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Best of LinkedIn: Private Equity: Value Creation CW 40/ 41 · Best of LinkedIn: Strategy, M&A & Investments

• 0:00
  Speaker 1: Provided by Thomas Allgaier and Freeness, based on the most relevant link in post about private equity value creation in calendar weeks forty-and-forty one.
• 0:08
  Speaker 1: Freenes supports PE backed manufacturers with market intelligence needed to unlock revenue from idle production capacity.
• 0:14
  Speaker 1: you can find more info in description.
• 0:16
  Speaker 0: And just to set expectations for this deep dive, we are going to cut right through the noise today.
• 0:21
  Speaker 0: To bring you the top private equity insights and trends were seeing across LinkedIn.
• 0:25
  Speaker 1: Right specifically We're focusing on this massive shift that's happening now Like how value creation has completely moved away from financial engineering and shifted toward really rigorous kind of unglamorous operational execution.
• 0:39
  Speaker 0: This edition is brought together with our partner Informa.
• 0:42
  Speaker 0: Don't miss out on their upcoming conference Super Return Japan, twenty-twenty six in Tokyo.
• 0:47
  Speaker 0: Find the link
• 0:55
  Speaker 1: of.
• 1:08
  Speaker 1: Wayne Moretsky laid out the exact math recently and it's honestly a brutal reality check on multiple compression.
• 1:15
  Speaker 1: Let us just walk through that mechanics, say you have a business generating ten million in EBITDA And its bought at standard twelve X multiple
• 1:22
  Speaker 0: Right.
• 1:23
  Speaker 0: so your looking at one hundred twenty million dollar enterprise value right outta gate In classic buyout structure You'd finance with roughly sixty percent debt.
• 1:32
  Speaker 0: So that gives you seventy two million dollars and a forty-eight million dollar equity check.
• 1:38
  Speaker 1: Right, so you put in your forty eight million.
• 1:40
  Speaker 1: now the macroeconomic environment cools down right?
• 1:44
  Speaker 1: The multiple drops from twelve X to ten
• 1:46
  Speaker 0: X which happens all the time.
• 1:47
  Speaker 0: lately
• 1:48
  Speaker 1: exactly!
• 1:49
  Speaker 1: The company is performing exactly the same still generating that ten million in EBITDA...the debt structure hasn't changed at all but your enterprise value just shrank to one hundred million yeah And because that seventy two million dollars in debt is fixed, like it doesn't compress.
• 2:04
  Speaker 1: That entire loss comes straight out of your equity
• 2:07
  Speaker 0: right?
• 2:07
  Speaker 0: It's just gone.
• 2:08
  Speaker 1: you're forty eight million dollar equity check gets crushed down to twenty eight million
• 2:12
  Speaker 0: which is wild when You think about.
• 2:13
  Speaker 0: I mean a seventeen percent drop In the market multiple Just instantly erased forty-two percent Of Your Equity.
• 2:21
  Speaker 1: It's terrifying.
• 2:22
  Speaker 0: and The real trap here Is that To merely get back to your original forty Eight Million Dollar Equity Bases At that new ten X multiple, you have to grow the company's EBITDA to twelve million dollars.
• 2:33
  Speaker 1: Wow!
• 2:34
  Speaker 0: That is a twenty percent EBITTA growth requirement.
• 2:37
  Speaker 0: literally just break even.
• 2:39
  Speaker 0: I mean it doesn't cover your fees.
• 2:41
  Speaker 0: It doesn't generate a return for your LPs.
• 2:43
  Speaker 0: Just get back to zero.
• 2:45
  Speaker 1: Its like running on a treadmill.
• 2:47
  Speaker 1: thats suddenly speeding up but someone handed you a weighted vest.
• 2:50
  Speaker 0: Thats exactly what its feels Like
• 2:52
  Speaker 1: Relying on multiple expansion right now is like trying to flip a house in the neighborhood where property values are just plummetting.
• 2:58
  Speaker 1: You're losing money unless you literally add a second floor of the
• 3:01
  Speaker 0: house.
• 3:02
  Speaker 0: Yeah, The foundation's sinking
• 3:04
  Speaker 1: And pressure really compounds.
• 3:06
  Speaker 1: when looking at time horizon too Uri Philipchuk pointed out how duration was an absolute killer for internal return.
• 3:13
  Speaker 0: Oh, time is the enemy of IRR.
• 3:16
  Speaker 0: Philip Chuck notes that if you hit a two point five X return on your equity over five years You deliver at twenty percent IRR which is great right?
• 3:25
  Speaker 0: That's a solid benchmark private equity return.
• 3:27
  Speaker 0: But if the market slows down exits try up and it takes you say seven years to achieve that exact same.
• 3:34
  Speaker 0: Two point five x cash-on-cash return.
• 3:36
  Speaker 1: yeah
• 3:37
  Speaker 0: Your IRR plummets to fourteen percent.
• 3:40
  Speaker 1: See, I always struggle with this mechanically in IC meetings.
• 3:43
  Speaker 1: If the clock is just ticking and we are forced to hold the asset longer where's that extra cash supposed come from?
• 3:49
  Speaker 1: To maintain the IRR?
• 3:51
  Speaker 0: It doesn't magically appear
• 3:52
  Speaker 1: Exactly!
• 3:53
  Speaker 1: The underlying customer base didn't grow because we held it an extra twenty four months.
• 3:58
  Speaker 0: No you have force through operational extraction To hit that twenty percent IRR over a seven-year hold without any multiple expansion, you no longer need two point five X return.
• 4:07
  Speaker 0: You need three points.
• 4:09
  Speaker 0: six X return
• 4:10
  Speaker 1: at three point.
• 4:10
  Speaker 1: six
• 4:11
  Speaker 0: X Yes?
• 4:12
  Speaker 0: You have to extract forty three percent more cash out of the exact same business model and Entry models are almost never updated for this reality.
• 4:20
  Speaker 0: during diligence
• 4:21
  Speaker 1: which makes Lars our first recent argument incredibly timely He argues that in this structurally higher rate environment, EBITDA has essentially become quote BS earnings.
• 4:31
  Speaker 0: BS earnings
• 4:32
  Speaker 1: right?
• 4:33
  Speaker 0: I love
• 4:34
  Speaker 1: it!
• 4:35
  Speaker 0: Right.
• 4:35
  Speaker 0: and then a zero-interest rate environment ignoring interest expense was you know an acceptable shorthand for operating performance?
• 4:42
  Speaker 0: sure but today floating rate debt just consumes the free cash flow that was supposed to pay down the balance sheet or fund your buy & build strategy.
• 4:51
  Speaker 0: R-Force notes the market is aggressively shifting its focus away from adjusted EBITDA and heavily toward true free cash flow.
• 4:59
  Speaker 1: Synthesizing all this math gives us a scary new benchmark, Mario EF highlighted recent Bane data showing that quote twelve Is The New Five?
• 5:07
  Speaker 1: Oh well yeah firms now need roughly twelve percent annual EBITTA growth to hit standard returns which has more than double the historical average of five percent.
• 5:17
  Speaker 0: That's a massive jump.
• 5:18
  Speaker 1: it.
• 5:19
  Speaker 1: Forty-one percent of PE professionals cite execution capacity, not capital.
• 5:23
  Speaker 1: Not strategy but execution capacity as the absolute number one barrier to value creation
• 5:30
  Speaker 0: Which means a constraint.
• 5:31
  Speaker 0: isn't a lack of good ideas like sixty five percent affirmed admit that less than half Of their value creation plans from the last two years were actually fully realized
• 5:40
  Speaker 1: only have
• 5:41
  Speaker 0: yeah They simply do not have the bandwidth within The portfolio companies to execute the changes required To hit that twelve percent growth hurdle.
• 5:48
  Speaker 1: Okay, so if execution capacity is the bottleneck we have to look at the machine itself right?
• 5:53
  Speaker 1: Exactly.
• 5:54
  Speaker 1: You can have the capital but If The Operating Model Is Broken you Can't Hit Twelve Percent.
• 5:59
  Speaker 1: Leigh McCabe shared a fantastic perspective on this.
• 6:02
  Speaker 1: he says- If
• 6:11
  Speaker 0: the recycled PowerPoint decks presented at every board meeting, it's The Operating Partner who holds a fancy title but lacks a board seat has no budget control and possesses absolutely no real authority to make management undertake difficult structural changes.
• 6:27
  Speaker 1: But wait if I'm an operating partner And my portfolio company brings me a tracking sheet with say thirty seven different strategic initiatives going on simultaneously That sounds like a comprehensive strategy To Me.
• 6:38
  Speaker 1: why is that considered theater?
• 6:40
  Speaker 0: Because thirty seven destroyed initiatives guarantee that absolutely nothing will be executed well.
• 6:46
  Speaker 1: Okay,
• 6:46
  Speaker 0: it completely dilutes your execution capacity.
• 6:49
  Speaker 0: McCabe argues a real operating model requires for uncompromising layers
• 6:54
  Speaker 1: which are
• 6:55
  Speaker 0: first one accountable owner per portfolio company not an advisor and owner with actual authority.
• 7:01
  Speaker 0: second diagnostic they'd identifies just three or four real levers that actually move even though maybe its pricing optimization their Salesforce conversion
• 7:10
  Speaker 1: Right.
• 7:10
  Speaker 0: You pick those three, you fund them and just stop pretending the other thirty-four matter!
• 7:15
  Speaker 1: Then you need a data spine to track these three levers right?
• 7:18
  Speaker 1: Like one version of The Truth from lead...to
• 7:20
  Speaker 0: cash Exactly.
• 7:21
  Speaker 1: And finally..you need a cadence of execution.
• 7:24
  Speaker 1: weekly decisions driven by operators & analysts not quarterly look backs
• 7:29
  Speaker 0: Because when that data spine and rigorous execution cadence are missing the results can be catastrophic even with headline numbers looking like massive success.
• 7:38
  Speaker 0: Sergio Irmucara actually shared a terrifying real-world example of this exact failure.
• 7:43
  Speaker 1: Oh, yeah I saw this one.
• 7:44
  Speaker 0: Yeah An industrial manufacturer in year two of their hold Actually beat its EBITDA budget by four hundred thousand dollars.
• 7:50
  Speaker 0: They hit four point eight million an EBITTA.
• 7:53
  Speaker 1: Sounds like a win
• 7:54
  Speaker 0: Right In the monthly board packet look like it's total victory.
• 7:56
  Speaker 1: But as we discussed with the BS earnings concept The cash just didn't match the accounting
• 8:02
  Speaker 0: Not even close.
• 8:03
  Speaker 0: Free cash flow was negative point four million Ouch.
• 8:07
  Speaker 0: and the operating partner only discovered this massive cash drain while sitting on a call with their lenders because internal reporting simply didn't capture it.
• 8:14
  Speaker 1: Let's walk through that ledger meticulously, how does a company beat its profit target by four hundred K but physically bleed cash?
• 8:22
  Speaker 1: So
• 8:22
  Speaker 0: Erema Cora broke down the bridge perfectly.
• 8:24
  Speaker 0: one point six million was absorbed.
• 8:26
  Speaker 0: building up inventory for forecasted demand just never turned into actual orders.
• 8:32
  Speaker 0: zero point nine million went out door.
• 8:34
  Speaker 0: capital expenditures new production line.
• 8:36
  Speaker 0: One point one million was entirely eaten by the increased interest payments on their floating rate debt.
• 8:42
  Speaker 1: There's that debt eating the cash again!
• 8:44
  Speaker 0: Yep, On top of that zero-point seven million was tied up in receivables because The sales team offered seventy five day payment terms to win new accounts.
• 8:53
  Speaker 0: add In the unwinding some customer deposits and cash taxes.
• 8:57
  Speaker 0: And That entire four point eight million dollars of EBITDA completely evaporated before it even hit bank account.
• 9:03
  Speaker 1: Every single one of those leaks was sitting right there in the general ledger.
• 9:07
  Speaker 1: It wasn't fraud, it was just operational blindness.
• 9:11
  Speaker 1: But if you have a typical two-person finance team In lower middle market company how do they even cope with that level of complexity?
• 9:19
  Speaker 1: They don't Just closing books.
• 9:21
  Speaker 1: to get to the EBITDA number probably takes them fifteen days.
• 9:24
  Speaker 0: Yeah, they physically didn't have hours and months To build a cash bridge.
• 9:28
  Speaker 0: Ermacore's team actually had to parachute into an FPNA manager whose singular mandate who was building a one-pager.
• 9:34
  Speaker 1: Just bridging EBITDA to cash?
• 9:36
  Speaker 0: Exactly, bridging eBIDDA to Cash and putting it in the board pack by day ten of every month
• 9:41
  Speaker 1: which totally validates Matt Penchek's argument.
• 9:44
  Speaker 1: He says the biggest, most unsexy opportunity in lower middle market private equity right now is simply building a finance function that can close the books.
• 9:52
  Speaker 1: In seven days on
• 9:53
  Speaker 0: sexy but critical
• 9:54
  Speaker 1: very critical and you have to build That muscle in the first eighteen months of The hold not scrambling in the last ninety Days before You try To exit.
• 10:02
  Speaker 1: if he Can't see the cash your lenders will end up doing Your financial reporting for you.
• 10:06
  Speaker 0: And you know the organizational structure really dictates what?
• 10:13
  Speaker 0: brilliantly when analyzing Apollo's recent acquisitions.
• 10:16
  Speaker 1: Oh, the Emerald one?
• 10:18
  Speaker 0: Yeah.
• 10:18
  Speaker 0: Apollo simultaneously closed on Emerald which was a public company with a US dollar enterprise value and Questaxe which is much smaller private company
• 10:28
  Speaker 1: Right!
• 10:28
  Speaker 1: And in almost any traditional M&A playbook The Company with the US dollar balance sheet automatically dictates leadership.
• 10:35
  Speaker 1: structure like big fish swallows small fish.
• 10:38
  Speaker 0: usually yes
• 10:39
  Speaker 1: but
• 10:40
  Speaker 0: Apollo gave the CEO seat of the newly combined massive entity to the CEO of QuestX, The Small Accompany.
• 10:45
  Speaker 1: Wow!
• 10:46
  Speaker 0: Michelle points out that genius here.
• 10:48
  Speaker 0: Emerald's growth was heavily acquired not organic.
• 10:52
  Speaker 0: Apollo bought a massive audience from Emerald but they bought the monetization engine from QuestX.
• 10:57
  Speaker 1: I want to break down what a monetization Engine actually means in this context.
• 11:02
  Speaker 1: It means Questex had the operational machinery to get a higher yield per attendee, better digital cross-selling and superior pricing power.
• 11:10
  Speaker 1: Right.
• 11:10
  Speaker 1: Apollo realized that applying a highly efficient monetization engine into massive undermonetized audience is how you generate operating alpha.
• 11:19
  Speaker 0: Exactly!
• 11:20
  Speaker 0: By putting the QuestEx leadership in charge, Apollo signaled their operating model from day one.
• 11:25
  Speaker 0: The crucial lesson here is that the organizational chart IS the integration plan.
• 11:30
  Speaker 0: Yeah, you have to decide which operating model wins before You even sign the term sheet.
• 11:35
  Speaker 1: But here's the thing.
• 11:36
  Speaker 1: You can design The perfect operating model?
• 11:39
  Speaker 1: You Can give the right CEO the reins and build a beautiful data spine.
• 11:43
  Speaker 1: but if the person actually holding the pen on the ledger doesn't Understand at the model the entire thesis falls apart.
• 11:50
  Speaker 0: oh hundred percent.
• 11:52
  Speaker 1: Let's look closely at the CFO role.
• 11:54
  Speaker 1: Brad Wolf has A fascinating framework for this.
• 11:57
  Speaker 1: He argues that private equity essentially hires four fundamentally different CFO profiles under a single job title.
• 12:03
  Speaker 0: This is so true!
• 12:05
  Speaker 0: You have the controller, right?
• 12:07
  Speaker 0: Whose job?
• 12:08
  Speaker 0: to look backward and report historical accuracy.
• 12:10
  Speaker 0: Yep you've got the FPNA lead who looks forward and reports on forecasts... ...you have the DEAL-CFO Who Looks Backward at Historical Data To Decide On M&A Structuring.
• 12:22
  Speaker 0: And finally you have the operating CFO.
• 12:25
  Speaker 0: decides where to move capital and actually owns the execution of The Value Creation Plan.
• 12:30
  Speaker 1: I've seen this mismatch destroy value first-hand PE firm buys a founder led business with messy accounting classic Yeah, they panic in hire a controller profile CFO because they desperately want clean books and a fast audit.
• 12:43
  Speaker 1: but A year later the board is frustrated Because this controller isn't magically driving capital allocation or challenging the VP of sales on conversion metrics.
• 12:51
  Speaker 0: And the fallout from that specific mismatch Is severe.
• 12:56
  Speaker 0: Devin Matthews shared a staggering statistic from Accordion's research.
• 13:00
  Speaker 0: Seventy-five percent of P.E.-backed CFOs do not survive the full hold period.
• 13:04
  Speaker 0: Seven-five
• 13:05
  Speaker 1: per cent?
• 13:06
  Speaker 0: Three out four are cycled at, which causes massive disruption to the execution cadence!
• 13:11
  Speaker 1: To survive that environment, Dominic Cara advises incoming CFOes flip the script during the interview process.
• 13:17
  Speaker 1: Like, don't just sit there and let the sponsor diligence your background.
• 13:21
  Speaker 1: you need to forensically diligence the sponsors value creation plan before you accept the
• 13:25
  Speaker 1: job.".
• 13:26
  Speaker 0: You have to ask the uncomfortable questions like do I actually believe these numbers?
• 13:30
  Speaker 1: Exactly!
• 13:30
  Speaker 0: How much of the twelve percent growth target relies on aggressive margin expansion versus optimistic revenue growth?
• 13:37
  Speaker 0: is The Debt Leverage gonna suffocate my working capital?
• 13:40
  Speaker 0: What macroeconomic factors have to go perfectly right for the equity to actually be worth what the model claims?
• 13:46
  Speaker 1: Because if you don't press your test that thesis before you sign, You are going to be the one held accountable For a plan that was mathematically unachievable from day One.
• 13:55
  Speaker 0: It's set up for failure.
• 13:56
  Speaker 1: it really is.
• 13:57
  Speaker 1: By the way, if you are finding this deep dive helpful for navigating these exact kinds of portfolio company dynamics make sure you subscribe so you catch all our future additions.
• 14:07
  Speaker 1: We constantly unpacked the mechanics behind these strategies.
• 14:10
  Speaker 0: Yeah You don't want to miss it.
• 14:11
  Speaker 1: But looking at that seventy-five percent failure rate It just makes me wonder if sponsors or treating executive talent like a disposable battery instead of a rechargeable one.
• 14:21
  Speaker 1: Dan Kremens points out That The Old PE Model Of Hire and Hope you know, paying massive recruiter fees waiting six months for a placement and hoping they magically figure it out is fundamentally broken today.
• 14:34
  Speaker 0: He advocates for a draft-and-developed model instead right?
• 14:37
  Speaker 0: You have to hire her where the business going be in three years.
• 14:41
  Speaker 0: build a concrete funded plan to grow that talent an actively develop your people faster than
• 14:48
  Speaker 1: And yet, we see a wild contradiction in how sponsors apply this logic.
• 14:52
  Speaker 1: Brian Casco notes that while PE boards are incredibly quick to cycle through CFOs or sales leaders.
• 14:58
  Speaker 1: at the first sign of a missed quarter they often hold on to underperforming CEOs for way too long.
• 15:03
  Speaker 0: It comes down to the psychology-the deal sponsor.
• 15:06
  Speaker 0: honestly The Deal team championed that CEO into their investment committee.
• 15:10
  Speaker 1: Its pride.
• 15:11
  Speaker 0: Exactly Changing as CEO is expensive highly disruptive and feels like an admission of failure.
• 15:19
  Speaker 0: But if a portfolio company keeps cycling through the senior leadership team, you know replacing this EFO firing the COO bringing in new marketing leads without ever improving the margins.
• 15:29
  Speaker 0: eventually You have to look at one constant in the room
• 15:32
  Speaker 1: The CEO.
• 15:33
  Speaker 0: the CEO sets the culture of accountability.
• 15:36
  Speaker 0: delaying that change out of pride is just the fastest way To kill your twelve percent growth requirement.
• 15:41
  Speaker 1: So we have lean teams, incredibly high turnover and an unforgiving mandate to hit twelve percent annual EBITDA growth without the help of multiple expansion.
• 15:50
  Speaker 1: Naturally The entire industry is desperately looking for a silver bullet
• 15:54
  Speaker 0: In right now?
• 15:55
  Speaker 0: Everyone's labeling that bullet
• 15:57
  Speaker 1: AI.
• 15:57
  Speaker 1: Of course they are
• 15:59
  Speaker 0: But Is technology actually bridging this execution gap or Are We just funding another layer of operational theater?
• 16:05
  Speaker 1: Well the data on This is Incredibly revealing.
• 16:08
  Speaker 1: Steve Budd and Scott Engler shared benchmarks showing that seventy-one percent of private equity firms have adopted AI in some capacity across their portfolios.
• 16:17
  Speaker 0: Okay, seventy one percent?
• 16:19
  Speaker 1: However only eighteen percent can actually demonstrate that AI has become a measurable competitive advantage.
• 16:25
  Speaker 0: I genuinely don't get it.
• 16:27
  Speaker 1: If seventy one per cent of PE backed companies are deploying AI shouldn't we see massive spike margins across the board?
• 16:34
  Speaker 0: You would think so.
• 16:35
  Speaker 1: How can individual productivity go up, but the actual EBIT of the company stays completely flat?
• 16:41
  Speaker 1: Where is the money leaking.
• 16:43
  Speaker 0: The money leaks because companies are just
• 16:45
  Speaker 1: dabbling.
• 16:47
  Speaker 0: They are using AI to perform the exact same inefficient tasks Just with slightly less manual effort.
• 16:53
  Speaker 0: Right they are not taking the opportunity To rebuild the workflows or rethink how the company operates from the ground-up.
• 16:59
  Speaker 0: right.
• 16:59
  Speaker 0: their productivity gains Are basically just being absorbed by employees Taking longer coffee breaks not by the P&L.
• 17:06
  Speaker 1: Mark Jensen was very direct about what actually works, he said a PE sponsor does NOT want a CFO who uses AI to generate faster PowerPoint deck for board meeting.
• 17:17
  Speaker 1: they want AI utilized specifically as an EBITDA multiplier.
• 17:20
  Speaker 0: Yes!
• 17:21
  Speaker 0: Collapsing a fifteen day manual financial close into three-day automated cycle is perfect example of EBITTA
• 17:27
  Speaker 1: multiplier.
• 17:28
  Speaker 1: Huge difference.
• 17:29
  Speaker 0: You aren't just saving twelve days of data entry, you are buying your finance team twelve days to actually act as an operating CFO and analyze strategy.
• 17:37
  Speaker 0: Or using predictive models to flag working capital leaks like those seventy-five day payment terms we talked about earlier before they break a debt covenant.
• 17:51
  Speaker 1: Always too vague.
• 17:52
  Speaker 1: They usually just say you know deploy AI for operational efficiency,
• 17:56
  Speaker 0: which means nothing
• 17:57
  Speaker 1: exactly.
• 17:57
  Speaker 1: It means absolutely no one is accountable for the financial result.
• 18:01
  Speaker 1: Gil insists that AI initiatives need a named business owner and it cannot be The IT department right?
• 18:07
  Speaker 1: It must be tied to a specific P&L margin lever like reducing the cost-to-serve or increasing sales capacity And it has to measurably move that margin within twelve months.
• 18:18
  Speaker 1: Furthermore, you have to fix a broken process before you automate it.
• 18:21
  Speaker 1: That's key!
• 18:22
  Speaker 1: If you automate a flawed workflow You just generate the wrong business outcomes at lightning speed
• 18:27
  Speaker 0: and The downstream human effects of these AI deployments can also catch management completely off guard.
• 18:32
  Speaker 0: Greg head shared a fascinating hidden risk here.
• 18:35
  Speaker 1: Oh the job descriptions.
• 18:36
  Speaker 1: one?
• 18:37
  Speaker 1: Yeah
• 18:37
  Speaker 0: He analyzed a PE backed company fourteen months after they successfully deployed an AI transformation.
• 18:44
  Speaker 0: Nobody had lost their job which seemed like a win.
• 18:46
  Speaker 0: But sixty percent of the company's job descriptions were now completely wrong.
• 18:50
  Speaker 1: Because AI stripped away the rote tasks, so that nature and daily work changed drastically?
• 18:56
  Speaker 0: Exactly!
• 18:57
  Speaker 0: The employees who are doing complex analytical work that their old job description has never covered... but here is a structural crisis.
• 19:06
  Speaker 0: Those outdated descriptions still dictated corporate pay bans.
• 19:11
  Speaker 0: So HR was conducting performance reviews grading employees on old workflows.
• 19:16
  Speaker 0: You had people sitting at the absolute top of their pay ban for administrative work.
• 19:19
  Speaker 0: they no longer did, while junior employees in the bottom-of-the-pay band were suddenly executing highly complex AI augmented analysis.
• 19:27
  Speaker 1: That creates a massive immediate HR and retention crisis.
• 19:32
  Speaker 1: if I'm a junior analyst suddenly doing the work as senior manager because my AI prompting skills but still capped an entry level salary?
• 19:41
  Speaker 0: Management had to frantically repriced nine different roles across the organization.
• 19:46
  Speaker 0: To stop the bleeding, The typical value creation plan usually only accounts for the raw headcount costs that AI might eliminate.
• 19:53
  Speaker 0: it rarely budgets For the complexity and cost of redefining and compensating the elevated jobs that remain.
• 19:59
  Speaker 1: That is a massive blind spot that will absolutely bite firms that are only looking at technology through a cost cutting lens.
• 20:06
  Speaker 1: But you know bringing us back down to earth.
• 20:08
  Speaker 1: Matthew Johnson provided a very necessary reality check on the whole technology conversation.
• 20:14
  Speaker 0: We needed that.
• 20:14
  Speaker 1: While everyone is obsessing over generative AI and predictive models, fifty-nine percent of UK firms are currently getting their strongest returns from something incredibly boring.
• 20:23
  Speaker 0: Backoffice Technology
• 20:25
  Speaker 1: Yes Optimizing and modernizing basic legacy back office tech In fact thirty four percent Of those funds set investing in basic ERPs And data hygiene actually exceeded Their original business cases.
• 20:37
  Speaker 0: That's amazing.
• 20:38
  Speaker 1: It proves that you don't always need bleeding edge AI to create operating alpha.
• 20:42
  Speaker 1: Sometimes, you just need basic financial systems that actually talk to each other so your two-person finance team can see where the cash is going before the lender calls.
• 20:51
  Speaker 0: Connecting all these pieces reveals an undeniable through line for the industry.
• 20:54
  Speaker 0: right now The mathematical reality has fundamentally changed.
• 20:59
  Speaker 0: Multiple expansion is not walking through the door to save your IRR and holding the asset longer actively destroys your returns.
• 21:07
  Speaker 0: Flawless operational execution is really the only viable path to a return.
• 21:12
  Speaker 0: And that requires an operating model built on hard truths, talent that has properly aligned with the life cycle of the deal and technology that serves as a measurable EBITDA multiplier rather than just creating faster slide decks.
• 21:26
  Speaker 1: So if you look at your own portfolio or pipeline ask yourself Are you still underwriting deals for a twenty-nineteen financial engineering environment?
• 21:34
  Speaker 1: Or are you actually building the human execution engine required for a Twenty-twenty six reality.
• 21:39
  Speaker 1: I mean, if operational execution is now the only reliable path to return how long until limited partners stop paying management fees based purely on assets under management and start demanding fee structures tied directly to the achievement of these specific operational milestones.
• 21:56
  Speaker 1: The pressure is only going to move further up the chain.