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Asia vs. North America: Operating Performance, Revenue Growth

The purpose of private equity is to create value at portfolio companies, and one contributor of value creation is revenue growth. GPs can support company management to increase revenue through organic means such as marketing, production ramp-up, the launch of new products and services, expanding the global footprint, and also through inorganic means like add-on acquisitions to consolidate the market and build a larger platform.

Driving revenue growth creates value and ultimately higher returns upon exit. In the previous short articles of this series, we’ve compared fund and deal level returns in Asia and North America, but how does it look at the underlying deal operating level where the returns ultimately come from?

Benchmark Operating Analysis-Operating Growth

In the figure above, we compare median revenue CAGR by deal investment year in Asia (shown as a solid line) against the benchmark, North America portfolio company revenue growth (dotted line). There is a steep decline for Asia from the pre-crisis era starting in 2004 all the way through 2008, while median North America growth was zero across all of these years - Asia was a hot market in those early days of Asia private equity with many companies showing phenomenal hyper-growth. Despite the steep decline, Asia still showed superior top-line growth compared to North America between 2004 and 2010, and by a wide margin for most of those investment years.

However, between 2011 and 2013, median revenue growth was moderate for both regions with North America having the edge by approximately 2%-points. By 2014, growth picked up for both regions but with more volatility through 2018, and Asia outperforming in 4 out of the 5 years between 2014 and 2018.

Overall, Asia based deals showed stronger revenue growth across most of the past 15 years, but also with more volatile revenue swings compared to North America. This analysis supports the general view that Asia is a faster-growing economic region, and private equity data analytics from CEPRES shows that Asia portfolio companies do have the advantage when it comes to top-line revenue growth.

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