Greg Head: Private Equity Focuses on 5 Key Numbers, Not Just Stories

In a recent LinkedIn post, Greg Head details the critical financial and operational metrics that private equity (PE) firms scrutinize when evaluating investment opportunities, emphasizing a data-driven approach over mere narrative.

Head, a proponent of rigorous financial analysis, argues that PE funding hinges on concrete numbers rather than compelling stories. He outlines five essential components that form the basis of a fundable deal thesis, with an additional bonus metric that underscores a deep understanding of the investor’s perspective.

“PE doesn’t fund stories. It funds these 5 numbers (Bonus 6th) and a Pro-tip”

Market Position Clarity: Beyond Generic Claims

Greg Head stresses the importance of quantifiable market position, advising against vague statements like “we’re a leader in our space.” Instead, he urges leaders to present tangible data such as revenue rank against top competitors, market share percentages, and the concentration of revenue from their top ten clients.

“PE partners want proof, not positioning statements,” Head asserts, highlighting that investors require hard data to validate a company’s standing in the market.

Growth Trajectory Evidence: Demonstrating Future Momentum

The post elaborates on the need to showcase future growth potential. Head explains that while past performance is a factor, future momentum is paramount. Key metrics to include are:

• 3-year revenue CAGR (Compound Annual Growth Rate)
• Customer retention rate
• Pipeline coverage ratio
• New market expansion timeline

For companies unable to demonstrate at least 15% organic growth, Head suggests clearly outlining the acquisition strategy to bridge the gap.

Operational Leverage Points: Unlocking Hidden Value

A significant portion of Head’s analysis focuses on identifying and quantifying operational improvements. He criticizes the common practice of presenting strategy decks without the underlying financial impact. Head provides a compelling example:

“Last month, a CEO showed me their sales team was closing 12% of qualified leads. Industry standard? 28%. That gap = $4.2M in annual revenue sitting on the table.”

He further illustrates this point with the example of a company struggling with a fragmented tech stack due to acquisitions, leading to significant integration costs and inefficiencies. Head also points to working capital as a frequently overlooked area for improvement, citing a scenario where adjusting payment terms could unlock substantial cash flow without altering the core business operations.

“Put dollar amounts next to each lever. Real numbers from your P&L,” Greg Head advises, advocating for specific financial projections, such as quantifying the margin improvement from renegotiating supplier contracts.

Management Team Depth: The Strength of the ‘Bench’

Head emphasizes that PE firms invest in teams, not just individuals. He advises presenting the depth of the management team, including who manages which P&L, the track record of each leader, and any gaps that capital investment will fill. He notes that a lack of demonstrated knowledge transferability among the leadership team can be a deal-breaker.

Exit Math: Working Backwards for Returns

The article highlights the necessity of demonstrating a clear path to investor returns. Head explains the importance of working backward from the PE firm’s target return, calculating the required exit multiple and the necessary EBITDA to achieve it. Understanding “what has to be true” for the exit to be successful is crucial.

Bonus #6: The Cost of Growth

As a bonus, Head suggests that for companies aiming for significant revenue expansion (e.g., from $50M to $150M), presenting the cost to generate the next dollar of revenue is essential. Multiplying this cost by the target revenue increase ($100M in the example) provides investors with a critical understanding of the capital required for scaled growth.

Ultimately, Greg Head concludes that successful executives seeking PE funding present themselves as investors, articulating their business as an investment opportunity rather than just a business proposition. His pro-tip is to encapsulate this entire thesis on a single page.