European private equity firms and their portfolio companies are in the midst of a pronounced shift in value-creation priorities, with operational transformation emerging as the leading driver.
Gains in EBITDA margins — reflecting improved operational performance — accounted for 51% of EBITDA growth for portfolio companies that exited in 2025, according to an analysis by management consulting firm Alvarez & Marsal.
That was more than double the 21.5% proportion seen in exits before 2023, said A&M, which surveyed 200 PE firm and portfolio-company executives across Europe. Concurrently, the portion of EBITDA growth accounted for by topline growth dwindled from 78.5% before 2023 to 49% last year.
“Generating the same returns of the past now requires [PE firms] to improve portfolio companies in ways that are measurable, durable and less dependent on market conditions,” A&M wrote in its study report. “It calls for a fundamentally different approach to value creation underwriting and execution — one where operational transformation … becomes the main driver.”
The report noted that across the 239 deals analyzed, going back to 2013, PE-backed companies in Europe significantly outperformed publicly traded companies. The former enjoyed a 2.6 times faster compound growth rate for revenue and three times faster EBITDA growth rate, as measured since PE-firm entry against the Euronext 100 benchmark.
To deliver such performance, European PE firms and their portfolio companies are “building deep operational capabilities and sharpening execution,” according to A&M. Detailed value-creation plans are more often designed up-front, launched earlier in the holding period and adjusted as conditions evolve.
“Low-hanging fruit measures and quick wins are giving way to comprehensive transformations across the P&L and balance sheet, with AI and data increasingly acting as a catalyst,” A&M wrote.
A 43% plurality of survey respondents said that over the previous 12 months, employing a relatively equal mix of revenue-growth and cost-reduction initiatives was the key driver of value creation. Other categories of initiatives created far less value.
Within that more balanced framework, the report noted, working capital management and organic revenue growth are expected to be rising priorities relative to other levers in the next 12 months, cited by 83% and 81% of respondents, respectively. By comparison, 71% expected cost reduction to gain prominence. “Buy-and-build” strategies were a lower priority, with 65% of responses.
Meanwhile, the adoption of AI tools aimed at enhancing value creation has sharply accelerated, with 63% of survey respondents now using them as part of their value-creation programs, up from 41% a year ago.
Data analysis and insight generation were reported to be the most common use cases, cited by 69% of those polled. Next came operational efficiency (60%) and finance-function optimization (55%).
