The Twelve Percent Problem

A decade ago, private equity could underwrite a 2.5x return with 5% annual EBITDA growth. The rest came from somewhere else: debt at 6–7%, leverage at half the purchase price, and an exit multiple reliably higher than the entry.

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That math is gone. Debt at 8–9%. Leverage at 30–40%. Entry multiples at record highs with nowhere left to expand. Run the same bridge under the new assumptions and the requirement lands at 10–12% EBITDA growth. Every year. From operations.

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Three of the four levers that built the industry were financial. All three have disappeared — and here is the uncomfortable part: the one that remains is the only one the industry never built an instrument for.

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Debt capacity: fully diligenced. Market and multiples: fully diligenced. Quality of earnings: fully diligenced. Operational capacity to deliver double-digit growth under load, year after year? A management presentation and a few expert calls.

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That machinery verifies the 12% is in the model. It cannot tell you whether the organization exists that can deliver it. And the two are not the same thing: a plan can be internally consistent while the executives, asked separately, describe different mechanisms for the same growth; while the field data contradicts the assumed unit economics; while a third of the plan depends on factors the company does not control.

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To be precise about what a diagnostic can honestly claim here — because this is where operational DD quietly overclaims: no instrument can forecast whether a company will grow 12% a year. What can be determined, from evidence and reproducibly, is whether the conditions for it exist today, which obstacles stand in the way, and which of those are controllable versus structural. That last distinction is the one an investment committee actually needs. Controllable obstacles: a fix with a defined sequence. Structural obstacles: a different asset entirely, whatever the model says.

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The last cycle wrote the same check into both. The returns are now public — and for anyone holding a portfolio built on the old math, the logic runs in reverse: a stalling position is not a valuation question waiting for a better market. It is a diagnostic question.

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When the model needs twelve percent, the question is no longer whether the model is right. The model is always right — about itself. The question is whether anyone has read the organization that has to produce it.

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The full essay on Under Load goes further: the complete return bridge with chart, the sourced numbers behind the shift, and what "full-potential diligence on Day 1" actually requires.

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Read "The Twelve Percent Problem" on Under Load

Published July 2026 · Robert Kellner