The value creation plan assumes the sales engine will scale. It promises a number of new customers, a win rate, a deal size and a pace of hiring. Yet commercial due diligence often stops at the market and the product. The machine that has to deliver the growth is examined last, if at all.
The maths has changed
Bain & Company estimates that typical deals now need around 10% to 12% average annual EBITDA growth to reach the benchmark 2.5x return, against about 5% in the 2010s.[1] Bain’s shorthand for it is “12 is the new 5”.[1] The growth now has to be earned.
In software deals, revenue growth has accounted for 52% of total value creation over ten years, against 42% from multiple expansion and just 6% from margins.[2] And the upside of getting the commercial engine right is real: in B2B companies, Bain typically sees a 10% to 20% top line acceleration and a 10% to 15% EBITDA uptick from commercial excellence programmes.[3]
Before the deal: what to test
- Forecast history. Compare the last four to eight quarters of forecasts with actual results. A business that cannot call its own quarter will not call the plan.
- Pipeline quality. How much of the pipeline has real buyer activity, a decision maker and a date? How old is it, and how much has stalled?
- Win rates and sales cycles by segment. Averages hide the truth. Growth plans often rely on the segment with the weakest numbers.
- Founder and top rep dependence. If a handful of people close most of the revenue, scaling means building what they do into a process.
- Hiring and ramp. How long do new sellers take to reach full productivity, and how many reach quota? This sets the real pace of growth.
- Pricing and discounting. Discount patterns at quarter end tell you how much pricing power really exists.
- Data quality. If the CRM does not reflect reality, every number above is a guess.
After the deal: the first 100 days
- Set a commercial baseline. Agree the real numbers for pipeline, win rate, cycle length and forecast accuracy before anything changes.
- Assess the sales leadership. Decide early whether the current leader can take the business to the next stage, and act on it.
- Fix the forecast rhythm. A weekly pipeline review and a monthly forecast the board can trust come before any growth initiative.
- Find the quick wins. Pricing discipline, stalled pipeline and follow up speed usually release value within a quarter.
- Hire to a capacity plan. Link every sales hire to the plan, the ramp time and the pipeline it needs, so headcount turns into revenue.
Questions we are asked
How much EBITDA growth do private equity deals need today?
Bain & Company estimates typical deals now need around 10% to 12% average annual EBITDA growth to reach a 2.5x return, compared with about 5% in the 2010s.
How much of PE value creation comes from revenue growth?
In software deals over ten years, Bain DealEdge data shows revenue growth accounted for 52% of total value creation, multiple expansion 42% and margin expansion 6%.
What should commercial due diligence check in a sales team?
Forecast accuracy against actual results, pipeline quality and age, win rates and sales cycles by segment, dependence on the founder or top sellers, hiring and ramp time, discounting, and CRM data quality.