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

• 0:00
  Speaker 0: Provided by Thomas Allgaier and Frennus, based on those relevant Lincoln posts about private equity in CW-FORZERO-FOR-ONE, Frennus specializes in B to B market research for private equity teams to drive portfolio performance and value creation.
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  Speaker 0: This edition is brought to you by our partner Informa.
• 0:17
  Speaker 0: Don't miss out on their upcoming conferences, Super Return Middle East, taking place between twenty-one, twenty-three October, and Super Return Europe, taking place between four to seven November twenty-twenty-five.
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  Speaker 0: Final links to both conferences in the description.
• 0:32
  Speaker 0: Welcome back to the deep dive.
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  Speaker 0: Today, we're cutting through the noise, synthesizing the top private equity trends we saw buzzing around LinkedIn over calendar weeks, forty and forty one.
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  Speaker 1: Yeah, think of it as the highlights reel.
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  Speaker 1: We're giving you the shortcut, basically, so you're instantly up to speed on where the smart money seems to be focused.
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  Speaker 0: And if we had to boil down everything we saw, the big picture, it's this.
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  Speaker 0: The industry is really undergoing a foundational shift.
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  Speaker 1: Absolutely.
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  Speaker 1: The old playbook, you know, relying heavily on financial leverage, writing that multiple expansion wave, it feels like that's being, well, retired.
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  Speaker 0: That's exactly right.
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  Speaker 0: The core conversation is just pivoted entirely.
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  Speaker 0: It's less about engineering the balance sheet.
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  Speaker 0: Much less.
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  Speaker 0: And much more about engineering, you know, repeatable, scalable, intrinsic business value.
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  Speaker 0: So our mission today is really to nail down where that new alpha is truly being generated.
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  Speaker 1: And spoiler alert, it's all about operations.
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  Speaker 1: Let's maybe dive into that first major theme, this fundamental shift towards operational excellence as the new standard playbook.
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  Speaker 0: Right, we've heard talk about this for years obviously, but the data now seems to confirm the transition is well pretty much complete.
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  Speaker 0: Kevin McAllister's analysis, for instance, showed that revenue growth is now accounting for roughly fifty-four percent of value creation in PE deals.
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  Speaker 1: Fifty-four percent
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  Speaker 0: which makes it the single largest driver.
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  Speaker 1: Yeah, and that's a staggering figure isn't it?
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  Speaker 1: because it really proves Sean McGrath's point.
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  Speaker 1: the game has definitely shifted from you know making money on favorable entry and exit multiple
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  Speaker 0: financial engineering bit
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  Speaker 1: exactly yeah to making money on margin expansion and genuine organic growth and that requires a different kind of rigor, a completely different level of diligence.
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  Speaker 0: It also means firms are proactively looking at, let's say, controllable risk.
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  Speaker 0: Kristoff Jills made a good point that while most PE funds instinctively try to avoid operational risk.
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  Speaker 0: Sure,
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  Speaker 1: it makes sense.
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  Speaker 0: The funds that actually succeed in addressing and, you know, solving those core business problems, they're the ones generating those outside superior returns.
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  Speaker 1: So leaning into the operational challenges is the edge.
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  Speaker 0: If you can fix the weak spots, that's your actual edge, yeah.
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  Speaker 1: And this focus leads directly to very specific, prioritized operational levers.
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  Speaker 1: Like when you're looking for that immediate, reliable uplift, Truman Fritz pointed out that pricing strategy really leads the value playbook.
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  Speaker 1: Ah,
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  Speaker 0: pricing.
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  Speaker 0: Always a big one.
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  Speaker 1: Consistently, the fastest, most reliable path to immediate EBITDA improvement, according to him.
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  Speaker 0: Okay, so pricing is the immediate lever.
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  Speaker 0: But what about those functions that maybe seem harder to directly monetize?
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  Speaker 0: Like... customer support.
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  Speaker 0: Yeah.
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  Speaker 0: Philip Kraft made a really interesting, almost provocative argument there.
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  Speaker 1: Yeah, he did, saying we shouldn't just view customer support as, you know, a necessary cost center.
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  Speaker 1: Right.
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  Speaker 1: He actually framed things like poor resolution times or outdated knowledge bases, not just as bad service, but as genuine EBITDA leaks.
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  Speaker 0: EBITDA leaks.
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  Speaker 0: I like that framing.
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  Speaker 0: Leaks
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  Speaker 1: that compound over time.
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  Speaker 1: So fixing those leaks, actually transforming customer support into a value retention mechanism, that's pure operational excellence.
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  Speaker 1: It ensures your customers stay profitable.
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  Speaker 0: And if the main focus is on this kind of operational transformation, that obviously demands a very specialized workforce.
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  Speaker 0: Paul Press.
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  Speaker 0: outline the need for a specific sort of blended talent model to execute this new playbook effectively.
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  Speaker 1: Right.
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  Speaker 1: You could almost call it a blended pyramid model.
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  Speaker 1: At the very top, you absolutely need those senior operating partners.
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  Speaker 1: They bring the, you know, the experience, the board level influence.
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  Speaker 1: They've set the overall strategic vision for creating value.
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  Speaker 1: Okay.
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  Speaker 0: Makes sense.
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  Speaker 0: Yeah.
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  Speaker 0: But those people are, let's be honest, expensive and pretty scarce.
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  Speaker 1: Exactly.
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  Speaker 1: So the leverage, the real grunt work comes from the base.
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  Speaker 1: the mid-level operating professionals.
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  Speaker 1: They're the analytical engine room, as press put it, providing the horsepower, the execution capacity you need to actually deliver that crucial one hundred day plan.
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  Speaker 1: You really need both working together to generate repeatable alpha across a whole portfolio.
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  Speaker 0: Which brings us quite neatly to our second big theme, the human factor.
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  Speaker 0: Because in this operational era, the quality, the preparedness, the alignment of your talent, It's just non-negotiable.
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  Speaker 1: Absolutely critical.
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  Speaker 0: And we're seeing a definite change in what risk means during due diligence, particularly in those very human-centric sectors like professional services.
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  Speaker 0: James Odab pointed out the funds are quite rightly getting wary of just templated reports.
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  Speaker 1: We check the box stuff.
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  Speaker 0: Yeah, because in these service industries, the biggest risks often aren't purely financial.
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  Speaker 0: They're human.
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  Speaker 0: We're talking culture clashes, employee sentiment, talent flight risk, that kind of thing.
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  Speaker 1: which demands deep primary diligence focused on the people, not just staring at the spreadsheets.
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  Speaker 1: And you know, this raises the bar significantly for anyone stepping into C-suite roles in PE-backed companies.
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  Speaker 1: Definitely.
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  Speaker 1: Maxwell Salazar, who comes at this from an IO psychology perspective, really stressed that preparedness now centers on genuine self-awareness and, importantly, accountability, moving past just listing generic strength.
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  Speaker 0: Okay, but hold on.
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  Speaker 0: Aren't self-awareness and accountability kind of management buzzwords we hear all the time?
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  Speaker 0: What does Salazar actually mean in the context of, say, a PEC suite that has to deliver radical change in, like, a hundred days?
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  Speaker 1: Fair question.
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  Speaker 1: He means proven differentiated value.
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  Speaker 1: You need to be able to clearly articulate the unique contribution you bring.
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  Speaker 1: But crucially, you also have to be transparent about past failures and what you genuinely learned from them.
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  Speaker 0: Ah, the failure part.
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  Speaker 0: That's key.
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  Speaker 1: It is.
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  Speaker 1: He noted that if a candidate can't name a mistake or gets defensive about it, that lack of trust becomes a major liability when the board inevitably challenges them.
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  Speaker 1: And when that trust is gone, well, Salazar says the writing is pretty much on the wall.
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  Speaker 0: makes sense.
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  Speaker 0: This demand for quick, high-impact operational change also seems to highlight the strategic use of interim leaders.
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  Speaker 0: Jennifer Brooke-Bodfield run a poll showing, get this, sixty-three percent of respondents view operational efficiency as the top priority where these interims really excel.
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  Speaker 1: Yeah, and Bjorn Henrichson echoed that point.
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  Speaker 1: He noted that these leaders aren't just seat warmers until you find a permanent hire.
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  Speaker 1: Not
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  Speaker 0: just a stopgap?
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  Speaker 1: No, they're seen as strategic catalysts for transformation.
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  Speaker 1: They provide high impact leadership.
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  Speaker 1: Essentially, leadership is a value creation tool, but without the delay you get with a long term executive search.
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  Speaker 1: It's about immediate, dedicated expertise hitting the ground running.
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  Speaker 0: And then finally, staying on the human side, there's the rarely discussed but potentially massive risk of succession.
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  Speaker 0: Hassan Kaiser highlighted the leadership transition over at Seven Two.
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  Speaker 0: It used to be APAC's partners, France, remember?
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  Speaker 1: Ah, yes, between Eddie Misrahi and Thomas de Villeneuve.
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  Speaker 0: Exactly.
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  Speaker 0: And that stood out because it was such a rare example of really intentional, transparent succession planning.
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  Speaker 0: Communicated years in advance to LPs, to stakeholders.
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  Speaker 1: You're active, not reactive.
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  Speaker 0: Precisely.
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  Speaker 0: To ensure total continuity.
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  Speaker 0: It was handled like a planned strategy, not like putting out a fire.
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  Speaker 1: Okay, so let's maybe pivot now.
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  Speaker 1: Let's turn our attention to the technological foundation underpinning this new operational era, theme three, the AI and technology revolution, which I think we can agree is clearly moving past the buzzword stage now.
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  Speaker 0: Definitely feels that way.
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  Speaker 0: It's becoming a core process driver.
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  Speaker 1: Yeah, and Francois Candelon articulated the significance really well, calling AI a true industrial revolution.
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  Speaker 1: He compared its potential impact to, like, electricity.
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  Speaker 0: Wow, that's a big statement.
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  Speaker 0: It
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  Speaker 1: is.
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  Speaker 1: But for PE, he stressed the focus isn't necessarily on chasing the next tech unicorn.
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  Speaker 1: It's more about harnessing AI to drive operational excellence and, crucially, margin expansion within their existing portfolio companies.
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  Speaker 0: And you can already see its impact in the diligence and deal cycle, right?
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  Speaker 0: Donald Zambrano and several others emphasize AI's power to rapidly analyze these massive data sets.
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  Speaker 1: Which just accelerates
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  Speaker 0: everything.
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  Speaker 0: Accelerates diligence, helps scale deal volume, lets firms move with, well, unprecedented speed sometimes.
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  Speaker 1: Now, here's something interesting.
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  Speaker 1: We often assume, don't we, that AI delivers its highest ROI at the largest scale, that bigger companies with more data benefit the most.
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  Speaker 0: Yeah, that seems logical.
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  Speaker 1: But Elizabeth C detailed the exact opposite happening in the mid-market.
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  Speaker 1: She highlighted PE-backed packaging companies, maybe around the hundred and fifty million revenue mark.
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  Speaker 1: Okay.
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  Speaker 1: Seeing higher ROI like nine X plus from AI deployment than much larger firms.
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  Speaker 0: Really?
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  Speaker 0: Why is that?
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  Speaker 0: The
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  Speaker 1: reason they avoid the complexity tax.
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  Speaker 0: The complexity tax.
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  Speaker 0: Yes.
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  Speaker 0: Explain that.
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  Speaker 1: It's basically the organizational drag, the friction caused by years and years of fragmented, siloed, legacy IT systems that larger, older corporations inevitably build up.
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  Speaker 0: Ah, the organizational scar tissue.
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  Speaker 1: Exactly.
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  Speaker 1: The mid-market often doesn't have that deep-seated complexity, so they can deploy targeted AI solutions much more efficiently, much
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  Speaker 0: faster.
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  Speaker 0: And get immediate results.
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  Speaker 0: Like margin expansion.
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  Speaker 0: Aaron Karthik Ganesan provided some really tangible examples using a simple three lens framework user, process, and customer.
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  Speaker 0: You mentioned an industrial components maker cutting three full days off their month-end clothes just by using AI for invoice auto-matching.
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  Speaker 0: Yeah, it's instant operational efficiency right there.
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  Speaker 0: Yeah,
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  Speaker 1: three days.
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  Speaker 1: That's significant, however.
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  Speaker 1: There's always a however, isn't there?
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  Speaker 1: Lee McCabe raised a really critical counterpoint about the risk this whole trend introduces to the traditional PE model itself.
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  Speaker 1: Yeah, so.
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  Speaker 1: He argued that AI is effectively coming for the moat, the moat being judgment and pattern recognition, which historically that was the elite currency of top PE partners, right?
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  Speaker 1: Their ability to spot things others miss.
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  Speaker 0: Hmm.
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  Speaker 0: Interesting point.
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  Speaker 0: So if AI can spot pricing anomalies or structural inefficiencies faster than a human expert.
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  Speaker 0: What is the human edge then?
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  Speaker 1: That's the million-dollar question, isn't it?
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  Speaker 1: If the machine handles the heavy lifting of pattern recognition, where should human insight focus?
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  Speaker 0: Right.
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  Speaker 1: Well, according to McCabe, the answer lies in context, creativity, and that cross-functional fluency, basically, the ability to ask better questions than the machine can even generate.
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  Speaker 0: So it's about augmenting, not replacing.
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  Speaker 0: Precisely.
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  Speaker 1: And Steve Budd confirmed this too.
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  Speaker 1: He noted that expert networks remain absolutely essential alongside AI because they provide that crucial real-world human judgment, the nuance, that models still can't replicate.
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  Speaker 0: Okay, that makes a lot of sense.
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  Speaker 0: Let's pivot now to the broader picture.
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  Speaker 0: The macroeconomic environment markets signals.
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  Speaker 0: Our fourth theme.
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  Speaker 0: Are we still seeing significant challenges, particularly around liquidity and getting deals deployed?
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  Speaker 1: Oh, absolutely.
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  Speaker 1: Especially when it comes to distributions back to LPs.
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  Speaker 1: Jan Voss shared some pretty sobering findings.
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  Speaker 1: PE investors are apparently seeing record lows in distributions right now.
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  Speaker 1: Really?
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  Speaker 0: Record lows?
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  Speaker 1: Yeah.
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  Speaker 1: We saw reports mentioning one family officer saying they're struggling just to maintain their position or even cover their capital calls.
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  Speaker 1: And the reasons cited were, you know, partly those high entry valuations from the twenty nineteen twenty twenty one bubble period.
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  Speaker 0: Still feeling that hangover.
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  Speaker 0: And of
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  Speaker 1: course, the elevated interest rates on private credit.
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  Speaker 1: So yeah, exit constraints are definitely
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  Speaker 0: tight.
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  Speaker 0: But OK, despite that tightness on the exit side, capital still needs to be deployed, right?
• 11:46
  Speaker 0: There's dry powder.
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  Speaker 0: Hugh MacArthur highlighted a critical shift here.
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  Speaker 0: Public markets are increasingly becoming the new private club, effectively supplying inventory for the next buyout vintage.
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  Speaker 1: So more public to private deals.
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  Speaker 0: Seems like it.
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  Speaker 0: Investment activity tied to public companies has climbed to just over half of total PE activity now.
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  Speaker 1: And that includes some absolutely massive headline grabbing.
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  Speaker 1: take privates too.
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  Speaker 1: Nicola Ebbmeyer pointed to the staggering example of electronic arts.
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  Speaker 0: The EA deal, yeah.
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  Speaker 0: Huge.
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  Speaker 1: Structured with something like twenty billion dollars in debt and thirty six billion dollars in equity.
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  Speaker 1: A fifty five billion dollar total deal value.
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  Speaker 1: That LBO just demonstrates the continued massive capacity of PE to deploy huge amounts of capital in the public sphere through these complex take privates, pipees, carveouts.
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  Speaker 0: It's a really dynamic interplay going on.
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  Speaker 0: Hadrian Borelli's noted that even younger public companies are increasingly adopting practices we traditionally saw only in private firms.
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  Speaker 0: Like what?
• 12:47
  Speaker 0: Like embracing tighter governance structures, more demanding management incentives, adopting those focused fundraising strategies common in PE.
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  Speaker 0: The lines between public and private governance are genuinely blurring.
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  Speaker 1: Interesting.
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  Speaker 1: And finally, just quickly, as firms navigate this liquidity crunch and need to place their bets strategically, did we see any consensus on specific sector bets drawing attention?
• 13:08
  Speaker 0: We did, yeah.
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  Speaker 0: Bruce Richards framed defense investment as mission critical.
• 13:14
  Speaker 0: Benefiting from compelling long-term fundamentals, steady cash flow, makes it attractive in a volatile market, you see.
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  Speaker 1: Stable and essential, makes sense.
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  Speaker 0: And then we also saw Jamie Smith and Brett Martucci highlighting energy utilities.
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  Speaker 0: apparently being bought up pretty rapidly.
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  Speaker 1: Utilities, why?
• 13:29
  Speaker 0: Driven primarily by the rising power demand from AI.
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  Speaker 1: Ah, the AI connection again.
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  Speaker 0: And the associated need for massive data center buildouts.
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  Speaker 1: Yeah.
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  Speaker 0: It really shows how technology infrastructure and traditional sectors are now fundamentally linked in PE strategy.
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  Speaker 0: Fascinating
• 13:44
  Speaker 1: stuff.
• 13:44
  Speaker 0: If you enjoyed this deep dive, new additions drop every two weeks.
• 13:48
  Speaker 0: Also check out our other additions on Vitru Capital, M&A, and Strategy and Consulting.
• 13:53
  Speaker 0: So all right wrapping up this particular deep dive the main takeaway feels pretty undeniable doesn't it?
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  Speaker 0: private equity is fundamentally changing its identity.
• 14:01
  Speaker 1: Yeah, it feels like it
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  Speaker 0: moving from being perhaps just a provider of capital to becoming more of a core business architect.
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  Speaker 0: The focus is no longer if you use operational transformation or AI
• 14:13
  Speaker 1: that ship has sailed
• 14:14
  Speaker 0: right.
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  Speaker 0: It's how you staff and lead the human teams around those systems to deliver genuine repeatable value.
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  Speaker 1: And I think the real challenge now for every firm is to look inward and seriously address that critical question Lee McCabe raised.
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  Speaker 1: If AI is rapidly commoditizing traditional pattern recognition and judgment.
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  Speaker 1: The old age.
• 14:34
  Speaker 1: The old age, exactly.
• 14:35
  Speaker 1: Okay.
• 14:35
  Speaker 1: How is your firm ensuring its value?
• 14:38
  Speaker 1: creators, its people are focused on those truly differentiated human skills, you know, the context, the creativity, the cultural alignment, things the machines simply cannot replicate.
• 14:49
  Speaker 1: That feels like the new scarcity.
• 14:51
  Speaker 0: That is the new edge.
• 14:52
  Speaker 0: Well, thank you for joining us for this deep dive.
• 14:54
  Speaker 0: Don't forget to subscribe or follow for the next one.