How would you describe the exit environment today? Are you seeing any improvements?
It’s challenging at the moment, but there is a lot of nuance to that statement. Sponsors are far more selective than they have been in a long time, and while the public markets are starting to open up, they remain even more selective. Only near-perfect, marketleading businesses with tremendous growth potential will be accepted by the public markets, and not surprisingly public market investors also want agreat deal on pricing given the dearth of upcoming IPOs.
However, market conditions for realisations to strategics are improving. It was very difficult to secure a strategic sale in the US during the Biden administration, due to increased antitrust enforcement. It remains unclear exactly where President Trump will land; some transactions are being challenged, while others are not. But strategics appear to be gaining confidence and are starting to pursue transactions based on product extension, without too much overlap.
We recently sold Informatica to Salesforce, for example, and were granted early termination. This represented one of the largest, all-cash PE exits of a sponsor-backed software business to a strategic to date.
When do you begin positioning businesses for a particular type of exit, and how granular does that process get in relation to specific buyers?
If we take a step back, our priority with every investment is to build an extremely high-quality, valuable and independent business. If you invest in product, growth and an exceptional team, you will have the best chance of building a company that is not only bigger, but also better, which then attracts a premium valuation at exit.
There are three primary modes of exit: IPO, sponsor and strategic. We begin planning for an IPO exit before we even invest in a company, because that must be built into underwriting assumptions. Companies are generally de-levered at IPO, and it takes years to sell down that position. In the early years, valuation will be discounted as you build liquidity.
That is not a negative. Public markets provide a very solid exit route, and we have generated several 10x-plus exits via IPOs, but you need to plan for this early. This is especially true for very large companies in the $10 billion-plus zipcode, where there are fewer obvious PE buyers.
When it comes to a potential sale to a sponsor or strategic, we think it’s wise to maintain optionality. Two clear considerations apply. Firstly, don’t assume the best time to sell is at a company’s peak performance. You need to leave something on the table for the next owner. This is particularly true in the sponsor world; if you’ve squeezed all the juice out of the orange, you won’t get as good a price. Articulating to potential buyers that there is a clear runway for future growth is critical.
Similarly, a common mistake with strategics is to think you can dictate timing. The most effective process is rarely just appointing a bank to bring everyone to the table. You need to network effectively into the strategic buyer universe so you’re ready to move when the time is right for them.
Culture is sometimes underappreciated in the PE world. Just how critical is it to an exit, and how is this best achieved?
Culture is unique in having an extraordinarily high impact on business outcomes, while also being extremely difficult to diligence. Ultimately, there’s no substitution for spending time with people. So, prior to investing in a company, we spend a lot of time engaging directly with employees and talking to customers trying to understand how that company operates from a cultural perspective. Culture is not something you can glean from an investment memorandum or data room.
Once we are invested in a business, we aim to identify positive aspects of the culture and then support the management team in reinforcing those strengths through compensation, recruitment and personnel management. Similarly, if we spot things we aren’t so sure about, we speak to management teams about effecting change where it’s needed.
Are there any particularly effective strategies for cultivating strategic appetite?
Having strategics involved throughout the investment lifecycle is a great way to ensure they stay appraised of a company’s progress and understand the asset when it’s the right time.
For instance, Salesforce co-invested with Permira in the original takeprivate of Informatica back in 2015, alongside Microsoft. That was critical to the exit we recently signed – we agreed to sell Informatica to Salesforce in May 2025 for an enterprise value of c.$8 billion. Salesforce believed in our plan from the start, and that investment gave them a front-row seat to track progress and build key relationships.
ServiceNow and Salesforce also recently took very significant minority stakes in another of our funds’ portfolio companies, Genesys. Both were prior investors at a smaller scale, and their upsized investments were the result of excellent strategic relationships we had built over many years. And with them onboard in this capacity, we are now even better networked into the strategic ecosystem looking ahead.
What is it that these strategic buyers are looking for, and how can PE firms ensure portfolio companies are building the right products and capabilities in order to deliver a sale?
Strategics are not buying EBITDA optimisation, which has historically been a major focus for some PE firms. What strategics are looking for is a well-invested product suite in markets adjacent to where they are currently playing, as well as synergies with their existing customer base.
They are also looking for great operations. Strategics must integrate their acquisition targets effectively to ensure value is generated. That means they want to see a business that is running smoothly, with a high quality management team, particularly at the level directly below the CEO. Plus, they also want to see a strong cultural fit and alignment with their own organisation.
To what extent has honing an AI strategy become an integral part of an exit-ready value creation plan today?
The most exciting aspect of AI is the potential it offers in businesses where we are trying to build value over the next five years or so. The role of AI in value creation has shifted from optional to essential in preparing companies for exit. We are still at a very early stage when it comes to seeing how these technologies will translate into real customer-facing, deployable products, but it is coming.
All our companies have had an AI strategy since the ChatGPT3.5 era, and that is paying off in terms of linear growth from internal efficiencies, and exponential growth driven by improved products and customer outcomes. This is the era of scaled adoption. Increasingly, our portfolio companies are deploying agentic AI in areas like customer support, data processing and service delivery. This isn’t about incremental IT upgrades; it’s about reorganising workflows, governance and talent around AI as a core operating principle.
A big part of the reason why Salesforce acquired Informatica, for example, was both its use of AI internally and its readiness to support its customer base. Across our portfolio, more than 80 percent of companies in the services and technology sectors already have AI live in their operations.
Given that generative AI is still such a new phenomenon, would you extend a hold period in order to take advantage of this growth opportunity?
Every investment is different, but in some situations, absolutely. Sometimes, we want to capitalise on AI accelerating performance. With the Informatica exit, for example, we were able to lock in the value that AI represents today. But sometimes we have greater conviction than potential buyers, in which case we’ll hold on to that business for longer to prove the story, in turn creating a better company for the next owner.
Is there also still a role for old-fashioned cost-cutting and financial engineering when driving value creation and preparing a company for exit?
People shy away from the phrase cost-cutting, but optimising cost to a responsible level is an important value creation lever. The key is doing that through the lens of long-term growth, not short-term profit optimisation. However, it’s linear, not exponential, value that it helps create. We, like most GPs, have value creation professionals that can help our companies unlock margin potential, but it is orders of magnitude harder to bend the curve on revenue, and that is where we spend the majority of our time.
More PE firms are now hiring individuals or teams specifically to manage the realisation process. Does this make sense, or might it divorce value creation from exits?
When it comes to public markets, or capital markets in general, it does make sense to have a dedicated team, because it involves a very different set of relationships and dialogues with the market. Over the years, we’ve built a highly experienced team for that reason, across both equity and debt capital markets, and these functions are becoming increasingly professionalised.
However, when it comes to financial sponsors and strategic buyers, it is critical that those remain direct relationships with the investment team. These buyers want to know they are talking with the decision makers who have a fundamental understanding of the underlying business and the related market dynamics, as well as the relationships with the senior management team. It’s vital that responsibility for driving good exit outcomes stays with investment teams. It is for this reason as well that our value creation team sits within our sector investment teams vertically, not as a horizontal, cross-sector function.
