Private Equity in 2026: Why “12 is the new five” | Emilio Domingo, Bain & Company | Ep. 89
Private equity is entering a tougher operating environment where historical tailwinds from cheap debt and multiple expansion are no longer enough. In this episode of Fund Shack, Emilio Domingo, Chief Commercial Officer for Bain & Company’s EMEA Private Equity practice, joins Ross Butler to discuss Bain’s 2026 private equity outlook, why earnings growth requirements have increased sharply, and what separates winning managers from the rest.
The headlines
- “12 is the new five” means value creation has become materially harder. Bain’s analysis suggests average buyouts now need far higher EBITDA growth to deliver the same returns investors achieved in the low-rate era.
- Margin expansion has contributed surprisingly little to historical private equity returns. Revenue growth and multiple expansion did much of the heavy lifting, but that formula is less reliable today.
- Specialisation, scale and accumulated experience are becoming decisive. Emilio argues that successful managers increasingly need a clear edge, whether sectoral, regional, operational or capability-led.
- Value creation is becoming more structured, but not purely formulaic. The best investors combine playbooks, talent and tools with tailored judgement for each portfolio company.
- AI may widen the gap between winners and losers. Private equity firms that can deploy AI use cases at scale across portfolios may develop a meaningful advantage.
What does “12 is the new five” mean for private equity?
Bain’s “12 is the new five” thesis captures a major shift in the economics of buyout investing. Emilio explains that, in the period from roughly 2013 to 2023, an average buyout could generate a strong gross return with around 5% annual EBITDA growth. Today, Bain’s analysis suggests that to achieve a similar 2.5x gross money multiple, an average buyout may need EBITDA growth closer to 12%.
The challenge is not simply that deal markets have been slower or that financing costs have increased. It is that the return formula itself has changed. The industry can no longer rely as heavily on low interest rates, rising valuation multiples or broad market beta.
Why has margin expansion been so difficult?
Margin expansion, it turns out, has contributed very little to average private equity value creation over the past decade. Revenue growth and multiple expansion have been the dominant contributors, while average entry and exit EBITDA margins have often remained broadly similar.
That does not mean private equity-backed companies have been poorly managed. Emilio frames the issue as a “leaky bucket”. Even when managers improve operations, those gains can be offset by price erosion, wage inflation, input cost inflation, supply chain disruption and other macroeconomic pressures.
Why does speed matter in private equity transformation?
Speed is a recurring theme in the episode. Emilio is clear that time kills returns mathematically. IRR naturally diminishes as hold periods extend, particularly after year five, so value creation needs to begin early.
That does not mean reckless change. It means entering ownership with a clear view of the company’s full potential, a prioritised value creation plan and the organisational capacity to begin execution from day zero.
This is also why Chief Transformation Officers are becoming more common in private equity-backed companies. Emilio notes that CTOs are increasingly part of the executive team, often reporting to the CEO, with responsibility for coordinating and owning the transformation agenda. The role varies by company and investor, but the trend reflects a broader move towards more deliberate execution.
How will AI affect private equity?
AI is now moving from experimentation to implementation in private equity. Emilio says that 9 to 12 months ago, many portfolio companies were still testing individual AI use cases. Today, more of those proof-of-concept projects are being scaled across businesses.
The implications are broad. AI can improve investment team efficiency, support value creation teams, automate parts of diligence, improve portfolio company operations and enable more systematic transformation. However, Emilio cautions against treating AI as a single abstract concept. The real question is which use cases work, where they work and how quickly they can be scaled.
Do private equity-backed companies have an AI advantage?
Private equity-backed companies may be well positioned to adopt AI because the ownership model is built for transformation. These companies often have focused boards, aligned shareholders, strong incentives and a clear mandate to improve performance within a defined time period.
Emilio argues that private equity firms have historically brought innovation into portfolio companies, and AI is likely to be another example of that. GPs that build internal AI capabilities and deploy them across their portfolios may accumulate experience quickly. That experience can then be reused in future deals, reinforcing the advantage of specialised and scaled investors.
This is one of the most important strategic points in the episode. AI is not just another operational tool. It may become part of the differentiation between private equity managers.
What is the outlook for private equity?
Emilio believes private equity remains a successful asset class and will continue to generate returns above public markets. However, the industry is becoming more segmented.
The winners are likely to be managers with clear differentiation, strong value creation capabilities, relevant scale and the ability to adapt to new technologies and operating conditions. The weaker performers are likely to struggle, particularly as the cost of doing business and the cost of generating alpha continue to rise.
Guest bio: Emilio Domingo
Emilio Domingo is a Partner in Bain & Company’s London office and Chief Commercial Officer for Bain’s EMEA Private Equity practice. In this role, he drives the commercial agenda for Bain’s regional private equity practice, helping the firm bring its capabilities, solutions and products to financial investor clients.
Emilio previously led Bain’s UK private equity practice. He has extensive experience across M&A, commercial and operational due diligence, business carve-outs, merger integration and value creation planning. His sector experience includes business services, technology and industrials.
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