Latest / Best of LinkedIn: Strategy, M&A & Investments / Best of LinkedIn: Private Equity Insights CW 06/ 07

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Best of LinkedIn: Private Equity Insights CW 06/ 07 · Best of LinkedIn: Strategy, M&A & Investments

• 0:00
  Speaker 0: Provided by Thomas Allgaier and Frennus.
• 0:02
  Speaker 0: Based on the most relevant LinkedIn posts about private equity in CWs six-and seven, Frenness specializes in BDB market research for private equity teams to drive portfolio performance and value creation.
• 0:15
  Speaker 0: This edition is brought you our partners Informa and Private Equity Insights.
• 0:19
  Speaker 0: Don't miss out their upcoming conferences Super Return Secondaries Europe and Private Equity Insights Germany.
• 0:25
  Speaker 0: Find links of the Conferences in description.
• 0:27
  Speaker 0: Welcome back to the deep dive.
• 0:29
  Speaker 0: We've got a lot to get through.
• 0:30
  Speaker 0: today we're looking at calendar week six and seven of twenty-twenty-six And I have to say, The mood music has really changed.
• 0:38
  Speaker 0: it really has for the last.
• 0:39
  Speaker 0: what eighteen months?
• 0:40
  Speaker 0: The whole story has been survive.
• 0:42
  Speaker 0: until twenty five were just you know waiting For interest rates to drop.
• 0:45
  Speaker 0: It felt like everyone was just holding their breath.
• 0:47
  Speaker 0: Hmm but Looking at the sources this week specifically from John Messer and Nicola Ebbmeyer that waiting game And it seems to be officially over.
• 0:55
  Speaker 0: It does, the phrase that keeps coming in mind looking at all this is cautious momentum.
• 0:59
  Speaker 0: Cautious momentum.
• 1:00
  Speaker 0: I like that!
• 1:01
  Speaker 1: Its not the wild west of twenty-twenty one.
• 1:03
  Speaker 1: you know nobody's buying jpegs or rocks anymore but the paralysis has gone.
• 1:07
  Speaker 1: Ebbmeyer data says well its a smoking gun here.
• 1:10
  Speaker 1: private equity entry activity up eight percent year over years
• 1:14
  Speaker 0: and its not just small deals either.
• 1:16
  Speaker 0: thats what jumped out on me.
• 1:17
  Speaker 0: yeah The large entries were talking about deals over a billion euros.
• 1:21
  Speaker 0: They surged by forty-nine percent.
• 1:23
  Speaker 0: Forty
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  Speaker 1: nine per
• 1:25
  Speaker 0: cent!
• 1:25
  Speaker 0: And it's a massive confidence signal, I mean when you see billion euro checks being written that tells you the big players are not sitting on their hands anymore?
• 1:33
  Speaker 1: It is recovery absolutely.
• 1:35
  Speaker 1: but and this really mission for our deep dive today we have to be careful We aren't going back to the easy money era.
• 1:45
  Speaker 1: The sources are painting a picture of very different landscape.
• 1:49
  Speaker 1: It's no longer about financial engineering, it is about what Maria Alvarez Mann calls operational alpha.
• 1:56
  Speaker 0: I really want spend some time on that because operational alpha sounds fantastic but actually executing it is brutal.
• 2:04
  Speaker 0: But before we get into how let us look at because there's this really strange deployment paradox happening right now.
• 2:11
  Speaker 0: It
• 2:11
  Speaker 1: is a paradox!
• 2:12
  Speaker 1: You have all these capital, but you just can't spend it the way used to.
• 2:15
  Speaker 0: Eric J. Pritchard highlighted this perfectly.
• 2:17
  Speaker 0: He points out that industry sitting on four-and-a half trillion dollars in dry powder.
• 2:23
  Speaker 1: That number is just staggering...It
• 2:26
  Speaker 0: IS.
• 2:26
  Speaker 0: Its hard even visualize that much money and theory with so much cash would be seeing buying frenzy.
• 2:33
  Speaker 1: But we aren't because the math has completely changed.
• 2:36
  Speaker 1: Pritchard's argument is that high interest rates and valuation uncertainty have just killed the old playbook,
• 2:42
  Speaker 0: so no more leverage in flip
• 2:44
  Speaker 1: exactly.
• 2:44
  Speaker 1: you can't Just buy a company slap A bunch of debt on it wait for The market multiples to rise And sell It.
• 2:49
  Speaker 1: That' s the financial engineering model and its basically dead.
• 2:52
  Speaker 1: if You Buy something today?
• 2:54
  Speaker 1: Your Paying a premium and your cost Of Debt Is Higher.
• 2:57
  Speaker 1: So your margin For error Is It's Effectively Zero.
• 3:01
  Speaker 0: So if you have trillions burning a hole in your pocket, but you can't just buy everything because the debt is too expensive.
• 3:08
  Speaker 0: You have to get incredibly picky!
• 3:10
  Speaker 0: You do?
• 3:10
  Speaker 0: And Anu Dranjan from Brookfield had a fascinating take on where that money is actually flowing.
• 3:17
  Speaker 0: He says The focus has shifted entirely To essential businesses
• 3:22
  Speaker 1: and assemble.
• 3:22
  Speaker 1: here's doing a lot of heavy lifting.
• 3:24
  Speaker 1: as a term right.
• 3:24
  Speaker 1: he's not Just talking about health care or groceries.
• 3:27
  Speaker 0: no it's deeper its infrastructure.
• 3:29
  Speaker 0: He mentions things like vehicle batteries thermal management systems for pipes, financial infrastructure.
• 3:36
  Speaker 0: The real plumbing of the
• 3:37
  Speaker 0: economy.".
• 3:37
  Speaker 0: That's
• 3:37
  Speaker 1: a perfect analogy to the plumbing—the whole thesis is durability!
• 3:41
  Speaker 1: If the stock market crashes tomorrow or if consumer spending drops you still need thermal management...you still need financial transaction processing.
• 3:48
  Speaker 1: Ranjan is arguing that in this high-cost capital world You have to prioritize downside protection over blue sky growth…You want assets that are hard tangible and necessary.
• 4:00
  Speaker 0: Boring is beautiful again, but it's a rigorous kind of boring.
• 4:03
  Speaker 0: I saw William Bee who was referencing Apollo and David Reuter both touching on this.
• 4:08
  Speaker 0: They used the phrase that stuck with me You can't just shake the tree anymore.
• 4:13
  Speaker 1: That's a great visual.
• 4:14
  Speaker 1: It's all about multiple expansion, right?
• 4:16
  Speaker 1: In the past you could buy company at ten X EBITDA and sell it at twelve x Just because the market got hotter.
• 4:22
  Speaker 1: that shaking The Tree was basically free returns.
• 4:24
  Speaker 1: now Reuter is saying you have to underwrite operational risk
• 4:27
  Speaker 0: which means you have To validate the entire plan.
• 4:30
  Speaker 0: before you even think About wiring money
• 4:32
  Speaker 1: precisely you need to know line by Line where are the efficiency gains or coming from Before day one.
• 4:40
  Speaker 1: If you buy a company thinking, ah we'll figure out how to improve margins later... You've already lost.
• 4:44
  Speaker 1: You're
• 4:44
  Speaker 0: underwriting the execution of the plan not just the asset
• 4:47
  Speaker 1: Exactly!
• 4:48
  Speaker 1: Your'e underwriting that plan itself.
• 4:50
  Speaker 0: And this brings us right back to operational alpha Maria Alvarez.
• 4:53
  Speaker 0: man was really emphatic about it.
• 4:55
  Speaker 0: It's not about leverage.
• 4:56
  Speaker 0: Its bout integrating data technology and institutional knowledge.
• 5:02
  Speaker 0: But lets be real
• 5:03
  Speaker 1: I know where your going with this.
• 5:04
  Speaker 0: Integrating Data & Technology is something every firm claims to do.
• 5:09
  Speaker 0: It's the free square on The Buzzword Bingo Card!
• 5:11
  Speaker 1: Everyone claims it, but so few do well because they just overcomplicate everything.
• 5:16
  Speaker 1: and this where Dan Cremens comes in with what might be my favorite insight of the week...the one-page value creation plan.
• 5:24
  Speaker 1: I
• 5:24
  Speaker 0: love this post as such a direct attack on the consulting industrial complex that permeates private equity.
• 5:31
  Speaker 0: we've all seen those sixty slide strategy decks.
• 5:33
  Speaker 1: oh yeah They're beautiful, they have complex gaunt charts.
• 5:37
  Speaker 0: And nobody looks at them after the Keckhoff meeting?
• 5:39
  Speaker 1: Never!
• 5:39
  Speaker 1: Kremens argues that complexity is actually the enemy of execution.
• 5:43
  Speaker 1: In PE there's this tendency to want-to look smart To big brain.
• 5:47
  Speaker 1: The problem.
• 5:48
  Speaker 1: But if you are a portfolio company CEO You don't need a sixty page deck.
• 5:52
  Speaker 1: You just need clarity.
• 5:54
  Speaker 1: His
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  Speaker 0: litmus test Is brilliant.
• 5:56
  Speaker 0: Yeah He basically asks Can you swivel in your chair right now and hand me your value creation plan?
• 6:01
  Speaker 0: If you had to say, hang on.
• 6:02
  Speaker 0: Let me dig into the SharePoint folder and find version three point two then you don't have a plan.
• 6:07
  Speaker 1: You have a document not a plan.
• 6:09
  Speaker 0: That's a crucial distinction.
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  Speaker 0: And the plan needs to answer one simple question How do we turn one dollar of investor money into three dollars.
• 6:18
  Speaker 0: if that story isn't crystal clear On a single sheet of paper you just aren't gonna get alignment
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  Speaker 1: And alignment is the magic word.
• 6:26
  Speaker 1: You can have the best plan in the world, but if people running a company cannot execute it, its completely worthless.
• 6:32
  Speaker 0: Which Is The People?
• 6:33
  Speaker 0: Component Of Operational Alpha Jason Crane made very strong statement Private equity doesn't lose on strategy It Loses On Talent
• 6:41
  Speaker 1: and the stats back them up.
• 6:43
  Speaker 1: And honestly, they're shocking!
• 6:44
  Speaker 1: Greg Heads shared that nearly seventy percent of CEOs, CFOs —the whole C-suite in PE backed companies— are replaced during a hold period.
• 6:53
  Speaker 1: To seventy
• 6:54
  Speaker 0: percent?
• 6:55
  Speaker 0: That is an enormous amount of churned...
• 6:56
  Speaker 1: It's a revolving door…and Greg Head points out about sixty per cent of those changes happen in year one –that tells you something very specific.
• 7:03
  Speaker 0: Not that it suddenly became incompetent
• 7:05
  Speaker 1: No It's that they were the wrong fit for the investment thesis from day one.
• 7:10
  Speaker 0: Scott Angler calls this misalignment, it feels like a failure of due diligence on the human side of the
• 7:15
  Speaker 0: equation.".
• 7:16
  Speaker 1: It absolutely is!
• 7:18
  Speaker 1: Angler and Head both argue that firms need to define their roles so much more sharply.
• 7:23
  Speaker 1: Do you need a wartime CEO who can cut costs and stabilize a sinking ship?
• 7:29
  Speaker 1: Or do you need growth CEOs who find product market fit or scale sales
• 7:33
  Speaker 0: teams And usually those are two very different people.
• 7:36
  Speaker 0: Almost
• 7:36
  Speaker 1: always, and if you put a growth CEO in turn around situation they will fail not because aren't smart but their toolkit is completely wrong for the job.
• 7:45
  Speaker 1: And replacing a CEO costs you months of momentum, which in five-year hold period he just can't afford.
• 7:52
  Speaker 0: So operational alpha is just as much about HR and psychology as it is about spreadsheets?
• 7:56
  Speaker 0: Definitely.
• 7:57
  Speaker 0: But okay we can talk these weeks without addressing the elephant on the room.
• 8:00
  Speaker 0: technology AND AI.
• 8:03
  Speaker 0: This wasn't usual AI's magical hype.
• 8:05
  Speaker 0: There was some real doom and gloom here especially around private credit
• 8:09
  Speaker 1: this one that most complex but important insights.
• 8:12
  Speaker 1: Eric Bollender's private capital compass highlighted a major sell-off in private credit stocks and the driver, fear of AI disruption.
• 8:20
  Speaker 0: Okay let's unpack that because it is bit of domino effect.
• 8:23
  Speaker 0: Why does say ChatGPT threaten a private credit fund?
• 8:29
  Speaker 1: So think about what?
• 8:30
  Speaker 1: backing those loans?
• 8:32
  Speaker 1: In the last few years, private credit loaned billions to fund buyouts of software companies—sauce businesses specifically.
• 8:39
  Speaker 0: And those deals were done at peak valuations in twenty-twenty one and twenty-two?
• 8:43
  Speaker 0: At
• 8:43
  Speaker 1: a very peak!
• 8:44
  Speaker 1: The collateral for the loan is recurring revenue from that software company.
• 8:48
  Speaker 0: Okay so I lend money basic copywriting tools embedding on their subscription revenue to pay me back.
• 8:57
  Speaker 1: Exactly, but now enter AI tools like Claude Code or these advanced LLMs.
• 9:02
  Speaker 1: These tools threaten the very business model of those legacy software companies.
• 9:07
  Speaker 1: if an AI can write code for free Or very cheap that you used to pay a SAW subscription For and
• 9:12
  Speaker 0: then that company's revenue is at massive risk
• 9:14
  Speaker 1: And If The Revenue Drives Up they default on the loan.
• 9:17
  Speaker 1: Wow!
• 9:17
  Speaker 1: So, The private credit investors are looking at their portfolios and asking how many of our loans are backed by software companies that about to be made obsolete?
• 9:25
  Speaker 1: It's a huge unpriced risk
• 9:27
  Speaker 0: That is terrifying if you're holding that paper.
• 9:30
  Speaker 0: Stuart Fatheringham noted something like fifty-seven percent of PE execs say AI maturity is now critical for an exit.
• 9:38
  Speaker 1: it is
• 9:38
  Speaker 0: basically yeah can't sell a company If You Can't Prove Its AI Proof.
• 9:42
  Speaker 0: but And this Is Disconnect AI Ranks Last in actual execution within their portfolios.
• 9:48
  Speaker 1: It's a huge gap, everyone knows they need an AI strategy to sell the asset but almost nobody has figured out how to actually implant it.
• 9:55
  Speaker 1: yet its erase against time trying to retrofit AI onto companies that weren't built for it.
• 10:00
  Speaker 0: But is not all scary news?
• 10:01
  Speaker 0: there are tools being billed.
• 10:05
  Speaker 0: Alex Baggetchi from Film and Sifter talked about the deal engine.
• 10:08
  Speaker 1: Right, this is the flip side using tech to run the PE firm itself better.
• 10:12
  Speaker 1: Badgedechi talks about UI fatigue.
• 10:14
  Speaker 1: investment professionals are these highly paid really smart people?
• 10:18
  Speaker 1: but they spend half their lives manually updating CRMs in wrestling with spreadsheets
• 10:23
  Speaker 0: The classic analyst burnout problem?
• 10:25
  Speaker 1: That's it!
• 10:26
  Speaker 1: And Baggetti argues firms need a Deal Engine To automate that grunt work...the data should work for team not other way around.
• 10:33
  Speaker 1: If you want to find those essential businesses we were just talking about, You can't be drowning in data entry.
• 10:38
  Speaker 0: Speaking of data Jason Spencer pointed out a shift In how the public markets are viewing AI specifically with Microsoft.
• 10:45
  Speaker 1: This feels like healthy correction.
• 10:47
  Speaker 1: The market has moved from what he calls narrative led optimism
• 10:51
  Speaker 0: Just believing the hype.
• 10:52
  Speaker 0: Believing
• 10:53
  Speaker 1: the hype exactly to rigorous scrutiny.
• 10:56
  Speaker 1: Investors are now asking the hard questions, where is the cash flow?
• 10:59
  Speaker 1: What's the capital intensity?
• 11:01
  Speaker 1: It's not enough to say we have AI.
• 11:03
  Speaker 1: you have to show how it actually makes money
• 11:06
  Speaker 0: which brings us back full circle to discipline Discipline and entry in operations And finally discipline in getting the money out.
• 11:14
  Speaker 0: Let's talk about exits.
• 11:15
  Speaker 1: The exit environment is the real bottleneck right now.
• 11:18
  Speaker 1: We said entries are up eight percent, but exits are still lagging.
• 11:21
  Speaker 1: that log jam hasn't fully cleared yet
• 11:23
  Speaker 0: But there's some cracks of light.
• 11:24
  Speaker 0: Neil Fatania highlighted a couple massive wins.
• 11:27
  Speaker 0: they give them hope.
• 11:28
  Speaker 1: Yes!
• 11:28
  Speaker 1: The Medline IPO was huge.
• 11:30
  Speaker 1: A fifty-five billion dollar valuation and Verisure at sixteen billion dollars.
• 11:35
  Speaker 1: These are signals that the IPO window is cracking open but only for the absolute highest quality assets.
• 11:42
  Speaker 0: That's The Catch, isn't it?
• 11:43
  Speaker 0: For every med line there are a dozen companies stuck in limbo and Nishat Jones had great breakdown of why these exits stall.
• 11:50
  Speaker 1: And it comes back to data.
• 11:51
  Speaker 1: Again, Jones argues that exits stall because of a lack of a data-led strategy.
• 11:57
  Speaker 1: when the buyer comes in to do due diligence they want proof.
• 12:00
  Speaker 1: Hard numbers hard numbers.
• 12:01
  Speaker 1: if your customer data is fragmented or you can't prove brand loyalty with things like net revenue retention The buyer just loses confidence.
• 12:08
  Speaker 0: and in dealmaking When confidence drops evaluation crashes where the whole deal Just dies on the vine.
• 12:14
  Speaker 1: exactly.
• 12:14
  Speaker 1: You can't bluff your way through an exit anymore.
• 12:16
  Speaker 1: I
• 12:17
  Speaker 0: really liked Adam Coffey's take On the mindset of an exit says founders often think of it as the finish line.
• 12:22
  Speaker 0: Like I sold a company to PE, and I'm done where's my check?
• 12:25
  Speaker 0: And
• 12:25
  Speaker 1: Coffey says no its at checkpoint
• 12:27
  Speaker 0: At Checkpoint.
• 12:28
  Speaker 0: that changes whole dynamic.
• 12:29
  Speaker 1: It does!
• 12:30
  Speaker 1: If you want sell private equity You have.
• 12:32
  Speaker 1: build a sellable asset not just job do yourself.
• 12:35
  Speaker 1: The PE firm usually wants stay on grow into next checkpoint.
• 12:40
  Speaker 1: They are buying jockey.
• 12:41
  Speaker 1: much is horse
• 12:42
  Speaker 0: Which leads perfectly in rollover equity.
• 12:45
  Speaker 0: Caledazar calls second bite apple.
• 12:48
  Speaker 1: This is such a powerful wealth creation tool.
• 12:51
  Speaker 1: Let's say you sell your business for fifty million dollars, You might take forty million in cash but keep ten million dollars.
• 12:58
  Speaker 1: so twenty percent invested In the company alongside The PE firm.
• 13:01
  Speaker 1: and
• 13:01
  Speaker 0: the whole logic Is?
• 13:02
  Speaker 0: The PE Firm is there to supercharge that Company?
• 13:05
  Speaker 0: right
• 13:06
  Speaker 1: if the PE firm does its job You know adds That operational alpha buys some competitors.
• 13:12
  Speaker 1: ten million dollar stake might be worth thirty or forty million dollars five years later.
• 13:17
  Speaker 1: That second bite can end up being worth more than the first.
• 13:20
  Speaker 0: but what if you can't sell?
• 13:22
  Speaker 0: What if the IPO window just isn't open for you?
• 13:24
  Speaker 0: we're seeing new structures emerge.
• 13:26
  Speaker 0: Vivian Gonzalez talked about continuation funds, continuation
• 13:29
  Speaker 1: funds have had a bit of a rebrand.
• 13:31
  Speaker 1: they used to be seen as a failure like a plan B because you couldn't sell the asset.
• 13:35
  Speaker 1: right now Gonzales argues that are becoming a core strategy.
• 13:39
  Speaker 1: it allows the PE firm to hold onto a real winner for longer.
• 13:44
  Speaker 0: So how does that work?
• 13:45
  Speaker 1: Say you have a great asset, but the fund's life is ending—you just move it into a continuation fund.
• 13:51
  Speaker 1: The LPs who want liquidity can cash out But the GP keeps.
• 13:55
  Speaker 1: the assets grow even further.
• 13:57
  Speaker 1: It's a win-win.
• 13:58
  Speaker 0: And on the other end of the time horizon spectrum, Ronald Diamond made a really interesting comparison between PE and family offices.
• 14:05
  Speaker 1: This is so significant for founders when they're choosing a partner.
• 14:09
  Speaker 1: private equity is structurally designed to sell every three to five years.
• 14:12
  Speaker 1: that creates transaction costs and what Rob Worth calls strategic distraction.
• 14:17
  Speaker 1: you're constantly polishing the company For The Next Sale whereas
• 14:20
  Speaker 0: A Family Office
• 14:21
  Speaker 1: They can hold forever.
• 14:23
  Speaker 1: diamond notes That Family Offices Avoid That Churn?
• 14:25
  Speaker 1: They Can Focus On Long Term Compounding without the artificial pressure of a fun cycle.
• 14:30
  Speaker 1: If you care about legacy and not just speed, that's becoming really attractive alternative.
• 14:35
  Speaker 0: Let's zoom in geographically for a minute.
• 14:36
  Speaker 0: we mentioned the Dach region.
• 14:38
  Speaker 0: Germany Austria Switzerland was bit slow on entries but there is definitely active either.
• 14:44
  Speaker 1: Oh yeah Andres Klab and Sebastian Esser both highlighted buy-and-build activity In the DSCH mid market.
• 14:52
  Speaker 1: it very active.
• 14:53
  Speaker 0: The Odewald example
• 14:55
  Speaker 1: Right, the high office group.
• 14:56
  Speaker 1: They aren't just buying one company they're buying a platform in social recruiting and then immediately snapping up add-ons like Fatch Digital...they are moving really fast!
• 15:06
  Speaker 1: That strategy of aggregating fragmented markets is still the dominant play.
• 15:18
  Speaker 1: Well, it makes sense if you reframe it.
• 15:20
  Speaker 1: He cites an article suggesting events aren't just cyclical one-offs anymore.
• 15:23
  Speaker 1: they're scalable platform ecosystems.
• 15:26
  Speaker 0: That sounds like peak buzzword bingo But I think i get it.
• 15:30
  Speaker 0: If you have a trade show You also have all the data on the buyers and sellers
• 15:34
  Speaker 1: Exactly.
• 15:35
  Speaker 1: And if you can build a community that meets in person once a year but engages digitally All year round?
• 15:40
  Speaker 1: That's a very different business model.
• 15:42
  Speaker 1: It creates recurring revenue!
• 15:46
  Speaker 1: it is recurring revenue.
• 15:48
  Speaker 0: So we've covered the return of momentum, the absolute necessity of operational alpha this scary reality of AI risk and the changing exit landscape.
• 15:57
  Speaker 0: It's
• 15:57
  Speaker 1: a lot to digest!
• 15:59
  Speaker 0: But I want leave our listeners with one final slightly provocative thought from Maxwell Salazar.
• 16:04
  Speaker 0: We spend so much time talking about the mega funds, the Apollo's.
• 16:08
  Speaker 0: The Blackstones and KKRs.
• 16:11
  Speaker 1: They had all of their headlines but numbers are just huge.
• 16:13
  Speaker 0: But Salazar points out that middle market is where real hustle is.
• 16:16
  Speaker 0: he shared a stat.
• 16:18
  Speaker 0: Middle Market buyout investments delivered seventy seven percent median EBITDA growth.
• 16:23
  Speaker 0: Large cap only sixty three percent.
• 16:25
  Speaker 1: That is a significant gap, that fourteen percent difference Is where the real value creation
• 16:30
  Speaker 0: lives.
• 16:31
  Speaker 0: It is!
• 16:31
  Speaker 0: So The question for you listening are You chasing the logo or Are you chasing performance?
• 16:35
  Speaker 0: Because the real operational alpha might be happening in A conference room with five people Not In a skyscraper With five hundred.
• 16:42
  Speaker 1: That's great to chew on.
• 16:44
  Speaker 0: If you enjoyed this episode New episodes drop every two weeks.
• 16:47
  Speaker 0: Also check out our other editions On venture capital M&A and strategy And consulting.
• 16:52
  Speaker 0: Thanks For Listening.
• 16:53
  Speaker 0: Don't forget To Subscribe.