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Best of LinkedIn: Private Equity: Value Creation CW 34/ 35 · 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.
• 0:06
  Speaker 1: Value creation in calendar weeks thirty-four and thirty five.
• 0:10
  Speaker 1: Frenness supports PE back manufacturers with a market intelligence needed to unlock revenue from idle production capacity.
• 0:17
  Speaker 1: you can find more info
• 0:19
  Speaker 0: And for those of you joining us today, we are going to be giving you a very focused totally no fluff breakdown.
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  Speaker 0: Of the top private equity insights were seeing trend across LinkedIn right now.
• 0:30
  Speaker 0: exactly
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  Speaker 1: so if your in strategy M&A or investments.
• 0:34
  Speaker 1: this deep dive is specifically tailored.
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  Speaker 0: Right, because we are looking at this massive shift happening in the industry today.
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  Speaker 0: The whole center of gravity and private equity is.
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  Speaker 0: it's moving completely away from the deal itself.
• 0:45
  Speaker 0: Yeah...the
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  Speaker 1: actual signing
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  Speaker 0: Exactly!
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  Speaker 0: It's heavily moving toward post-signing execution And real operations
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  Speaker 1: Which is fascinating right?
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  Speaker 1: Because I mean if you start with a macro landscape You really start to see why This center of gravies shifting so violently.
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  Speaker 0: Oh absolutely..The data just undeniable.
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  Speaker 0: At that point
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  Speaker 1: Right....the old ways generating returns Are basically losing their edge.
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  Speaker 1: Look at these striking data Alvarez and Marsol just put out.
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  Speaker 0: Yeah, that report was everywhere.
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  Speaker 1: It really was And they pointed out that operations now drive forty seven percent of buyout value creation
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  Speaker 0: which is huge.
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  Speaker 1: it Is because ends up from just twenty five percent not that long ago?
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  Speaker 1: At the same time The share From pure financial engineering has Just plummeted.
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  Speaker 0: yeah drop from fifty one percent.
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  Speaker 0: I mean That is a total inversion Of the model
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  Speaker 1: it Really is.
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  Speaker 1: it makes me think well this like buying A company used to be Like flipping a house
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  Speaker 0: You know?
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  Speaker 0: Oh, that's a good way to look at it.
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  Speaker 1: Yeah like you buy the house slap on a fresh coat of paint which is your financial engineering and then you just flip into the next buyer for a profit
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  Speaker 0: right relying On The Market To Just Lift The Price For You.
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  Speaker 1: Exactly.
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  Speaker 1: but today It'S not A House Flip Anymore.
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  Speaker 1: Its Like Buying A Complex Factory That You Actually Have To Get Inside Of Run Maintain And You Know Aggressively Optimize
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  Speaker 0: Because The Value Is Built Or Destroyed After The Wire Clears.
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  Speaker 0: Now not during the price negotiation.
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  Speaker 1: Exactly, and that shift is completely changing how capital flows isn't it?
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  Speaker 1: Oh
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  Speaker 0: fundamentally I mean Adam Street Partners recently found that seventy-two percent of LPs are now favoring the middle market over mega buyouts.
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  Speaker 1: Wow!
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  Speaker 1: Seventy two percent Yeah.
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  Speaker 0: And its specifically because this need for operational value creation.
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  Speaker 0: You can just squeeze a massive heavily optimized mega cap company For that kind of operational juice anymore.
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  Speaker 1: Right they're already running too lean
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  Speaker 0: Exactly.
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  Speaker 0: But the middle market still has all this room to physically improve the unit economics,
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  Speaker 1: which you have to do because of the timeline.
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  Speaker 1: KPMG had a great insight on that recently noting that exits are just taking longer across-the board right now
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  Speaker 0: for sure.
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  Speaker 0: The holding periods or stretching out?
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  Speaker 0: Right
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  Speaker 1: and when we're holding an asset longer those raw paper valuations start To mean less and less to investors.
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  Speaker 1: they
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  Speaker 0: mean almost nothing.
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  Speaker 0: LPs want raw cash generation.
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  Speaker 1: Yeah DPI
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  Speaker 0: exactly distributed to paid in capital.
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  Speaker 0: If you aren't operationally throwing off cash, it doesn't matter what the spreadsheet says your company is worth.
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  Speaker 1: Right which puts an insane amount of pressure immediately on a post-acquisition integration phase.
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  Speaker 1: Oh
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  Speaker 0: day one!
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  Speaker 0: The pressure starts on Day One
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  Speaker 1: Because if operations are new engine Then your integration playbook has to be flawless.
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  Speaker 1: Okay, but I mean why do so many of these post acquisition plans just completely fall apart?
• 3:29
  Speaker 1: Well
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  Speaker 0: the sources point to a really harsh reality about The classic one hundred day plan.
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  Speaker 1: Yeah We see this all the time.
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  Speaker 1: most These One Hundred Day Plans fail because they're Just.
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  Speaker 1: They're Basically High-Level Strategy Documents.
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  Speaker 1: Right
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  Speaker 0: Exactly.
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  Speaker 0: They aren't Operating Contracts
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  Speaker 1: right.
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  Speaker 1: They lack real owners for the initiatives, and more importantly they don't have actual budgets attached to them.
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  Speaker 0: And if there's no budget it is not a real plan its just a wish list which why the smartest firms are moving toward this concept of The Third Company.
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  Speaker 0: Oh
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  Speaker 1: right!
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  Speaker 1: The third company model.
• 4:00
  Speaker 1: Let us unpack that.
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  Speaker 0: Yeah, so basically the strongest integrations don't just take the acquired business and try to aggressively absorb it into their existing platform.
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  Speaker 0: Instead they treat the acquired.
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  Speaker 1: Yeah, they're building shared capabilities across the entire portfolio too.
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  Speaker 0: Exactly talent pricing software procurement.
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  Speaker 0: that's becoming a much bigger differentiator than just being good at picking deals.
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  Speaker 0: but
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  Speaker 1: wait let me push back on That third company idea for a second.
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  Speaker 1: if you treat a newly acquired Company Just as raw material don't you risk destroying?
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  Speaker 1: The unique culture or You know the institutional knowledge that made them attractive in the first place?
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  Speaker 0: It's a fair question, and it is huge risk if you do wrong.
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  Speaker 0: But the key is focusing on culture agnostic operational levers.
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  Speaker 1: Okay what an example of cultural agnestic lever?
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  Speaker 0: So one of the posters broke down this great example in offshore model that was rolled out across thirty-one different portfolio companies.
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  Speaker 0: Wow!
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  Speaker 0: And they basically centralized back office delivered one point eight million dollars.
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  Speaker 0: immediate savings kept at ninety two percent retention rate drove three to five percent EBITDA gain.
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  Speaker 0: Well,
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  Speaker 1: and how long?
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  Speaker 0: Just eight months.
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  Speaker 1: that's incredible
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  Speaker 0: right.
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  Speaker 0: And you aren't messing with the targets culture.
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  Speaker 0: when you just centralize accounts payable You're just fixing the plumbing
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  Speaker 1: Right.
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  Speaker 1: another hidden lever I saw mentioned was reviewing PEO relationships.
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  Speaker 1: So professional employer organizations
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  Speaker 0: Oh yeah The HR side Yeah.
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  Speaker 1: if you look at that portfolio wide you can surface so much invisible renewal exposure.
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  Speaker 1: aggregate it from massive cost savings without touching the culture.
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  Speaker 0: Exactly!
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  Speaker 1: But, you know this infrastructure stuff gets super dangerous when we get into carve-outs.
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  Speaker 0: Carve-outs are a nightmare if you aren't prepared
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  Speaker 1: Seriously?
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  Speaker 1: Real quick If your listening to this and currently drafting on one hundred day plan or looking at a carve out make sure you subscribe so that catch our future deep dies of these specific operational tactics.
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  Speaker 1: Good but getting back to carve outs TSA The transition service agreement is just mind field.
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  Speaker 1: Did you see the stat that sixty-eight percent of IT related carve out?
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  Speaker 1: TSAs require an extension?
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  Speaker 1: Yes.
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  Speaker 0: Sixty eight percent
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  Speaker 1: and that is so expensive!
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  Speaker 1: It destroys value, costs climb from what unexpected one point.
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  Speaker 1: five to three percent a target revenue upto as much as five percent.
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  Speaker 0: Yeah sometimes even five percent And that immediately compresses your margin in year one.
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  Speaker 0: it's
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  Speaker 1: brutal But here's the thing, you can't execute any of this.
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  Speaker 1: Not the TSA extraction not The third company model.
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  Speaker 1: without the right leadership in place.
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  Speaker 0: You really can't which perfectly explains the massive executive turnover we're seeing post deal.
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  Speaker 1: It's staggering.
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  Speaker 1: Seventy-three percent of founder CEOs are replaced within eighteen months of a PE deal.
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  Speaker 1: seventy three percent.
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  Speaker 0: it's wild.
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  Speaker 0: But the primary reason, according to sources is that nobody actually taught these founders new board dynamics.
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  Speaker 1: Right they're being graded on a completely new rubric
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  Speaker 0: Exactly!
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  Speaker 0: They know their product and market but don't how manage a highly leveraged PE Board.
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  Speaker 1: So How do successful ones operate differently?
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  Speaker 0: Well... The best PE-backed CEOs.
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  Speaker 0: They treat that one hundred day plan as a ceiling, not just goal.
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  Speaker 1: Okay how so?
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  Speaker 0: They arrive on Day One with their views of the legacy leadership and cost base already formed.
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  Speaker 0: they aren't going onto listening to her
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  Speaker 1: Right!
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  Speaker 1: They're executing immediately
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  Speaker 1: Exactly!!
• 7:29
  Speaker 0: Look at Akoya
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  Speaker 0: Capital!!!
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  Speaker 0: They were highlighted as prime example an operator-led firm built around twenty two platforms.
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  Speaker 0: half billion deployed.
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  Speaker 0: heavily prioritized actual operators over pure financial experts
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  Speaker 1: which is smart.
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  Speaker 1: But you know, hiring is arguably the highest leverage move in PE right?
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  Speaker 1: A great team can overcome a week strategy but not the other way around
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  Speaker 0: hundred percent.
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  Speaker 1: so with all this focus on the CEO our sponsors kind of blinding themselves to the actual MVP of The C-suite.
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  Speaker 1: I'm talking about the CFO.
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  Speaker 1: Oh!
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  Speaker 0: The CFO role has completely changed.
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  Speaker 0: that's a huge point Right?
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  Speaker 1: i mean there was That Great example shared About a CFO who drove one point two billion dollars In EBITDA growth.
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  Speaker 0: Yes
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  Speaker 1: and they credited the entire success to underwriting every single major commitment rather than just acting like a historian reporting on the past.
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  Speaker 0: That's the difference, A traditional CFO tells you what happened last quarter.
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  Speaker 0: A PECFO has to underwrite the future.
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  Speaker 0: They have to tie every operational move directly to the exit multiple.
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  Speaker 1: But that intensity is burning people out, isn't it?
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  Speaker 1: Oh
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  Speaker 0: absolutely Proven PECFOs are burning and leaving within twelve-to eighteen months right now Which
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  Speaker 1: is crazy turnover for such a critical role.
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  Speaker 0: It's forcing PE firms to rely on interim CFOs.
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  Speaker 0: just keep value creation moving or they're having to hire first-time PECFOs because the veteran talent pool is just tapped out.
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  Speaker 1: So if you in capital has stretched this thin and there's all this extreme pressure on operations, where do firms turn?
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  Speaker 0: They turned into infrastructure specifically AI.
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  Speaker 1: right embedding AI directly into the portfolio And the timeline on this as shifting aggressively.
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  Speaker 0: Yeah Ai and private equity is rapidly moving away from those You know.
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  Speaker 0: twenty twenty five proof of concept pilots There are going straight into production deployment for twenty twenty six.
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  Speaker 1: But there's friction, too.
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  Speaker 1: McKinsey just found that while seventy percent of employees actually feel ready to use AI...
• 9:24
  Speaker 0: Only twenty-seven percent of leaders believe their organization is prepared?
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  Speaker 1: Exactly!
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  Speaker 1: But despite that… There's a massive capital arms race happening.
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  Speaker 0: Huge!!
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  Speaker 0: Look at Blackstone and Hellman & Freedmen – they just farmed
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  Speaker 0: ODE!!!
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  Speaker 0: It's one point five billion dollar AI joint venture with Enthropic.
• 9:43
  Speaker 1: A billion and a half dollars!
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  Speaker 0: And OpenAI immediately countered, With four billion-dollar venture backed by TPG.
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  Speaker 1: Okay but let me ask you this because there's a lot of hype here Are these PE firms basically just buying really expensive sauce licenses for their portcos?
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  Speaker 1: Or is it like fundamental rewiring the business model?
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  Speaker 1: That's
• 10:03
  Speaker 0: The Billion Dollar Question.
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  Speaker 0: Right
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  Speaker 1: Because I think about historical shift from say paper ledgers to the first ERP systems, that changed everything.
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  Speaker 1: Is this THAT big?
• 10:12
  Speaker 0: The hard evidence suggests it actually is a fundamental rewiring!
• 10:15
  Speaker 1: Really how
• 10:16
  Speaker 1: so?!
• 10:17
  Speaker 1: Well
• 10:17
  Speaker 0: with ODE their engineers are literally physically embedded at places like Citroen Cooperman building proprietary client portals.
• 10:25
  Speaker 0: Yeah they're at Baker-Tilly US Physically mapping and automating tax and audit workflows.
• 10:30
  Speaker 0: They aren't just selling software They're changing the production line.
• 10:34
  Speaker 1: And it's not just the mega funds doing this, yeah onyx labs Just launched an egenic operating system for everything from diligence all The way through to exit
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  Speaker 0: Right, end-to-end.
• 10:44
  Speaker 1: And supply... this is a great example.
• 10:46
  Speaker 1: they're automating accounts receivable to target those crazy forty five to sixty day plus DSOs that are so common in manufacturing and distribution
• 10:54
  Speaker 0: which goes right back what we said at the start.
• 10:56
  Speaker 0: cash generation yeah if you can automate AR and drop your DSO by thirty days The
• 11:01
  Speaker 1: working capital UNLock is
• 11:02
  Speaker 0: massive.
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  Speaker 0: Exactly it's all about getting that DPI.
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  Speaker 1: So summarizing all of these entire industry is violently pivoting toward execution.
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  Speaker 1: The financial engineering era has closed, and it's all about the operators now.
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  Speaker 0: A hundred percent!
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  Speaker 0: You have to be able to actually run the business...
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  Speaker 1: Which leads me into this final kind of provocative thought for you to mull over.
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  Speaker 1: We've talked extensively today about building platforms and integrating targets right?
• 11:27
  Speaker 1: Yeah But consider this data point from the sources.
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  Speaker 1: Right Now landscaping consolidation is running almost entirely through bolt-ons Not new platforms.
• 11:37
  Speaker 0: Interesting,
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  Speaker 1: why?
• 11:38
  Speaker 1: Because most platform-ready targets out there simply lack a strong leadership bench.
• 11:44
  Speaker 1: So it really makes you question How are you evaluating the leadership bench strength of your next platform acquisition?
• 11:50
  Speaker 1: because if it's not they're none Of this works.
• 11:52
  Speaker 0: that is exactly The right question to be asking right now
• 11:55
  Speaker 1: If you enjoyed this episode.
• 11:56
  Speaker 1: new episodes drop every two weeks.
• 11:58
  Speaker 1: also check our other editions on PE Fundraising, PE, Exit Strategies, Venture Capital, M&A and Strategy & Consulting.
• 12:06
  Speaker 1: Thank you so much for joining us!
• 12:07
  Speaker 1: And make sure you're subscribed.