Results

Private companies’ enterprise values grew at an accelerated rate

(NOTE:The Lincoln PMI, STOXX 600 and FTSE 250 EV returns above reflect enterprise values)
(Index EVs exclude financial institutions and real estate for which enterprise value is generally not meaningful; however, including such companies produces similar results)

Comparing the UK and the Eurozone

Examining the LPMI

European Lincoln PMI by sector

Rising stress indicators amid positive market momentum

While overall trends are positive, both in terms of operating and index performance, there are some signs of stress at the margins. The covenant default rate continued to increase, reaching 3.9% in Q3 despite lenders being proactive with breaches and waiving or remedying them with a covenant holiday in over 80% of cases. In addition, more than 17% of companies have some form of PIK interest across their senior debt facilities, up from 15.5% in the prior quarter. This may be in part driving the proportion of companies with tight covenant headroom (i.e., < 10%) increasing from 10% in 2024 to 15% of the portfolio in 2025. Nick Baldwin, Managing Director in Lincoln International’s European Valuations and Opinions Group, commented, “While private markets are not currently a cause for concern given continued earnings growth, there are signs of strain that appear to be emerging gradually. These pressures serve as a reminder that even a handful of poor deals can significantly impact credit fund returns as uncertainty persists.”

Methodology

The Index is calculated using anonymized data on an aggregated basis by Lincoln’s Valuations & Opinions Group, which has unique insights into the financial performance of thousands of portfolio investments across a variety of investment vehicles, including private equity and private debt funds.

All figures are quoted in and based on calculations in local currencies, however Lincoln also prepares the index on a single currency basis to account for FX impacts. Lincoln applied the same methodology to public indices to allow a like-for-like enterprise value comparison between the Index, the FTSE 250 and the STOXX 600.

Academic Advisors

Professor Steven Kaplan

Professor Steven Kaplan is a Senior Advisor to Lincoln’s Valuations & Opinions Group. He is the Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance and Kessenich E.P. Faculty Director at the Polsky Center for Entrepreneurship and Innovation at the University of Chicago Booth School of Business. Among other courses, Professor Kaplan teaches advanced Master of Business Administration and executive courses in entrepreneurial finance and private equity, corporate finance, corporate governance and wealth management. Professor Kaplan conducts research on a wide array of issues in private equity, venture capital, corporate governance, boards of directors, mergers and acquisitions and corporate finance. He has been a member of the Chicago Booth faculty since 1988.

Professor Kaplan serves on the board of Morningstar and several fund and company advisory boards. He is also a Research Associate at the National Bureau of Economic Research.

Professor Kaplan received a Bachelor of Arts, summa cum laude, in applied mathematics and economics from Harvard College and earned a Doctor of Philosophy in business economics from Harvard University.

Professor Michael Minnis

Professor Michael Minnis is a Senior Advisor to Lincoln’s Valuations and Opinions Group. He is the Deputy Dean for Faculty and Fuji Bank and Heller Professor of Accounting at the University of Chicago Booth School of Business, where he researches the role of accounting information in allocating investment efficiently by both managers and capital providers. His recent research focuses on understanding the role of privately held companies in the U.S. economy and how these firms use financial reporting to access, deploy and manage capital. He particularly enjoys identifying unique data and methods to empirically examine issues in a novel way.

In January 2018, Professor Minnis became a member of the Private Company Council, the primary advisory council to the Financial Accounting Standards Board (FASB) on private company issues. Professor Minnis received his Ph.D. from the University of Michigan and his B.S. from the University of Illinois, where he graduated with Highest Honors.

IMPORTANT DISCLOSURE: The Lincoln Private Market Index is an informational indicator only, and does not constitute investment advice or an offer to sell or a solicitation to buy any security. It is not possible to directly invest in the Lincoln Private Market Index. Some of the statements above contain opinions based upon certain assumptions regarding the data used to create the Lincoln Private Market Index, and these opinions and assumptions may prove incorrect. Actual results could vary materially from those implied or expressed in such statements for any reason. The Lincoln Private Market Index has been created on the basis of information provided by third-party sources that are believed to be reliable, but Lincoln International has not conducted an independent verification of such information. Lincoln International makes no warranty or representation as to the accuracy or completeness of such third-party information.

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