Latest / Best of LinkedIn: Strategy, M&A & Investments / Best of LinkedIn: Private Equity Insights CW 02/ 03

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Best of LinkedIn: Private Equity Insights CW 02/ 03 · Best of LinkedIn: Strategy, M&A & Investments

• 0:00
  Speaker 1: Provided by Thomas Allgaier and Frennus, based on the most relevant LinkedIn posts about private equity.
• 0:04
  Speaker 1: in CWO two and O three, Frennus specializes in B to B market research for private equity teams to drive portfolio performance and value creation.
• 0:13
  Speaker 1: This edition is brought to you by our partner Informa.
• 0:16
  Speaker 1: Don't miss out on their upcoming conferences, Super Return Saudi Arabia and Super Return Secondaries Europe.
• 0:21
  Speaker 1: Find the links to the conferences in the description.
• 0:25
  Speaker 0: Welcome back.
• 0:25
  Speaker 0: So today we're digging into the private equity landscape, looking at the first couple of weeks of twenty twenty six.
• 0:31
  Speaker 0: And, you know, if I had to put a label on the mood, I'd call it cautious acceleration.
• 0:36
  Speaker 1: Cautious acceleration.
• 0:37
  Speaker 1: I like that.
• 0:38
  Speaker 1: It feels very different from where we were, say, six months ago.
• 0:42
  Speaker 1: The whole narrative was survive until twenty five, right?
• 0:45
  Speaker 1: Just battling that that liquidity deadlock where nobody was bought and nobody was selling.
• 0:49
  Speaker 1: But looking at the post from the last two weeks, it.
• 0:52
  Speaker 1: It really feels like the ice is finally starting to
• 0:54
  Speaker 0: crack.
• 0:54
  Speaker 0: The ice is definitely breaking, you're right.
• 0:56
  Speaker 0: But I think we need to be very clear from the start, the water we're jumping back into.
• 1:01
  Speaker 0: It's different.
• 1:01
  Speaker 0: This isn't a return to the zero interest rate party of twenty twenty one.
• 1:05
  Speaker 0: The big theme isn't just that capital is flowing again.
• 1:08
  Speaker 0: It's the intense selectivity of that flow.
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  Speaker 1: So the rising tide is not lifting all boats anymore.
• 1:15
  Speaker 1: Far from
• 1:15
  Speaker 0: it.
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  Speaker 0: In fact, I'd say some boats are going to sink while others, the really strong ones, just speed away.
• 1:20
  Speaker 0: It is all about operational strength and specific asset quality.
• 1:24
  Speaker 0: Now, if you don't have that, you're still stuck.
• 1:26
  Speaker 1: And we have a lot to get through today.
• 1:27
  Speaker 1: I'm seeing stuff on the macro outlook, the reality of AI, and some pretty startling data on leadership churn.
• 1:35
  Speaker 0: We do.
• 1:35
  Speaker 0: So where should we start?
• 1:36
  Speaker 1: Let's start at the top, the macro view.
• 1:38
  Speaker 1: We've got an analysis here from Dr.
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  Speaker 1: Alexander Hitteroth on the Brookfield, twenty twenty six outlook.
• 1:43
  Speaker 1: What's the headline there?
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  Speaker 0: The headline is discipline.
• 1:46
  Speaker 0: Call in simple.
• 1:48
  Speaker 0: Hitteroth points out that even though capital markets are reopening, success is being defined by a really specific kind of discipline.
• 1:55
  Speaker 0: LPs are now asking, how do we access real growth and AI in the energy transition and in reindustrialization?
• 2:02
  Speaker 1: The three biggest buzzwords right now?
• 2:04
  Speaker 0: They are.
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  Speaker 0: But the how is what matters.
• 2:07
  Speaker 0: They're not just throwing money at a theme.
• 2:09
  Speaker 0: They want PE firms that are focused on operational transformation.
• 2:13
  Speaker 0: It's not enough to just, you know, buy a company, load it with debt.
• 2:18
  Speaker 0: and hope for the best.
• 2:19
  Speaker 0: Hope
• 2:19
  Speaker 1: the multiples go up.
• 2:20
  Speaker 0: Exactly.
• 2:21
  Speaker 0: You actually have to build the thing.
• 2:22
  Speaker 0: You have to build the infrastructure for that energy transition or that AI platform.
• 2:27
  Speaker 1: And that connects directly to what Jonas Plus is seeing.
• 2:29
  Speaker 1: He calls it the great bifurcation.
• 2:32
  Speaker 0: Which is a great way of putting it.
• 2:33
  Speaker 0: The market is splitting in two.
• 2:35
  Speaker 0: Plus is seeing this massive flight to quality.
• 2:38
  Speaker 0: And he makes a crucial point about where returns are actually coming from.
• 2:42
  Speaker 1: Right.
• 2:43
  Speaker 0: In the past, You could rely on multiple arbitrage.
• 2:47
  Speaker 0: You buy at ten X, sell at twelve X just because the market got hotter.
• 2:50
  Speaker 1: And you'd juice the return with a ton of cheap leverage.
• 2:53
  Speaker 0: Right.
• 2:54
  Speaker 0: That game, according to plus, is over.
• 2:56
  Speaker 0: Returns now have to come from margin expansion.
• 2:58
  Speaker 0: That's your operational alpha.
• 2:59
  Speaker 0: You have to physically make the company run better.
• 3:02
  Speaker 1: So the easy money is gone.
• 3:04
  Speaker 1: You have to be a builder, not just a trader.
• 3:06
  Speaker 1: OK, so that brings us to geography.
• 3:09
  Speaker 1: We're seeing some really interesting shifts away from the typical US centric view.
• 3:14
  Speaker 1: Henry McVeigh at KKR is making a pretty bold call.
• 3:17
  Speaker 0: McVeigh is always worth a read.
• 3:19
  Speaker 0: And his conviction right now is that international equities, specifically Japan, Korea, and emerging markets like India deserve a much closer look than the US.
• 3:29
  Speaker 1: Which seems a bit counterintuitive, doesn't it?
• 3:31
  Speaker 1: I mean, the US is still seen as the main engine.
• 3:34
  Speaker 1: Is this just a valuation play because the S&P is so hot?
• 3:37
  Speaker 0: Valuation is a huge piece of it.
• 3:39
  Speaker 0: Sure, the US is priced for perfection, but McVeigh also points to structural change.
• 3:44
  Speaker 0: In Japan and Korea, for example, you're seeing corporate governance reforms that are actually unlocking value.
• 3:50
  Speaker 0: Ah,
• 3:51
  Speaker 1: so it's not just that they're cheap.
• 3:52
  Speaker 1: They're actually changing their behavior.
• 3:53
  Speaker 0: Exactly.
• 3:54
  Speaker 0: They're being forced to be more shareholder friendly.
• 3:57
  Speaker 0: Whereas in the US, a lot of the potential upside, even from AI, might already be baked into the price.
• 4:02
  Speaker 1: And speaking of Asia, Hamish McDonald at BlackRock is looking at real estate.
• 4:06
  Speaker 1: He's talking about the APAC lag.
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  Speaker 0: Yeah, this is a really smart concept.
• 4:10
  Speaker 0: Real estate tends to reprice in ways around the globe.
• 4:14
  Speaker 0: The U.S.
• 4:15
  Speaker 0: and Europe correct it first.
• 4:17
  Speaker 0: McDonald's point is that APAC is lagging that correction, but it combines that cyclical repricing with real structural growth.
• 4:24
  Speaker 1: So while everyone's staring at empty office buildings in New York, smart
• 4:27
  Speaker 0: money might be looking at logistics or residential in Asia where the long-term trends are still pointing straight up.
• 4:33
  Speaker 1: Let's bring it back to deal volume.
• 4:35
  Speaker 1: Dr.
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  Speaker 1: Ralph Hugh Bronegal says mega deals are returning.
• 4:38
  Speaker 1: We've seen a few.
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  Speaker 1: Does that mean the frenzy is back?
• 4:41
  Speaker 0: No, and Bronegal is very careful about this.
• 4:43
  Speaker 0: He says it's not volume for volume's sake.
• 4:46
  Speaker 0: It's all about conviction.
• 4:48
  Speaker 1: Conviction?
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  Speaker 1: What does that mean in practice?
• 4:50
  Speaker 0: It means that a big deal only happens if the investment thesis is absolutely crystal clear.
• 4:55
  Speaker 0: No one's taking a flyer.
• 4:56
  Speaker 0: If a PE firm writes a billion dollar check today, you can bet they have mapped out exactly how they plan to exit that thing before the ink is even dry.
• 5:05
  Speaker 0: It's surgical.
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  Speaker 1: Speaking of surgical, let's talk about the tool everyone's trying to use, AI.
• 5:11
  Speaker 1: For a couple of years, every deck had an AI strategy slide.
• 5:15
  Speaker 1: But we're past the, wow, look at this phase, aren't we?
• 5:18
  Speaker 0: Oh, definitely.
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  Speaker 0: The honeymoon is over.
• 5:20
  Speaker 0: Didem Unatech provides a massive reality check.
• 5:23
  Speaker 0: She says AI has graduated from an experiment to a core operating expense.
• 5:29
  Speaker 0: Which
• 5:29
  Speaker 1: sounds expensive.
• 5:30
  Speaker 1: Experiments are supposed to be cheap.
• 5:32
  Speaker 0: Well... That's the whole shift.
• 5:34
  Speaker 0: She points out that while overall enterprise budgets for AI are up, the innovation budgets, the money for just playing around, are actually down.
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  Speaker 1: So companies are consolidating.
• 5:43
  Speaker 0: Exactly.
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  Speaker 0: They're not using twenty different cool AI startups anymore.
• 5:47
  Speaker 0: They are picking three to five strategic platforms and going deep.
• 5:50
  Speaker 1: And Yves Bonifant supports this.
• 5:52
  Speaker 1: He says the mindset has shifted from let's test gen AI to industrialize what moves EBITDA.
• 5:59
  Speaker 0: That is the phrase the year for me.
• 6:00
  Speaker 0: Yeah.
• 6:01
  Speaker 0: Industrialize what moves EBITDA.
• 6:03
  Speaker 0: If it doesn't improve the bottom line, it's just a distraction.
• 6:05
  Speaker 1: So industrializing AI, that means taking it out of the lab and putting it on the factory floor.
• 6:10
  Speaker 0: or the call center or the supply chain.
• 6:13
  Speaker 0: It's the boring stuff that saves millions of dollars.
• 6:16
  Speaker 0: Automation, better reporting, things like that.
• 6:19
  Speaker 1: And this isn't just about the portfolio companies, right?
• 6:22
  Speaker 1: It's the deal process itself.
• 6:25
  Speaker 1: Steve Budd was talking about financial due diligence.
• 6:27
  Speaker 0: Yeah, this is fascinating for anyone in M&A.
• 6:30
  Speaker 0: Budd's argument is that AI can spot outliers and weird patterns in a target's data way faster than a human can.
• 6:38
  Speaker 0: It gets you to a no-go decision.
• 6:40
  Speaker 0: Much, much faster.
• 6:41
  Speaker 1: Which saves a fortune on lawyers and accountants.
• 6:43
  Speaker 0: A huge amount.
• 6:45
  Speaker 0: You want to know if a deal is bad on day two, not day forty.
• 6:48
  Speaker 0: But he does stress that human judgment is still key for providing the context.
• 6:52
  Speaker 1: Right.
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  Speaker 1: AI spots the dip in Q-three revenue.
• 6:55
  Speaker 1: A human has to figure out why.
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  Speaker 0: Precisely.
• 6:58
  Speaker 1: But then you have Tom Stables at lockstep.
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  Speaker 1: He says the real value isn't even there.
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  Speaker 1: It's not about making the deal team more efficient.
• 7:04
  Speaker 0: And I tend to agree with him.
• 7:05
  Speaker 0: Shaving a few hours off a deal team's workflow is nice, I guess.
• 7:09
  Speaker 0: It helps the PE firms own margins, but applying AI to the actual portfolio companies to drive real EBITDA uplift.
• 7:16
  Speaker 0: That's
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  Speaker 1: where the big returns are.
• 7:18
  Speaker 0: That's where you get your three X or four X. That's the operational alpha we started with.
• 7:22
  Speaker 1: And Karsten W ties this all the way to the end of the journey to the exit.
• 7:27
  Speaker 1: He uses this phrase data to value.
• 7:29
  Speaker 1: This
• 7:30
  Speaker 0: is a big mindset shift.
• 7:31
  Speaker 0: Usually exit prep is a mad scramble in the last six months of a hold.
• 7:35
  Speaker 1: The data room fire drill.
• 7:36
  Speaker 0: Exactly.
• 7:37
  Speaker 0: He's saying exit readiness needs to be an always-on state.
• 7:41
  Speaker 0: If your data is clean from day one, you can answer any buyer question immediately.
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  Speaker 0: It reduces deal fatigue.
• 7:47
  Speaker 1: Because uncertainty kills deals.
• 7:49
  Speaker 0: And clean data kills uncertainty.
• 7:51
  Speaker 0: It's that simple.
• 7:52
  Speaker 1: That's a perfect segue.
• 7:53
  Speaker 1: You can have all the data in AI in the world, but if you don't have the right people, it doesn't matter.
• 7:58
  Speaker 1: And the data on leadership in PE is, honestly, it's brutal.
• 8:03
  Speaker 0: It's startling.
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  Speaker 0: Lee McCabe dropped a stat that should keep every LP up at night.
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  Speaker 0: Nearly seventy percent of CEOs in PE backed companies are replaced during the hold period.
• 8:12
  Speaker 1: Seventy percent.
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  Speaker 1: So if a PE firm buys my company, I have less than a one in three chance of still being there in a few years.
• 8:18
  Speaker 0: That's what the numbers say.
• 8:20
  Speaker 0: And it often happens in the first year.
• 8:22
  Speaker 0: McCabe argues it's not just a candidate problem.
• 8:25
  Speaker 0: It's a system problem.
• 8:26
  Speaker 1: So why is the churn so high?
• 8:27
  Speaker 1: Are PE firms just too demanding?
• 8:30
  Speaker 1: It's
• 8:30
  Speaker 0: more nuanced.
• 8:31
  Speaker 0: Scott Engler explains it with a great concept.
• 8:33
  Speaker 0: phase fit.
• 8:34
  Speaker 0: Phase
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  Speaker 1: fit.
• 8:34
  Speaker 1: Okay, unpack that for us.
• 8:36
  Speaker 0: So think about it this way.
• 8:37
  Speaker 0: A CEO might be an absolute genius at phase one, the founder led growth, the big vision.
• 8:43
  Speaker 0: But once a PE firm comes in, the company enters phase two.
• 8:47
  Speaker 0: Which
• 8:47
  Speaker 1: is about stabilization, cost cutting, systems.
• 8:50
  Speaker 0: All of it.
• 8:50
  Speaker 0: Margin improvement.
• 8:52
  Speaker 0: The skills are totally different.
• 8:54
  Speaker 0: The zero to one visionary isn't always the right person for the one to ten scaling phase.
• 8:58
  Speaker 0: Engler says boards overvalue confidence in pedigree and undervalue the actual fit for the company's current reality.
• 9:05
  Speaker 0: And
• 9:05
  Speaker 1: Maxwell Salazar notes that Blackstone is trying to get ahead of this by treating leadership as a material investment risk.
• 9:11
  Speaker 1: Right.
• 9:11
  Speaker 0: It's not soft and squishy stuff for them.
• 9:14
  Speaker 0: They assess leadership with the same rigor as financial metrics.
• 9:17
  Speaker 0: Because if you get the leadership wrong, the entire model breaks.
• 9:21
  Speaker 1: And it seems the CFO is in the hot seat just as much as the CEO.
• 9:25
  Speaker 1: We saw insights from Emma Jaggers and Neil French on this.
• 9:29
  Speaker 0: The PECFO role is just different.
• 9:32
  Speaker 0: It's not about reporting history.
• 9:34
  Speaker 0: They describe the CFO as sitting in the no man's land.
• 9:38
  Speaker 0: between the numbers and the operations.
• 9:40
  Speaker 1: No man's land sounds dangerous.
• 9:42
  Speaker 0: It is.
• 9:43
  Speaker 0: They're the bridge.
• 9:44
  Speaker 0: Yeah.
• 9:44
  Speaker 0: They have to be forward-looking, predicting cash flows, driving strategy.
• 9:48
  Speaker 0: If a CFO is just telling you what you spent last month, they're not doing the job.
• 9:53
  Speaker 1: Michael Burcham breaks this whole value creation journey into three acts, which I found really useful.
• 9:58
  Speaker 1: A
• 9:58
  Speaker 0: great framework.
• 9:59
  Speaker 0: Yeah.
• 9:59
  Speaker 0: Act one is creating value, so strategy.
• 10:01
  Speaker 0: Act two is delivering value execution systems.
• 10:05
  Speaker 0: Act three is capturing value the exit.
• 10:07
  Speaker 0: And
• 10:07
  Speaker 1: you need different leadership for each act.
• 10:09
  Speaker 0: Often you do, which brings us to a fascinating point from Jack Sired about interim leaders.
• 10:13
  Speaker 0: I always thought of an interim CEO as just a placeholder.
• 10:16
  Speaker 1: Right, someone to keep the seat warm.
• 10:17
  Speaker 0: Sired flips that on its head.
• 10:19
  Speaker 0: He says sometimes an interim is hired specifically to absorb tension.
• 10:23
  Speaker 1: Observe tension?
• 10:24
  Speaker 1: Like a shock absorber for a car?
• 10:26
  Speaker 0: Exactly like that.
• 10:27
  Speaker 0: Imagine a company with deep cultural problems or painful layoffs that need to happen.
• 10:33
  Speaker 0: If you throw your new star CEO into that mess, you could burn them out in six months.
• 10:38
  Speaker 1: So you send in the interim to do the dirty work?
• 10:41
  Speaker 1: To
• 10:41
  Speaker 0: do the dirty work.
• 10:42
  Speaker 0: They absorb the friction, make the unpopular choices, and then the permanent hire can come in on a white horse to a much cleaner situation.
• 10:49
  Speaker 0: They're a heat shield.
• 10:50
  Speaker 1: That is a brilliant strategic use of talent.
• 10:53
  Speaker 1: OK, we've covered macro, tech, and people.
• 10:56
  Speaker 1: Let's finish with the money itself.
• 10:58
  Speaker 1: Capital structures, exit dynamics.
• 11:00
  Speaker 1: Walker-Diable actually defends illiquidity.
• 11:02
  Speaker 0: He does.
• 11:03
  Speaker 0: In a world of crypto and day trading, he argues PE's illiquidity is a feature, not a bug.
• 11:10
  Speaker 0: It forces discipline.
• 11:11
  Speaker 1: Because you can't panic so.
• 11:12
  Speaker 1: You're
• 11:12
  Speaker 0: locked in for five, seven years.
• 11:14
  Speaker 0: It stops you from making emotional decisions during volatility and just lets the capital compound.
• 11:18
  Speaker 1: But LPs do eventually need their money back, and Regis Hagler and Nate Collins are seeing a trend of early exits.
• 11:25
  Speaker 0: This is the other side of that pressure.
• 11:27
  Speaker 0: They're seeing fund managers sell their winners early, sometimes in under three years, just to show LPs they can return capital.
• 11:34
  Speaker 1: Look, we returned some cash, now please commit to our next fund.
• 11:38
  Speaker 0: That's the motivation.
• 11:39
  Speaker 0: The risk, though, is selling before those operational changes are really baked in.
• 11:43
  Speaker 0: It can be like passing a hot potato.
• 11:45
  Speaker 1: And on the other end of the spectrum, Casper Wichman is talking about trophy assets.
• 11:50
  Speaker 0: This is where a GP holds onto an asset for a very long time using something called a continuation vehicle.
• 11:56
  Speaker 1: They move it from one of their old funds into a new one.
• 11:58
  Speaker 1: they also manage.
• 12:00
  Speaker 0: Correct.
• 12:01
  Speaker 0: And Richmond's cynical take is that they do this to avoid testing the market.
• 12:05
  Speaker 0: They get to control the valuation.
• 12:07
  Speaker 0: And more importantly, they get to keep collecting fees on that asset for another few years.
• 12:12
  Speaker 1: Which raises some big questions, right?
• 12:14
  Speaker 1: Who's setting the price?
• 12:15
  Speaker 0: That's the key question.
• 12:17
  Speaker 0: Doug Krupa at KKR warns that advisors need to ask really tough questions about how these positions are being valued.
• 12:24
  Speaker 0: Is it marked to market or marked to model?
• 12:26
  Speaker 1: Marked to my model, which can be very optimistic.
• 12:28
  Speaker 1: It
• 12:28
  Speaker 0: can be.
• 12:29
  Speaker 1: I want to wrap up with a story from So Hinshaw that just breaks the entire mold.
• 12:34
  Speaker 1: The story of Hoffman Media.
• 12:35
  Speaker 0: This is such a great counter narrative.
• 12:38
  Speaker 0: The usual story is founder sells to PE, PE sells to bigger PE, founder sales off into the sunset.
• 12:44
  Speaker 1: But that's not what happened here.
• 12:45
  Speaker 1: Not
• 12:46
  Speaker 0: at all.
• 12:46
  Speaker 0: The founders bought the PE investors out.
• 12:48
  Speaker 0: Wow.
• 12:49
  Speaker 0: The PE firm had a minority stake for eight years.
• 12:52
  Speaker 0: The Hoffman family bought it back.
• 12:54
  Speaker 0: The PE firm still made a twenty seven percent IRR, which is a fantastic return.
• 12:59
  Speaker 0: But the family kept long term control.
• 13:01
  Speaker 1: I love that.
• 13:02
  Speaker 1: It shows that an exit doesn't have to mean selling the soul of the company.
• 13:06
  Speaker 0: It shows that PE can be a tool for a specific stage of growth, a partnership, not necessarily the end of the line for the founder.
• 13:13
  Speaker 1: So after all that, what does this mean for you listening?
• 13:16
  Speaker 1: The market is moving, but it's cautious acceleration.
• 13:19
  Speaker 1: AI is about execution, not experiments.
• 13:21
  Speaker 1: And leadership churn is a huge systemic risk.
• 13:24
  Speaker 1: you have to manage with phase fit.
• 13:25
  Speaker 0: If I can leave you with one final thought, is to really dig into that phase fit concept.
• 13:31
  Speaker 0: Whether you're an investor, an operator, or a consultant, you need to be asking, are the people in charge, and that includes you, the right people for this specific phase of the company's life?
• 13:43
  Speaker 0: because the data says we're getting that wrong more often than we think.
• 13:47
  Speaker 1: A great thought to end on.
• 13:48
  Speaker 1: If you enjoyed this episode, new episodes drop every two weeks.
• 13:52
  Speaker 1: Also check out our other editions on venture capital, M&A, and strategy and consulting.
• 13:56
  Speaker 0: Thanks for listening.
• 13:57
  Speaker 1: See you next time.