Leveraged Buyout Strategy

Private Thoughts From my Desk…………….#46 𝗠𝘆 𝗧𝗼𝗽 𝟭𝟬 𝗧𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀 𝗳𝗿𝗼𝗺 𝗕𝗮𝗶𝗻’𝘀 𝟮𝟬𝟮𝟲 𝗚𝗹𝗼𝗯𝗮𝗹 𝗣𝗿𝗶𝘃𝗮𝘁𝗲 𝗘𝗾𝘂𝗶𝘁𝘆 𝗥𝗲𝗽𝗼𝗿𝘁 Our annual private equity report is out (https://bit.ly/4tXSQi8), and as I say in the introduction, 2025 was the year the industry regained traction. But it was also the year we crossed into a new era, with a K-shaped recovery that is rewarding the most scaled and most differentiated platforms, while everyone else fights harder for deals, talent and capital. My top 10 takeaways are below. Would love your thoughts. Drop them in the comments. 𝗧𝗵𝗲𝗿𝗲 𝗶𝘀 𝗴𝗼𝗼𝗱 𝗻𝗲𝘄𝘀 𝗶𝗻 𝘁𝗵𝗲 𝗺𝗮𝗿𝗸𝗲𝘁𝘀. 𝟭) Buyout deal value snapped back in a big way, reaching $904B, up 44% vs 2024, even though deal count fell and average deal size hit a new high. 𝟮) Exits returned with real force, with buyout backed exit value up 47% to $717B, helped by strategics coming off the sidelines and early signs of an IPO thaw. 𝟯) The ingredients for more dealmaking are sitting right there, easing interest rates, improving financing windows, and massive dry powder still waiting to be put to work. 𝗛𝗼𝘄𝗲𝘃𝗲𝗿, 𝘁𝗵𝗲 𝗿𝗲𝗰𝗼𝘃𝗲𝗿𝘆 𝗶𝘀 𝗻𝗮𝗿𝗿𝗼𝘄, 𝗮𝗻𝗱 𝘁𝗵𝗲 𝗹𝗶𝗾𝘂𝗶𝗱𝗶𝘁𝘆 𝗵𝗮𝗻𝗴𝗼𝘃𝗲𝗿 𝗿𝗲𝗺𝗮𝗶𝗻𝘀. 𝟰) Prices are still high, multiples are expected to stay flat, and the headline rebound was driven largely by a handful of $10B+ megadeals, while the bid-ask gap remains the most common breaking point when deals fail. 𝟱) The liquidity squeeze is still the defining problem, with distributions stuck around 14% of NAV, roughly 32,000 unsold companies worth about $3.8T, and average hold periods stretching to seven years 𝟲) Fundraising is telling the same story, buyout fundraising fell 16% to $395B, fund closes dropped again, and LPs constrained by old commitments are concentrating capital with the most proven DPI performers. 𝗧𝗵𝗲 𝗣𝗘 𝗶𝗻𝗱𝘂𝘀𝘁𝗿𝘆 𝗵𝗮𝘀 𝗮 𝘁𝗼 𝗱𝗼 𝗹𝗶𝘀𝘁 𝗳𝗼𝗿 𝘁𝗵𝗶𝘀 𝘆𝗲𝗮𝗿 𝗮𝗻𝗱 𝗯𝗲𝘆𝗼𝗻𝗱. 𝟳) Deal math has changed for good, with borrowing costs around 8% to 9% and lower leverage, sponsors now need something closer to 10% to 12% EBITDA growth to hit a 2.5x return over five years, which puts operational value creation back in the driver seat. 𝟴) The winning model is end-to-end and repeatable, full potential diligence, faster execution, and AI enabled value creation across commercial, operational, tech, and sustainability levers. 𝟵) The cost of alpha is rising while economics are under pressure, headline fees are drifting down, co investment is now table stakes, and LPs are pushing harder on terms because many feel they have more leverage than they did a year ago. 𝟭𝟬) Strategy clarity is now non-negotiable for GPs. In a crowded market, LPs want a defensible identity, a repeatable alpha engine, and a credible 5-year ambition anchored in distribution discipline, not just narrative. #privateequity #privatemarkets #privatethoughtsfrommydesk

Bain just put it in writing: “12 is the new 5.”  Translation for anyone still clinging to 2016: the deal doesn’t work unless you actually run the business. Awful, I know. A decade ago, a “typical” buyout could hit a 2.5x over five years with ~5% annual EBITDA growth because leverage was fat and multiple expansion did the heavy lifting. Today, with borrowing costs up and leverage closer to 30–40%, Bain’s math says you need ~10–12% EBITDA growth to get to the same 2.5x. That’s not “ops optional.” That’s “ops or obituary.”  And the timing couldn’t be better, because the industry is basically a museum of unsold assets. 32,000 unsold companies sitting there like a warehouse of regret, worth $3.8T. Average hold periods drifting to ~7 years. Distributions as a % of NAV stuck around 14%, and below 15% for four years running.  Meanwhile, 2025 “recovered” in the way only PE can recover: loudly. Buyout deal value up 44% to $904B and exits up 47% to $717B… driven by a handful of megadeals while overall deal count fell 6%. Champagne for the press release, tap water for the DPI.  Also, while everyone’s building bigger “platforms,” the economics are getting lovingly shaved. Average buyout management fee ~1.6% in 2025, down ~20% from the old 2%. Median coinvest offered at 33 cents per dollar of fee-bearing capital, Bain translates that to about a 25% revenue haircut. So yes, the cost of alpha is rising while the price of being a GP is falling. Stunning business model.  “12 is the new 5” isn’t a slogan. It’s the market finally sending PE the invoice for years of confusing financial engineering with value creation. #ClaymorePartners #notveryprivateequity #PrivateEquity #ValueCreation #OperatingPartners

I've sat on both sides of 100+ M&A transactions over 25 years as a PE principal and family office CEO. What Bain just quantified in their 2026 Global PE Report is something I watched happen in real time across deal rooms, board meetings, and portfolio company reviews. The math of private equity has fundamentally changed. A decade ago, a typical buyout needed 5% annual EBITDA growth to hit a 2.5x MOIC over five years. Leverage was doing the heavy lifting at roughly 50% of the purchase price. Rates were 6-7%. Multiples were climbing. The operator was useful, not essential. Today, with borrowing costs at 8-9% and leverage ratios compressed to 30-40% of purchase price, that same 2.5x return requires 10-12% annual EBITDA growth. That is not a marginal adjustment. That is a complete restructuring of where returns come from. Multiple expansion is not reliable. Financial engineering is not sufficient. The operator is now the return. Meanwhile, the industry is sitting on 32,000 unsold portfolio companies worth $3.8 trillion. Average holding periods have drifted to seven years. Distributions as a percentage of NAV have held below 15% for four consecutive years. That is not a capital problem. That is an operational execution problem at scale. The executives who understand this shift, who arrive at PE conversations with an investment thesis instead of a resume, who speak EBITDA growth and cash conversion cycle instead of functional titles and team size, are the most valuable people in the room right now. The ones waiting for the old playbook to come back are watching a window close. 12 is the new 5. The operators who understand what that means are already positioning for it.

I went through Bain & Company's 2026 Global Private Equity Report this week. The headline looks great. The details are sobering. Buyout deal value hit $904 billion. Exit value jumped 47%. Sounds like a roaring comeback. Except 13 deals drove 69% of all value growth. Overall deal count fell 6%. The largest buyout in history, the $56.6 billion Electronic Arts deal, was funded mostly by Saudi Arabia's sovereign wealth fund. Traditional PE dry powder was barely in the room. The real story is underneath. Distributions as a share of net asset value have stayed below 15% for four straight years. An industry record. 32,000 unsold companies sitting in portfolios worth $3.8 trillion. Average holding periods now touching seven years. 53% of LPs unable to make new commitments because old ones haven't been drawn down yet. And the economics of dealmaking have permanently shifted. A buyout that needed 5% annual EBITDA growth to hit 2.5x returns ten years ago now needs 12%. Same target. Completely different math. Higher rates, compressed leverage, record asset prices, and no multiple expansion to bail anyone out. Bain calls it "12 is the new 5." I think it is the most important shift in private equity right now. The firms winning are not waiting for normal to return. They are building systems around sourcing, diligence, and value creation. The firms struggling are generalists with no distinctive edge, still playing a game that ended in 2021. LPs have noticed. They are not leaving the asset class. They are becoming ruthlessly selective about who gets their capital. The K shaped recovery Bain describes is not temporary. It is the new baseline. What do you think separates the firms on the right side of that K from the rest?

A PE group told me this week they want to own more real estate. Two real estate groups told me they want to own more operating companies. They're all chasing the same thing. I talked to a PE group that's leaning hard into "asset-heavy" acquisitions. They're buying operating companies where the real estate is core to the business. QSR franchises. Car washes. Healthcare clinics. Their thesis: owning the dirt and the operator is the moat. Then I talked to two traditional real estate PE groups. Both are now acquiring operating companies alongside the real estate. This is a convergence. And it's happening from both sides. Corporate PE is moving toward real estate. Real estate PE is moving toward operations. They're meeting in the middle. The result: a new class of investor that doesn't fit neatly into either bucket. RE investors who think like PE operators. PE investors who underwrite like real estate funds. Here are 5 trends to watch: 1/ OpCo/PropCo becomes the default structure Separating the operating company from the property company used to be niche. Now it's the standard architecture for platform deals—attracting LPs from both the PE and RE worlds into a single transaction 2/ Specialist PE funds keep winning in asset-heavy sectors Specialist buyout funds are already generating higher IRRs and lower loss ratios than generalists. In QSRs, car washes, and healthcare services—where understanding the real estate is inseparable from the business—specialization is an edge. 3/ Real estate allocators start underwriting operators, not just assets Traditional PERE has always underwritten the building. Location. Basis. Cap rate. Now they need to underwrite the team, the unit economics, and the operating model. Different skill set. Different team. 4/ The LP base for hybrid strategies expands RE LPs who want more upside move into OpCo stakes. PE LPs who want downside protection move into PropCo structures with hard asset collateral. GPs who speak both languages have a structural fundraising advantage. 5/ "Platform investing" becomes its own asset class Owning the operator and the real estate together is becoming a defined category. Expect dedicated allocations, dedicated fund vehicles, and a new generation of GPs built specifically to execute this playbook. Why is this happening now? Traditional CRE returns have compressed. Asset-light PE roll-ups are getting crowded. And both sides are realizing that the most durable advantages live at the intersection of operations and real assets. The groups that figure out how to underwrite both the business and the building are going to define the next cycle. Most allocators haven't caught up to this yet. But they will.

Wall Street is recalibrating. Bloomberg reported this week that JPMorgan Chase & Co. is testing the “art of the possible” in leveraged buyouts following its role in financing the $55B takeover of Electronic Arts Inc.. At first glance, that deal looked like a signal that mega-LBOs were back. Five months later, the tone is more measured. Here’s what’s actually happening beneath the surface: 1. Liquidity is there, but conviction is selective. Kevin Foley, JPMorgan’s global head of capital markets, made it clear: deals of that size now require a hefty equity check and a consortium of investors. Translation: thicker cushions, broader risk sharing, and more disciplined structuring. 2. AI is now an underwriting variable. Software businesses, once prized for recurring revenue, are being scrutinized through a new lens: technological defensibility. It’s no longer just leverage and cash flow stability. It’s “How exposed is this business to AI displacement?” That’s a structural shift in credit analysis. 3. Private equity faces an exit bottleneck. PE firms are reportedly sitting on ~$3.8 trillion of unsold assets. When exits slow, capital recycling slows. That impacts the entire deal ecosystem. This isn’t a liquidity crisis. It’s a capital velocity issue. 4. Banks and private credit are converging. JPMorgan has expanded its direct lending platform and is increasingly customizing transactions like blending syndicated loans, high-yield bonds, and private placements. The lines between public and private markets continue to blur. For those of us who think about institutional capital allocation systems, this is a fascinating moment. We’re watching markets answer a real-time question: 👉 What level of leverage is sustainable in an AI-accelerated economy? Deals will get done. Debt can still be raised, even north of $25B globally for the right borrower. But the bar is higher. Equity checks are larger. Syndication is more complex. And sector risk is being repriced in real time. This feels less like a slowdown, and more like a maturation phase. Curious how others are seeing this play out in your sectors.