying them.
Yes; these partnerships provide PE firms with scale benefits from native AI capabilities and accumulated learning across multiple use cases, allowing larger firms to deploy AI transformations across portfolios more effectively than emerging managers or smaller firms can independently.
Likely yes, because PE-backed companies benefit from a culture of innovation, supportive shareholders enabling experimentation, and GPs bringing AI capabilities directly to portfolio companies - advantages not typically present in compliance-heavy corporate environments.
Our reviewer’s read on each dimension, with quotes from the episode.
The episode contains several substantive ideas - the '12 is the new 5' framework, the decomposition of PE returns (50% top-line growth, 50% multiple expansion, ~0% margin expansion), and the importance of 'full potential diligence' - but these are presented with limited depth or challenge. Much of the conversation devolves into reassurance that PE remains a great asset class, and significant airtime is lost to filler (host rambling about AI's leveling effects, broad statements about scale without concrete examples).
the average buyout 10 years ago could grow at about 5% EBITDA per year and still bring home a, ah, gross 2.5x money multiple today. To hit the same return, you need to grow earnings by more like 10 or 12
from $1 invested to close to $2 returned 50% it's coming from top line and growth. 50% it's coming from multiple expansion. Margin expans has been very, very limited
The '12 is the new 5' insight is moderately fresh and worth discussing, but most other frameworks (full potential diligence, chief transformation officers, alignment incentives) are well-trodden PE orthodoxy. The AI section adds topicality but lacks original analysis - the guest largely restates consensus that scale matters and PE firms can leverage AI, with no contrarian or counterintuitive claims.
12 is the new 5 alludes to a period 2013 to 2023 where when we've analyzed uh, a very large number of deals where we have been participants as co investors
the ability of deal partners and portfolio uh, operating teams to adapt from a playbook, from a number of tools, from a number of experiences, but to make that perfectly tailor made suit to that situation, that's where the real value creation happens
Emilio Domingo is Chief Commercial Officer at Bain & Company with 25 years in PE, giving him legitimate seniority and insider access. However, his role at Bain is advisory/commercial rather than an active PE operator who has personally run deals at scale, built companies, or faced the operational pressures being discussed. He speaks more as an industry analyst than a practitioner with direct operational P&L responsibility.
Chief Commercial Officer at Bain and Company
when I started working in private equity, uh, and this is 25 years ago, the industry was 5% of what the industry is today
The episode relies heavily on aggregate statistics (50/50 split of value creation, minus 6% deal count, 2.5x money multiple) without naming specific companies, funds, sectors, or time-bound metrics. The discussion of AI use cases mentions 'a number of use cases that have been, uh, implemented over the last few months, some of them at scale' but provides zero concrete examples. The only named reference is to John Kelleher's 10 tests, not original evidence.
50% it's coming from top line and growth. 50% it's coming from multiple expansion
Deal values were up, exits were up in every region
The host asks reasonable opening questions and references external thought leadership (CBC Capital Partners, Kelleher's 10 tests), showing preparation. However, follow-ups are often soft or pivot away from tension. When the guest says margin expansion 'has been very, very limited...contributing almost nothing,' the host doesn't press on why this is so despite intensive management scrutiny. The AI section devolves into the host philosophizing about leveling effects rather than pressing the guest on specifics. No genuine disagreement or productive friction emerges.
So it's the operational improvement aspect that I find slightly concerning though, because it's the macro picture has changed completely
But why does there need to be a partnership? Why can't they just use the AI like everyone else?
Computed from the transcript - who did the talking, and the words that came up most.
Private equity is entering a tougher operating environment, where cheap debt and multiple expansion can no longer be relied on to deliver returns. In this episode of Fund Shack, Ross Butler speaks with Emilio Domingo, Partner in Bain & Company’s London office and Chief Commercial Officer for Bain’s EMEA Private Equity practice, about Bain’s latest private equity outlook, the idea that “12 is the new five”, and what it means for GPs, LPs and portfolio company management teams.
Transcribed and scored by The B2B Podcast Index.
Speaker A: In early 2026, Bain Co. Released its annual private equity report. One very interesting insight in the report is the claim that 12 is the new 5. It's the idea that the average buyout 10 years ago could grow at about 5% EBITDA per year and still bring home a, ah, gross 2.5x money multiple today. To hit the same return, you need to grow earnings by more like 10 or 12. So the next time some private equity backed CEO or CFO tells you they feel like they're working twice as hard to go the same distance, they literally telling the truth. But here's the problem. This isn't the aberration. It was the ultra low interest rate environment of the past few decades that were the anomaly. This is more like back to reality and it feels like a brutal awakening. And here to discuss this with me is Emilio Domingo, Chief Commercial Officer at Bain and Company. Emilio, welcome to Fun Shack. Reading your latest report. There's two ways you can read it really. One is that things are looking like it's a recovery. The deal values are up, even exit values are up and things look like they might be a bit challenged, but we'll get through. Another is the reading that I just gave you in the intro, which is that we're emerging into a very different environment where private equity is really going to have to raise its game. What do you believe?
Speaker B: Thanks, Ross. Uh, I appreciate the intro. First of all, uh, thank you for having me me here today. It's a pleasure, um, to your question. I don't think it's either or. I think there are a number of secular trends that we should be talking about and things that are becoming more palpable and more important in the last few, uh, years and in the last few months, 2025 was a good year on the headlines. Deal values were up, exits were up in every region. Uh, when you look under the skin of that, there's a significant impact of very large deals. So the industry as a whole had the second best year for the last five years. So it was a good year. Um, large deals had a significant impact on those headliners. When you look at deal count instead of deal volume, those numbers are a bit more muted with minus 6%, uh, in terms of deal count globally and a number of similar numbers if you look at the different regions.
Speaker A: So it's the operational improvement aspect that I find slightly concerning though, because it's the macro picture has changed completely. This 12 is the new 5 idea. Can you give us a little bit of a feel of where we're coming from how much has margin expansion contributed to private equity returns historically?
Speaker B: Would you say so? Great question. Um, first of all, let me just uh, maybe paraphrase 12 is the new 5 alludes to a period 2013 to 2023 where when we've analyzed uh, a very large number of deals where we have been participants as co investors, you only needed, and I say only, uh, you only needed to go, uh, to grow EBITDA at 5% to do a very, very significant return, which is two and a half times your money, which is a very good uh, return. That number today. If you start an average buyout, that's 12. So it's two and a half times as hard. Right? Uh, to your point earlier on, management teams having to run uh, twice as hard twice to get to the same point at the same metrics. If we look at the returns of the industry from 2013 to 2024 on close to a thousand exited deals as an average, the industry has created value from two main levers. One has been revenue and top line growth. That has contributed around 50% of the overall value creation, uh, in terms of returns. The second has been multiple expansion. And every private equity, every sector within the private equity industry has had a significant multiple expansion over the last few years. So when you decompose the returns from $1 invested to close to $2 returned 50% it's coming from top line and growth. 50% it's coming from multiple expansion. Margin expans has been very, very limited on average, contributing almost nothing, uh, to the overall, uh, industry value creation.
Speaker A: Almost nothing. Margin expansion, Margin expansion, fundamental business improvement as measured by earnings growth effectively. Is that what we're talking about?
Speaker B: No earnings growth have been there. Margin expansion, very basically you buy a company at 15% EBITDA in year one, you exit that company at 16, 17, 18% EBITDA in year five. That being, you buy a company on average at 15% EBITDA, you sell the company on average at 15% Ebitda. Why is that so hard? And uh, why margin expansion has not contributed to a significant part, uh, of the, again average industry numbers, on average. The industry hasn't been able to raise, uh, margin in its sectors because of its, it's a leaky bucket margin expansion. You have price erosions, you have uh, inflation, you have had supply chain shocks with significant inflation over the last few years, uh, for many macroeconomic factors. So all of those reasons have contributed to an environment that has been a headwind, uh, in terms of margin expansion.
Speaker A: So in the Last few years you've got to assume that private equity backed companies, they're very intensively run. There's a lot of eyeballs on how they're performing. So if they've done basically nothing in the last few years in terms of margin expansion, your average company presumably is you've got to run very hard.
Speaker B: You got to run very hard to stand still. And again I, I wouldn't, I would phrase it differently. My take is, is there's a lot of focus in every buyout in improving, in improving the way that the company is run and bringing talent, bringing um, talent in the form of management teams, advisors, the boards, the investors, bringing their experience. So there's a lot of focus on bringing value uh, to that portfolio company. And again the returns are there and the returns beat public equity returns. So the private equity industry, it's a great place and it has been a great place to put your money. When we decompose what's been driving a lot of those returns. Coming back to that point that it's been really really hard in the last 10 years, um, there are a number of things that have created holes on that bucket of margin expansion to my earlier point, price erosion, inflation, supply chain shocks and the likes.
Speaker A: So presumably you're dealing with a very sophisticated client base for your services. I mean I assume you are, although.
Speaker B: No, no, we are, we are. You are so and increasingly so and, and increasingly so in the sense that when I started working in private equity, uh, and this is 25 years ago, the industry was 5% of what the industry is today. So it's been a phenomenon, uh, phenomenal growth for the, for the industry and, and as such growth and what really differentiates the winners and the losers in the, in, in the private um, is that ability to leverage scale where scale matters. Either global scale, regional or local sourcing scale, um, ability to go really deep into a specific sector or capability. So to your earlier point the industry has become really sophisticated with really sophisticated both investors and value creation teams within those investors with very clear paybook with quite impressive accumulated experience in specific verticals to bring value to those companies. So yes, it's been a great industry to be part of. Uh, and one that I am completely um, convinced that it will continue to outperform the public markets because it's very nature of the activism that private equity and um, activism and m. Incentive alignment that private equity brings and of course
Speaker A: to grow, that's all it really needs to do. It doesn't have to beat some arbitrary number. Although you know, maybe the carry hurdle is fixed but it doesn't have to be an arbitrary number. It doesn't even have to beat private equity peers. It kind of just has to be for now public markets. And as long as it's doing that, even if it has to be, it
Speaker B: has to be a great alternative.
Speaker A: Uh, right, exactly.
Speaker B: To put your money right as an institutional LP or something that um, as you would have seen from the report is increasingly happening over the last few years. But 2025 has been a big year and that which is um, private wealth and which is private clients coming into private markets.
Speaker C: A client asks you about private markets, not just whether to invest but how private equity or private credit fit into their portfolio, what the liquidity trade offs are, what the real risk looks like. Now that's a more complex conversation than many advisors have historically had to manage. The PMC Q50 was built to help advisors understand how prepared they are. It's free to complete but it does take a good 25 minutes of proper thinking time. But what you get is a completely personalized private markets capability profile with more than 15,000 possible pathways. So it's very tailored to precisely where you are. You'll see where you're strong, where you may need to sharpen up and what to prioritize next. So before a ah, client tests your thinking, test it yourself, see the link in the notes or visit privatemarketscapability.com I
Speaker A: guess the holy grail of margin expansion is someone gives you the playbook, the systematized way of creating value. I uh, guess that's where everyone wants to get to. But another way of looking at private equity is that it's a governance structure and everyone's aligned and so you uh, give talent uh, the room to translate entrepreneurial flair into business performance. Right. Um, I feel that there's less of that now and it's more the systematization like corporate management science. That's what it feels like more than you know. We're going to let these people run with the ball.
Speaker B: I think those concepts are not diametrically opposed and on the one side governance alignment, bringing capabilities where there are capability gaps in those portfolio companies, leveraging um, the experience and the know how of the GP for the portfolio company. Those are all very clear areas of value creation together with having a very balanced view of how do you maintain entrepreneurship and empowering the management teams which is the first and foremost um, rule of value creation with bringing some support where support is needed. So with the clients that we work with we see that constant balance of supporting and bringing capabilities to management teams where those management teams will welcome those capabilities versus having a rigid playbook. So when you look at what the best investors are doing and what is separating winners and losers is that ability to bring value creation tools, capabilities, talent, support to management teams where they need it. And every deal is different, every portfolio company is different, every situation is different. So the ability of deal partners and portfolio uh, operating teams to adapt
Speaker C: from
Speaker B: a playbook, from a number of tools, from a number of experiences, but to make that perfectly tailor made suit to that situation, that's where the real value creation happens.
Speaker A: Let's talk a little bit about the art side of value creation. I came across a bit of thought leadership from CBC Capital Partners, I think, uh, from John Kelleher, um, and he came up with 10 tests of a world class value creation plan. I'm not going to give them all to you, but I want to throw a couple out at you and get your kind of uh, a spontaneous reaction to them. So he said that his first test for a world class value creation plan is the fresh eyes test. So you should start every investment with a truly independent review so that there's no inherent bias in what you're looking at.
Speaker B: I think that's a spot on the way that we think about it. And uh, going back to our 2026 report, uh, we have a chapter on that is we call it uh, full potential diligence. Uh, so how diligence is not a check in the box exercise but think about where is the full potential of the specific portfolio company and just bring that independent review to how do you build that full potential prior to an investment and then that full potential links into the value creation.
Speaker A: Yes.
Speaker B: So 100% agreed that starting with a fresh look of eyes, with an unfiltered uh, and unconstrained view of what is the full potential and um, how can you bring that company to full potential. That's what's going to create your ability as an investor to win that deal and to create returns later on speed.
Speaker A: So you need to do a transformation and front load it so that you make a big change in the first year. Because the idea is I guess that, that time kills deals. How do you feel about that?
Speaker B: Uh, absolutely. Time kills deals. Mathematically, um, the IRR diminishes after year five just by the pure math of it. Um, and you want to start out of the gates soon. Many or most of the success stories that you will see in transformation start with a full potential diligence, as we mentioned before that full potential diligence can translate and can go across into value creation very quickly. You have a clear value creation plan from day zero that you could start executing on. And that creates that time urgency and your ability to start implementing the value creation from day zero, um, versus longer, um, later on. Because mathematically time. Time kills returns mathematically. But then also that sense of urgency, that sense of starting from the very beginning on that transformation of valid creation is critical.
Speaker A: I've got one more and that is slightly controversial. I think maybe, um, they advocate the. Implement. They advocate a chief transformation Officer who is kind of CEO level, who has ownership of the transformation. How do you feel about that?
Speaker B: So it's something that we are seeing in the market happening more and more and more over the last few, uh, years. The Chief Transformation Officer, um, it is a clear part of the management team. You said CEO level. I wouldn't say CEO level. We've seen chief transformation officers as part of an executive team, as part of the management team reporting to a CEO versus CEO level. I don't know if you refer to that, but Chief Transformation Officer, uh, being a reality in the market today and being the part of the executive team that is able to bring together all of that transformation and value creation, um, is clearly been something that the industry has had for a while. It's increased in terms of how much that is present. And again it differs by different type of investors and value creation teams. But we are increasingly seeing that, uh, and I think over the last few years, uh, it has been a very important part of any transformation to have someone in that management team that truly owns the transformation and is at the same level of executive peers.
Speaker A: Okay, so all this being said, we're now in a completely different operating environment, aren't we, because of the advent of artificial intelligence. And in the news quite recently we've seen various announcements from OpenAI and anthropic forging formal partnerships with investment firms, private equity firms. What do you feel about this partnership? What should we read into it?
Speaker B: AI is obviously, um, transforming the way that private investors think about investing and value creation. And you will have many flavors of that. And talking about AI, uh, as an abstract concept is quite hard because it's a very, very broad concept. But we are seeing sophisticated investors investing deeply and thinking very deeply on how automation, LLM capabilities, AI more broadly is going to be a tool that it's increasing the efficiency, increasing the performance, increasing how well they do as uh, investors within investment teams, within value creation teams, and then the same in portfolio companies. And when you look at the portfolio companies, uh, you will see there are a number of use cases that have been, uh, implemented over the last few months, some of them at scale. Already we have many portfolio companies that will be experimented with proof of concepts before they scale that up. And we are now in a phase in which many of those proof of concepts are being scaled up and brought to a more transformational stage. Had we had this conversation, um, nine or 12 months ago, you would have had a lot of companies experimenting with specific use cases. Which ones are going to work, which ones are not. Now we see many of those already scaling up some of those use cases.
Speaker A: But why does there need to be a partnership? Why can't they just use the AI like everyone else?
Speaker C: Is there anything to read into that?
Speaker A: Is it more effectively what I'm getting at? Is there something more systematic, do you think, behind it? Is there a learning there?
Speaker B: There is. Again, to my previous point, um, scale being very important. And one of the ways to obviously achieve a scale is through partnerships and through different partnerships. So, um, I do think that many, um, of these partnerships will, uh, leverage that scale from native AI players and they will bring, uh, those operational capabilities.
Speaker A: So there's two ways of looking at the fallout of AI, and I genuinely don't know which is the correct one. And it's a little bit like when the Internet came along. Everyone thought it would be a great leveler, um, but it turned out that there were just. They created a small number of giants. But I look at AI and I think, well, as a kind of a small business owner, it is unbelievable in terms of the power of leveling, um, me up to be able to compete with very large businesses. And so on the one hand, I look at it and I think, well, this has got to be good for emerging managers who suddenly have this amazing kind of army of consultants that do due diligence and customer surveys and all of that. Um, but then on the other hand, I look at history and I also look at what's happening as we've just been discussing, and the importance of scale. And I think, well, these are the early fruits of AI, but it's the people that can really capture this stuff at scale, maybe vertically integrate the entire ecosystem that are going to be the winners. Which one's the right for you?
Speaker B: Yeah, it's a great question. Uh, and I'm not sure I have a better crystal ball than you do. Um, you will see, um, an increase in the ability of managers, um, in general, through artificial intelligence, to generate better investment Decisions and to create more value. Um, you will also see as per the previous discussion scale, being a very important factor when you are able to leverage a number of use cases across your portfolio when you're able, because you have invested more than anyone else on a specific AI deployments, uh, and developments, you have that accumulated experience that allows you to do that on your next investment, uh, out of the gate. So you will have both, um, impacts.
Speaker A: So I've noticed this, um, I found that a lot of the corporations, the corporates that I deal with have been very slow adopters of AI because of compliance and so on and maybe they catch up quickly. But I do wonder whether because of the structure of private equity and the speed that we've been talking about and then they're machines that are built for transformation. Whether private equity backed companies might have a bit of an edge here, just
Speaker B: private equity companies in general are innovative. The industry has brought tremendous innovation in, in general to their portfolio companies. So yes, I, I, I do agree with you by, by the nature of ability to innovate, ability to experiment, um, shareholders as private equity firms and backers, supporting that innovation and supporting those capabilities and to the previous point, many of the GPs bringing their own AI capabilities to those portfolio companies and supporting management team with that, um, with that transformation, AI transformation, I'm very, very convinced that the industry is going to continue innovate and be at the forefront of any AI transformations because it's the nature and the very innovative nature of the private equity industry.
Speaker A: So if we were to try and round this conversation out, we began by talking about your report and how there are two ways of looking at it. The industry is growing and it's fine and actually it's more challenged and we're really there, we're looking at averages. Um, how would you sum up your view of private equity's prospects going forward?
Speaker B: So the first point is that we do believe that the industry, ah, is a successful industry that will continue to generate returns above private markets. The second point is within that we are seeing an increasing segmentation of winners and losers as the industry evolves and becomes more sophisticated and, and we are seeing top quartile and second quartile players having very specific characteristics versus players that are achieving below um, average median returns. That selection of GPs and managers is increasingly more important. The next point is why is that uh, as we continue to see the cost of doing business is increasing and the cost of ALSA is increasing leveraging scale capabilities, either sectorial or local or whatever the choice of scale is for different gps is going to become more important. So that goes back to the point of, uh, separating winners and losers in this industry. So we are very excited of what the industry will continue to innovate in the next few years. AI being an important part of that. But not only, um, there are challenges, as we highlight in the report, and there are a very large number of portfolio companies, um, that need liquidity, and LPs need liquidity. So the industry has a important liquidity challenge. But fundamentally, nothing's broken in the private equity industry. Fundamentally, we believe that this is a great asset class and that it will continue to be a great asset class.
Speaker A: Well, that's a great place to leave it. Emilio, thanks so much for sparing your time.
Speaker B: Pleasure. Thanks very much.
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