--- title: Improving Price Realization – A Silver Bullet for Private Equity’s New Math description: How a small improvement in price realization can significantly boost margins and recoup lost enterprise value from lower multiples. image: https://4864103.hs-sites.com/hubfs/Featured%20Image_Improving%20Price%20Realization%20%E2%80%93%20A%20Silver%20Bullet%20for%20Private%20Equity%E2%80%99s%20New%20Math-1.jpg --- - [ Hospitality ](https://www.revenueanalytics.com/hospitality/n2pricing) - [ Manufacturing & Distribution ](https://www.revenueanalytics.com/md/pricing-as-a-service) - [ Private Equity ](https://www.revenueanalytics.com/md/pricing-as-a-service) - [ Media ](https://www.revenueanalytics.com/media/rateoptics) - [ Passenger Rail ](https://www.revenueanalytics.com/rail/farevantage) [ #### N2Pricing™​ The above-property RMS. ](https://4864103.hs-sites.com/hospitality/n2pricing) [ Hotelier Gets the Pricing Power it Needs to Beat the Competition ](https://4864103.hs-sites.com/hubfs/Case_Study_Hotelier_Gets_the_Pricing_Power_it_Needs_to_Beat_the_Competition.pdf) [ #### Pricing-as-a-Service™ Profitable pricing decisions at scale. ](https://4864103.hs-sites.com/md/pricing-as-a-service) [ Packaging Giant Slashes Deal Cycle Time 69% & Boosts Margin 4% ](https://4864103.hs-sites.com/hubfs/Case%20Stories/PAPA/Packaging%20Giant%20Uses%20Price+%20to%20Slash%20Deal%20Cycle%20Time.pdf) [ #### Pricing-as-a-Service™ Precision pricing for industrial portfolio companies. ](https://4864103.hs-sites.com/md/pricing-as-a-service) [ Does Your Portco Have a Pricing Problem? ](https://www.revenueanalytics.com/resources/pe/does-your-portco-have-a-pricing-problem) [ #### RateOptics™​ Modern ad pricing and sales analytics. ](https://4864103.hs-sites.com/media/rateoptics) [ Sales Managers Get Their Valuable Time Back at Top Radio Broadcaster ](https://4864103.hs-sites.com/hubfs/Case_Study_Sales_Managers_Get_Their_Valuable_Time_Back_at_Top_Radio_Broadcaster.pdf) [ #### FareVantage™​ Next-gen Revenue Management for Passenger Rail. ](https://4864103.hs-sites.com/rail/farevantage) [ Rail Operator Exceeds Revenue Goals and Lofty Customer Expectations ](https://4864103.hs-sites.com/hubfs/Case_Study_Rail_Operator_Exceeds_Revenue_Goals_and_Lofty_Customer_Expectations.pdf) # Improving Price Realization – A Silver Bullet for Private Equity’s New Math Is a 1.2% price improvement really equivalent to a 13% change in multiples? Yes. It may be hard to believe, but it’s true. Let’s walk through an anonymized real company example to see the power of pricing in action. --- A Private Equity (PE) company purchased a $200M building materials manufacturer with 8% net profits in early 2022. At the time, they paid 12.1x enterprise value (EV) to EBITDA multiple, suggesting a $194M EV. |   | EV @ 2022 Purchase | | --- | --- | | **Revenue ($m)** | $200.0 | | **EBITDA ($m)** | $16.0 | | **Valuation Multiple** | 12.1x | | **Enterprise Value ($m)** | $194 | ---   In 2023, EV to EBITDA multiples dropped from 12.1x to 10.5x, wiping out $26M in enterprise value. |   | EV 2023 | | --- | --- | | **Revenue ($m)** | $200.0 | | **EBITDA ($m)** | $16.0 | | **Valuation Multiple** | 10.5x | | **Enterprise Value ($m)** | $168 |   ---   Undeterred, the PE firm and portfolio company (Portco) acted, seeking help to eliminate unnecessary discounting in their quoting process for new customers. The result of that effort was a 1.2% price improvement yielding $2.5M in incremental revenue, nearly all of which flowed to the bottom line (minus incremental sales commissions). The resulting EBITDA growth fully offset the EV hit from the multiples decline. |   | EV mid-2024 w/ 1.2% Price Improvement | | --- | --- | | **Revenue ($m)** | $202.5 | | **EBITDA ($m)** | $18.4 | | **Valuation Multiple** | 10.5x | | **Enterprise Value ($m)** | $194 |   The new “worse case” if multiples remain depressed is a full EV offset. And that’s with very risk-adverse price actions that only yielded a 1.2% price improvement.   ---   What if multiples rebound? If multiples return to the average 2022 rate of 12.1x, then EV for this company shoots up to $223M! |   | EV if Multiples Rebound | | --- | --- | | **Revenue ($m)** | $202.5 | | **EBITDA ($m)** | $18.0 | | **Valuation Multiple** | 12.1x | | **Enterprise Value ($m)** | $223 |   --- Under any scenario, those choosing to improve pricing will come out ahead. As PE firms and their Portcos work to create true sustainable value, pricing should be top of the list of levers to pull. ## Recommended Reading [ Get the latest resources ](https://www.revenueanalytics.com/resources/distribution-manufacturing) [ Blog Unlocking Value in a Low Multiple Environment Portfolio company enterprise values are down in 2023, putting Private Equity firms in a bind. All are hoping for a valuation rebound. ](https://www.revenueanalytics.com/resources/pe/unlocking-value-in-a-low-multiple-environment) [ Blog The Value Creation Imperative: Shifting Market Dynamics As PE market dynamics continue to evolve, strategic pricing plays a pivotal role in value-creation for margin expansion and profitability. ](https://www.revenueanalytics.com/pe/blog/value-creation-imperative) [ Blog Offsetting Shrinking Multiples by Shifting Pricing ... For those proactively seeking to offset shrinking valuations, shifting your platform company’s pricing strategy away from Cost+ should be top of the ... ](https://www.revenueanalytics.com/resources/md/offsetting-shrinking-multiples-by-shifting-pricing-strategy) ## Start selling faster and more profitably today. You didn't create your nightmare price exception process, but it needs to be put to bed. Be the one to revolutionize how your reps price and sell today. [![Connect with an expert](https://no-cache.hubspot.com/cta/default/4864103/dc3589a6-4106-4d48-a9e3-6ab7e7ba210f.png)](https://cta-redirect.hubspot.com/cta/redirect/4864103/dc3589a6-4106-4d48-a9e3-6ab7e7ba210f)