Latest / Best of LinkedIn: Strategy, M&A & Investments / Best of LinkedIn: Private Equity Insights CW 18/ 19

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Best of LinkedIn: Private Equity Insights CW 18/ 19 · Best of LinkedIn: Strategy, M&A & Investments

• 0:00
  Speaker 0: Provided by Thomas Allgaier and Frennus, based on the most relevant LinkedIn posts about private equity in CW-Eighty and Nineteen.
• 0:07
  Speaker 0: Frenness supports PE backed manufacturers with a market intelligence needed to unlock revenue from idle production capacity.
• 0:13
  Speaker 0: You can find more info in the description.
• 0:16
  Speaker 0: This edition is brought you by our partner Informa.
• 0:19
  Speaker 0: Don't miss out their upcoming conference Super Return International.
• 0:22
  Speaker 0: Find link of this conference in the Description
• 0:25
  Speaker 1: Right.
• 0:25
  Speaker 1: So let's dive into it,
• 0:26
  Speaker 0: okay?
• 0:26
  Speaker 0: Let's unpack this.
• 0:28
  Speaker 0: if you think private equity is still just a game of buying cheap pylon on debt and waiting for the market to make you rich well that era is basically dead
• 0:37
  Speaker 1: entirely completely over.
• 0:39
  Speaker 1: yeah
• 0:39
  Speaker 0: today we are looking at A three point seven trillion dollar backlog Of companies That Are stuck And We've Got An Industry That Is Basically Scrambling To Rewrite Its Entire Playbook.
• 0:48
  Speaker 0: so We Spent Time Distilling The Top Private equity trends seen across LinkedIn in calendar weeks, eighteen and nineteen.
• 0:56
  Speaker 1: And our mission for this deep dives is to figure out exactly how the smartest firms are surviving this frankly massive shift.
• 1:04
  Speaker 1: just to give you a baseline of where we are The old private equity model buying well and hoping for multiple expansion it's gone.
• 1:13
  Speaker 1: We're now on market that is intensely execution heavy.
• 1:18
  Speaker 0: Yeah, the macro environment has shifted so much.
• 1:21
  Speaker 0: And I think to frame this shift it's like... Think about the old PE model writing an escalator.
• 1:29
  Speaker 0: Oh!
• 1:29
  Speaker 1: I liked that.
• 1:30
  Speaker 0: Right Like you just step on market tailwinds do all of heavy lifting and gracefully arrive at top.
• 1:36
  Speaker 0: But today The new model is climbing a very steep flight stairs.
• 1:40
  Speaker 0: You're wearing really heavy backpack Exactly.
• 1:43
  Speaker 0: The returns have to be actively, like physically built on the factory floor.
• 1:47
  Speaker 0: It requires actual operational muscle.
• 1:49
  Speaker 0: now Right
• 1:50
  Speaker 1: and that ties perfectly into what Scott Engler and Christopher Gunn had been talking about recently.
• 1:54
  Speaker 1: Engler pointed out this macroeconomic environment has fundamentally shifted the entire burden onto operators.
• 2:00
  Speaker 0: Yeah And Gunn actually put a number on it which is staggering.
• 2:03
  Speaker 0: He noted that operational transformation now drives forty seven percent of private equity value creation.
• 2:08
  Speaker 0: Forty-seven
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  Speaker 1: percent?
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  Speaker 1: That's massive
• 2:11
  Speaker 0: I know, and that's up from just eighteen percent a decade ago.
• 2:14
  Speaker 0: So the value for pure financial engineering has just plummeted.
• 2:19
  Speaker 0: but The problem as Gunn argues is That most private equity operating teams haven't actually caught up.
• 2:25
  Speaker 1: No they really have it.
• 2:26
  Speaker 1: They're still using an advisory model that was you know built For that Financial Engineering era
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  Speaker 0: right like dropping A playbook on a CEO's desk And saying good luck see ya next quarter
• 2:35
  Speaker 1: exactly?
• 2:36
  Speaker 1: And when You're climbing those stairs with a heavy backpack.
• 2:39
  Speaker 1: A hands-off advisory model just fails.
• 2:42
  Speaker 1: You need operators who can actually carry the weight.
• 2:45
  Speaker 1: What's fascinating here is how Neocabra connects this to the broader performance issues.
• 2:50
  Speaker 0: Oh, right!
• 2:51
  Speaker 0: She had that data on public markets.
• 2:52
  Speaker 1: Yeah she pointed out that PE has actually underperformed Public Markets for three consecutive years now And a huge part of it because leverage is so unforgiving Right now.
• 3:01
  Speaker 0: The debt is expensive.
• 3:03
  Speaker 0: So wait if operating teams are behind And debt is this unforgiving.
• 3:08
  Speaker 0: How do firms execute these turnarounds without, I don't know, breaching a covenant and going bankrupt?
• 3:12
  Speaker 1: Well, Cobra advocates for something she calls Covenant Sequencing.
• 3:17
  Speaker 0: Covenant sequencing!
• 3:19
  Speaker 0: Break down how that actually works in practice.
• 3:21
  Speaker 1: So because you're operating inside the super strict lender guardrails You can just overhaul the whole supply chain on day one... ...you have to use your covenant headroom strategically.
• 3:30
  Speaker 0: Okay.
• 3:31
  Speaker 0: so how they start?
• 3:32
  Speaker 1: Usually those sequence operational work?
• 3:35
  Speaker 1: by executing a quick pricing reset first.
• 3:37
  Speaker 1: By just raising prices, they get an immediate lift in EBITDA.
• 3:41
  Speaker 1: Right
• 3:41
  Speaker 0: which looks good on paper quickly
• 3:43
  Speaker 1: exactly.
• 3:44
  Speaker 1: and that higher earnings number improves their debt to EBITTA ratio.
• 3:48
  Speaker 1: so that quick win basically buys them the financial runway to undertake this slower structural transformation.
• 3:55
  Speaker 1: ah
• 3:55
  Speaker 0: I see like swapping out an IT system or whatever without Tripping the debt limits,
• 3:59
  Speaker 1: right?
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  Speaker 1: It's this highly choreographed dance.
• 4:02
  Speaker 0: But you know You can't choreograph that dance from a boardroom.
• 4:04
  Speaker 0: Oh Which reminds me of this really incredible insight from William B. it Really gets to the human element of this operating shift.
• 4:12
  Speaker 1: well The watermelon dashboards.
• 4:14
  Speaker 0: yes the watermelon dash boards.
• 4:17
  Speaker 0: so William walked into a portfolio company and the executives showed him these beautiful perfectly green performance dashboards.
• 4:26
  Speaker 0: But he calls them watermelon dashboards because they are green on the outside, but you dig a millimeter deep And it's completely red inside.
• 4:33
  Speaker 1: It's just the illusion of control.
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  Speaker 1: The executive see-green and think that covenant sequencing is totally fine.
• 4:38
  Speaker 1: Totally
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  Speaker 0: fine Yeah!
• 4:39
  Speaker 0: But William actually asked to see the underlying system driving this data... ...and the chief architect literally had to start drawing vaporware on a whiteboard.
• 4:48
  Speaker 0: Wow,
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  Speaker 1: just making it up?
• 4:50
  Speaker 0: Yeah the dashboard was total fabrication pulled from like fragmented Excel files and the executives have no clue because they never left board room.
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  Speaker 0: Williams point is that data might get you right door but real inside only comes walking factory floor.
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  Speaker 1: You actually sit with operators
• 5:07
  Speaker 0: Right!
• 5:08
  Speaker 0: Be there.
• 5:08
  Speaker 0: see why metric moved.
• 5:10
  Speaker 0: I think disconnect causing huge issues at C-suite level too.
• 5:14
  Speaker 1: It's a massive crisis.
• 5:15
  Speaker 1: IfitKarp and Dr.
• 5:17
  Speaker 1: Sasha Hagemueller were just highlighting this CFO gap.
• 5:21
  Speaker 1: Hagemailer pointed out that, A lot of mid-market deals fail post close simply because the finance seat is severely underpowered for the specific investment strategy.
• 5:32
  Speaker 0: I mean...I struggle with it little bit.
• 5:33
  Speaker 0: if you buy company with great product in good customers how does the CFO cause whole deal to fail?
• 5:41
  Speaker 0: Well
• 5:41
  Speaker 1: Because The CFO isn't counting money anymore.
• 5:43
  Speaker 1: In this environment, they have to be the architect of a value creation plan.
• 5:48
  Speaker 1: Carp was saying that PE firms keep hiring for the title but don't match the CFO's strategy.
• 5:54
  Speaker 0: Give me an example of it.
• 5:55
  Speaker 1: Imagine a steady state CFO with great resume and fantastic at managing stable predictable budget.
• 6:01
  Speaker 0: Sounds perfectly fine, right?
• 6:03
  Speaker 1: But drop that same person into a buy and build platform.
• 6:06
  Speaker 1: where they have to integrate four acquisitions in eighteen months They hit a brick wall.
• 6:09
  Speaker 0: Oh yeah merging accounting systems consolidating vendors
• 6:13
  Speaker 1: exactly the complexity spikes.
• 6:15
  Speaker 1: And if the CFO can't hold those numbers together In real time Margin leakage just runs quietly for quarters.
• 6:21
  Speaker 0: And by the time, the board notices boom!
• 6:23
  Speaker 0: The debt covenants are breached
• 6:25
  Speaker 1: Exactly and the stress from that is cascading upward to the CEOs.
• 6:29
  Speaker 0: Oh man yeah.
• 6:30
  Speaker 0: Maxwell Salazar shared some jarring stuff about this.
• 6:33
  Speaker 0: these PE-backed CEO's Are just burning
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  Speaker 1: out.
• 6:37
  Speaker 1: It's a chronic stress problem.
• 6:38
  Speaker 0: it Is.
• 6:39
  Speaker 0: they're dealing with panic stricken boards who override their decisions?
• 6:48
  Speaker 1: Deliver, you know theoretical PowerPoints
• 6:50
  Speaker 0: exactly and then they call the CEO all weekend.
• 6:52
  Speaker 0: Salazar makes this chilling point that the leaders who can actually build value right now are incredibly rare.
• 6:59
  Speaker 0: Burning them out with self-inflicted board stress is just a luxury.
• 7:02
  Speaker 0: The industry cannot afford?
• 7:04
  Speaker 1: No it can't.
• 7:05
  Speaker 1: And if we connect this to the bigger picture because operators are burning out in the structural changes or taking too long Firms looking for shortcut
• 7:13
  Speaker 0: They want a magic wand
• 7:14
  Speaker 1: Right?
• 7:14
  Speaker 1: And naturally they think they found it an AI.
• 7:16
  Speaker 0: yep The great AI software patch to fix your EBITDA.
• 7:20
  Speaker 1: But the market is quickly realizing, AI isn't a magic wand.
• 7:26
  Speaker 1: Cartoon W posted this great warning about tech first mistake.
• 7:30
  Speaker 0: What's that?
• 7:31
  Speaker 1: Well he says AI doesn't fix bad data.
• 7:35
  Speaker 1: It amplifies it.
• 7:36
  Speaker 1: If you deploy an advanced AI model on a messy data foundation its just gonna generate chaos faster.
• 7:43
  Speaker 1: You absolutely need data governance and data ownership before you even touch the models.
• 7:48
  Speaker 0: Which brings up a glaring contradiction that Stuart Wilson pointed out.
• 7:52
  Speaker 0: he noted That half of every private equity deal right now is essentially an AI question.
• 7:56
  Speaker 1: Yeah, everyone wants to AI upside Right
• 7:58
  Speaker 0: but nobody's actually doing pre-close AI due diligence.
• 8:02
  Speaker 0: And it's wild because if you're buying the company to modernize.
• 8:05
  Speaker 0: Why wouldn't you check the data foundation before you close?
• 8:08
  Speaker 1: Well, because traditional consultancies are just too slow and too expensive for the middle market.
• 8:12
  Speaker 1: It takes them eighteen months to build a roadmap
• 8:14
  Speaker 0: And you don't have eighteen months when interest rates are this high.
• 8:17
  Speaker 0: Exactly!
• 8:17
  Speaker 1: You need this tech running on day ninety...
• 8:19
  Speaker 0: Well here's where it gets really interesting Because The big AI players realize that gap exists.
• 8:25
  Speaker 0: Arun Kumar Sundaraj & Hugh Sun highlighted massive market shift.
• 8:30
  Speaker 0: OpenAI has basically created a DeployCo and Anthropic is partnering with Goldman Sachs.
• 8:36
  Speaker 1: It's huge, they aren't just selling software licenses anymore
• 8:39
  Speaker 0: No!
• 8:39
  Speaker 0: They're embedding actual engineers directly into mid-market PE portfolio companies like putting people inside the operations to rebuild workflows from the ground
• 8:50
  Speaker 1: up.
• 8:50
  Speaker 1: Anarucamar noted something wild.
• 8:52
  Speaker 1: OpenAI is reportedly guaranteeing a seventeen point five percent return to win these co-investments.
• 8:57
  Speaker 1: Wait,
• 8:58
  Speaker 0: really?
• 8:58
  Speaker 0: How do they guarantee seventeen point one percent?
• 9:00
  Speaker 0: Is that just you know automating headcams to strip out costs?
• 9:03
  Speaker 0: or are They truly reimagining the business?
• 9:06
  Speaker 1: That is the big question because if you're just using AI too I don't know write emails faster You capout on returns fast to get a massive return and have to change The Business Model.
• 9:15
  Speaker 1: Steve Budd did a recap of recent AI strategy breakfast And he talks about agentic AI?
• 9:20
  Speaker 0: Right, AI that actually takes action on its own.
• 9:22
  Speaker 0: Yeah
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  Speaker 1: and to use that you have to fundamentally redesign workflows around human judgment.
• 9:29
  Speaker 1: You don't just give people better tools...you step back and ask where should a human define the strategic intent?
• 9:34
  Speaker 1: And Where Should The AI Agent Take Over The Execution?
• 9:37
  Speaker 0: I think Dave Ajay summed this up perfectly Buyers won't pay a premium for cute AI pilots anymore.
• 9:44
  Speaker 0: We're in the operating proof era, right?
• 9:46
  Speaker 0: They demand operating proof that AI actually makes the business more safe More efficient and is actively growing revenue.
• 9:53
  Speaker 1: Yeah Ai pilots are useless if they don't hit the bottom line
• 9:56
  Speaker 0: Right.
• 9:57
  Speaker 0: And there's a reason this focus on Operating Proof & AI Efficiency Is so frantic right now.
• 10:01
  Speaker 0: It's because the exits Are totally jammed.
• 10:03
  Speaker 1: Oh The liquidity squeeze.
• 10:04
  Speaker 1: it's brutal!
• 10:05
  Speaker 0: I mean you can't realize any of This value If You Can't sell the asset.
• 10:08
  Speaker 0: Louise Brecci dropped this massive statistic, PE firms are currently sitting on a three point seven trillion dollar exit backlog.
• 10:16
  Speaker 1: Trillion?
• 10:17
  Speaker 1: With the TS
• 10:18
  Speaker 0: across thirty one thousand portfolio companies.
• 10:21
  Speaker 0: and Shan Ehrman added that over sixteen thousand of those companies have been held for more than four years.
• 10:26
  Speaker 1: And if you look at the data from Frister Haven and Nicola Ebmeyer You see exactly where the bottleneck is.
• 10:32
  Speaker 1: It's the twenty-twenty one vintage.
• 10:34
  Speaker 1: that Vintage is a massive outlier
• 10:36
  Speaker 0: because they bought at peak valuations.
• 10:38
  Speaker 1: Peak valuations essentially zero interest rates.
• 10:41
  Speaker 1: Normally by year four you expect to see about thirty percent of assets exited.
• 10:45
  Speaker 1: But for the twenty twenty one vintage only fifteen percent have exited.
• 10:49
  Speaker 0: wow half The normal rate.
• 10:51
  Speaker 1: yeah, the median holding period has stretched out two five point three years.
• 10:54
  Speaker 1: The assets bought back then just do not clear in today's market.
• 10:58
  Speaker 0: so if the IPO window was tight and traditional M&A is sluggish.
• 11:02
  Speaker 0: How are LPs actually getting their money back?
• 11:04
  Speaker 0: The pension funds need their
• 11:06
  Speaker 0: distributions.".
• 11:07
  Speaker 1: This raises an important question, and it points to a structural evolution.
• 11:11
  Speaker 1: Romain Fordin in Vladimir Kolas discussed this massive explosion of GP-led secondaries continuation funds and NAV lending.
• 11:19
  Speaker 0: Okay let's talk about continuation funds.
• 11:20
  Speaker 0: that's essentially the firm selling the asset from old fund into new one.
• 11:24
  Speaker 0: they also manage right
• 11:26
  Speaker 1: yeah
• 11:27
  Speaker 0: Which sounds crazy.
• 11:28
  Speaker 0: Are LPs okay with paying the same management team to keep holding an asset they couldn't sell?
• 11:33
  Speaker 1: A lot of them push back, but LPs are starved for cash.
• 11:39
  Speaker 1: The continuation fund brings in new secondary buyers To cash out the old LPs.
• 11:44
  Speaker 1: So the firm gets to hold the asset longer.
• 11:46
  Speaker 1: Maybe finish that AI integration we just talked about while still returning cash to the folks who need
• 11:50
  Speaker 0: it.
• 11:51
  Speaker 0: And Ardien is doing a lot of this, right?
• 11:53
  Speaker 1: Yeah, Ardian is actively providing these liquidity solutions to big players like Canadian pension plans.
• 11:58
  Speaker 1: It's becoming a permanent shift in the asset class
• 12:01
  Speaker 0: An NAV lending as part of that too Borrowing against the net asset value at the portfolio To manufacture payout
• 12:08
  Speaker 1: Exactly without actually selling anything.
• 12:12
  Speaker 0: But to balance the heavy news, exits do happen.
• 12:15
  Speaker 0: They just take insane patience and structural discipline.
• 12:18
  Speaker 0: Christina Bende posted about Allegro's multi-year exit via Sinvin.
• 12:22
  Speaker 0: Oh
• 12:23
  Speaker 1: right!
• 12:23
  Speaker 1: That took forever.
• 12:24
  Speaker 0: It took eight accelerated book builds?
• 12:27
  Speaker 0: Eight To finally reach a clean free float shareholder base.
• 12:30
  Speaker 1: Just piecing it out bit by bit.
• 12:32
  Speaker 0: Yep The total grind.
• 12:33
  Speaker 0: Well
• 12:33
  Speaker 1: thinking of that grind leaves me with final thought for you all over.
• 12:37
  Speaker 1: We've talked about hold periods stretching past five years.
• 12:41
  Speaker 1: We've talked about AI fundamentally altering workflow costs and engineers having to physically embed in companies.
• 12:48
  Speaker 1: Right,
• 12:49
  Speaker 0: the heavy backpack
• 12:50
  Speaker 1: Exactly!
• 12:51
  Speaker 1: If value creation now requires deep technological rewiring and complex work flow redesign with a standard three-to five year PE flip just become obsolete
• 13:02
  Speaker 0: That's a great question.
• 13:03
  Speaker 1: I mean, the very nature of PE hold periods might permanently stretch to look more like long-term industrial ownership.
• 13:09
  Speaker 1: Yeah!
• 13:09
  Speaker 0: The quick flip is dead.
• 13:11
  Speaker 0: Well if you enjoyed this episode new episodes drop every two weeks.
• 13:14
  Speaker 0: Also check out our other editions on venture capital M&A and strategy in consulting And
• 13:18
  Speaker 1: thank you so much for joining us to analyze all these.
• 13:21
  Speaker 0: Yes Thank You For Listening.
• 13:22
  Speaker 0: Make Sure To Subscribe.
• 13:23
  Speaker 0: We'll Catch You On Next Deep Dive.