How much of PE is just playing musical chairs with the same assets?
IB analyst here so might be off base, but it feels to me like PE currently is just passing around a bunch of companies to other PE firms at higher and higher valuations without any focus on intrinsic value. I'm in tech so maybe this is an industry issue, but it makes me a bit worried about a future career in PE.
In my last deal, a huge focus of the buyer (a big MF/UMM) was their ability to sell the company again in 4 years. They were literally focusing on what firms might buy it instead of improving growth/margins/etc. The play today is clearly buy something, do a bunch of bolt-ons (which again feeds into the whole PE ecosystem), show a ridiculous growth rate from these acquisitions and then sell the thing at an insane multiple. Every deal I've been on at my IB job has been this exact playbook.
None of the PE deals I've seen are making money off dividends,down debt, financial engineering, or any of the "textbook" PE money making plays. They're literally just trying to sell the thing for more in 4-6 years. Hire a bunch of sales reps, juice with some funky accounting, and get a great growth rate. Maybe once in a blue moon a company manages to go public or get acquired by a strategic, but my general take of the PE ecosystem today is selling their port co to Warburg and Warburg makes money selling their port co to KKR. Everyone is taught strategics should pay more due to synergies and so on, but every process I've been on PE bids are way higher than strategics, and my MDs often don't even bother calling strategics because they assume PE will pay more, which just shows how much PE firms are overpaying now. At some point, it feels like the music has to stop and all these firms will be stuck with overvalued assets that no one (public markets/strategics) wants to buy and returns will go to shit, and the current success of the industry is just a cycle of PE firms raise more money -> PE firms deploy capital by buying expensive assets from other PE firms -> PE firms post great returns due to these inflated prices caused by competition among all the PE firms that just raised huge funds and have pressure to deploy -> PE funds use great returns to raise more money and the cycle repeats.