Raise 1.12 to the fifth power. You get 1.76.
That is the promise inside almost every buyout model signed this year. Bain’s 2026 Global Private Equity Report, published on 23 February, put a number on the new regime: a deal now needs 10 to 12 percent EBITDA growth a year to earn the benchmark 2.5 times return over five years, against about 5 percent through the 2010s. Cheap debt and multiple expansion stopped doing the work, so the operating plan has to. Seventy six percent more earnings in five years, from the same company, run by mostly the same people.
Now halve it.
The thesis
A value creation plan is a bet on how much change a company can absorb, and diligence never measures that. It measures the market, the margins, the contracts and the code. It does not measure the rate at which this organisation has historically turned a decision into a finished change.
So sponsors underwrite a plan that needs three years of change delivered in eighteen months, launch all of it at once to beat the clock, and replace the chief executive when it does not land. The industry calls that an execution problem. I call it an underwriting error. The capacity was never there, and nobody checked.
Halving it
Alvarez & Marsal published its European private equity value creation report on 20 May 2026. Two hundred fund investors and C-level executives across ten countries, interviewed by Statista Q in February. Two findings sit side by side in the release, and I do not think they were meant to be read together.
First, 58 percent of sponsors now deploy resources within the first 100 days, double the 29 percent recorded a year earlier. Second, 65 percent say they have achieved less than half of the value targeted in plans developed over the past two years.
The response to plans that under deliver is to start them sooner. Starting sooner means more initiatives running at the same time. More initiatives running at the same time is the one thing an organisation with finite change capacity cannot carry.
Now run the arithmetic on “less than half”. Take a plan written to the new regime: 12 percent a year, 76 percent over five years. Capture half the value and you land 38 percent. Compounded, that is 6.7 percent a year.
A half captured plan in the 12 percent world delivers something much closer to the 5 percent world. The sponsor paid a 2026 entry price for 2015 performance, and the model will not show it until year three.
Where the capacity actually sits
Change capacity is not headcount. It is the small number of people who run the business today and also own a piece of the change. In most mid market companies I have worked inside, that is the chief executive, the finance lead, one or two operations heads and whoever runs technology. Five or six people.
Every initiative in the plan lands on them. A pricing reset lands on finance and sales. A procurement programme lands on operations and finance. A systems consolidation lands on technology and finance. An AI programme lands on everyone, and on technology twice. Notice which name keeps appearing.
The people underneath them are already full. Gartner’s HR research found the average employee experienced 10 planned enterprise changes in 2022, up from 2 in 2016, while willingness to support change fell from 74 percent to 43 percent. Its April 2025 survey of more than 2,850 employees found 79 percent have low trust in change, and only 32 percent of business leaders report healthy change adoption. A new owner does not arrive at a rested organisation. It arrives at one that has already been changed ten times this year and has stopped listening.
Then the owner column fails, and the sponsor does the one thing it can do quickly. AlixPartners’ 11th annual private equity leadership survey, published 25 March 2026, covered 427 executives. 65 percent of PE firms report chief executive turnover during the hold. 83 percent say unplanned turnover lengthens the hold, and nearly half say it reduces returns. Bain has buyout holding periods at around seven years at exit, against five to six from 2010 to 2021.
Replacing the chief executive is a capacity fix applied after the fact, at the most expensive moment available, and it resets the owner column to zero.
How it compounds
The failure runs in a straight line. The plan is written to the 12 percent requirement. Diligence never asks whether the company can carry it, so every initiative is launched inside the first 100 days. The same five or six people end up owning all of it. Less than half the value lands. The chief executive goes, the hold stretches, and the new leadership inherits a half finished portfolio of change with a shorter clock.
The alternative path is not slower. It is ordered. Test the capacity before close, sequence the initiatives to fit it, and the value lands inside the hold instead of in the next owner’s model.
What I actually look at
On 1 September I argued here that technical diligence audits the codebase and ignores the delivery system. This is the same leak, one level up. The delivery system is where a company’s change capacity becomes visible, because almost every initiative in a modern value creation plan eventually becomes a change to a system that someone has to build, configure or migrate.
So when I read a value creation plan now, I skip the initiative column and read the owner column. I count distinct names. Then I ask the company one question: in the last 24 months, how many cross functional changes did you start, and how many did you finish? The ratio between those two numbers is the most honest estimate of change capacity I know. I have not seen it in a standard diligence pack.
After 30 years of shipping software, the pattern I trust least is a plan where the finance lead’s name appears against more initiatives than there are quarters in the first year.
Where this breaks
The Alvarez & Marsal respondents blame the world first, not their plans. 62 percent name geopolitical volatility as the top obstacle to value creation and 58 percent name tariffs and inflation. Some of that “less than half” is macro, not capacity, and a self-reported survey of 200 European respondents cannot separate the two. I am reading a pair of numbers in a way the authors did not.
The Gartner figures measure attitude, not throughput. Low trust in change does not prove an organisation cannot deliver it. Some deliver anyway.
The clock is real. With seven year holds and a 12 percent requirement, a sponsor who sequences may lose more to time than it saves in capture. My answer is that sequencing is ordering, not waiting, but I concede the trade is tighter than this post makes it sound.
Some sponsors do test for this. Large operating partner benches and management assessments exist for a reason. The limit is that a management assessment grades the individual, not the throughput of the system around them. A strong chief executive with a full owner column is still full.
And the strongest objection: sometimes the chief executive change is the right capacity fix and the plan was fine. Nearly half of AlixPartners’ respondents say unplanned turnover reduces returns. The other half do not.
What I would do on Monday
Add one line to diligence: cross functional changes started versus finished over 24 months. Ask for the list, not the number.
Read the owner column. If one name owns more than three initiatives, the plan is a wish list.
Launch no more initiatives in the first 100 days than the company finished in its best six months. Put the rest in a dated queue.
Underwrite at the capture rate, not the target. If the evidence says half, model half, and let the price move.
Hire the second line before close. The finance and technology owners you will otherwise hire in year two, after the chief executive has gone.
1.12 to the fifth is 1.76. Half of it is the 2010s.
The gap between those two numbers is not strategy. It is how many things one finance lead can finish in a year. Nobody asked.
I build software for private equity, which means I spend a lot of time inside the systems a value creation plan has to run through. If you are underwriting one this quarter and nobody has counted the owner column, book a call.