From Wall Street’s wild recruiting arms race to the collapse of KKR’s £4bn Thames Water rescue, Anthony and Stephen unravel the biggest private equity stories shaping markets right now.
They unpack why PE firms are hiring grads five years early (and why J.P. Morgan’s furious), the 35% drop in global fundraising, and what it means for the industry’s future. Plus: Salesforce bets $8bn on Informatica in a bold AI data play, and after 717 days of drama, the Telegraph sale finally nears the finish line.
Essential listening for anyone navigating the high-stakes world of M&A, private equity power moves, and the politics behind billion-dollar deals.
(00:00) Intro & Themes in Focus
(01:55) What Makes a Good LBO Candidate
(04:54) Recruiting Mania in Private Equity
(14:16) KKR and Thames Water Update
(21:06) Private Equity Fundraising Trends
(30:33) Telegraph Acquisition Insights
(34:34) Salesforce's Acquisition of Informatica
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hello and welcome back to The Deal Room.
And in this episode we're going to go all in on private equity
signing with Recruiting Mania. You might have seen some press
articles in the UK, at least in the FT, and it was talking about
the hyper competition, which is things like PE firms giving
offers even three years in advance of start dates, which is
(00:23):
pretty insane. So we're going to talk about
that and how it's kind of shaking up recruitment pipelines
and the investment banks and howthey're operating on the hiring
side. We're also going to talk about
the latest with KKR in Thames Water.
We did cover that in an episode just a few weeks ago.
There has been some movement on that deal and we're finishing
with an update of P fundraising and its implications.
(00:45):
But I know a lot of you come here as well to hear about M&A
deals. So can't go a conversation with
Stephen without getting his latest thoughts about the long
standing acquisition of Telegraph and then Salesforce
announcing the acquisition of Informatica for $8 billion, the
biggest deal last week. So, Stephen, how are you?
(01:06):
Yeah, I'm OK. Anne and I thought we'd talk
about private equity, in part because it's on my mind and in
part because I was actually, I was out last week in Oxford, one
of my favorite cities, judging the NBA Global Private Equity
Competition, where NBA schools from around the world had to
(01:29):
submit a a take private leverage, buyouts and
presentation. And yeah, we got, we got the
guys from Yale, from Kellogg, from Chicago, from Bocconi into
Oxford to compete against Oxford.
And guess who won? We did bring it home.
(01:49):
Oxford, Oxford, what a deal. Yeah, look, there were some
brilliant presentations and and some really interesting
perspectives on what makes a good LBO candidate because it's
really, really interesting. And just before we go into this
recruiting mania, there were five very different flavors of
business. And there was a business that
(02:12):
got discounted because it was too good a business.
Where's the upside? You know what can you actually
change? There was a business that got
discounted because it was too bad a business.
There is no, there is not. You can't do enough to turn this
company around. It's too much of a kind of a, a
bad story. There was a business that got
(02:32):
discounted because the model didn't work and it didn't make
sense from a returns perspective.
And there was a business that got discounted because the
sector that it was in was in structural decline.
So the only business that won was a underperforming business
(02:52):
in a good market, which had realtangible things that you could
do to improve the profitability and improve the exit multiple.
So just when thinking about whatmakes a good LBO candidate,
there's all sorts of things thatdon't make a good LBO candidate.
And and only one of those five companies just hit all of those
(03:16):
different sweet spots. So maybe something to to think
about as we discuss private equities recruiting mania.
This is a pretty bonkers story. And I don't know about you aunt,
but when you were leaving university, were you being
offered a job for three years time?
(03:36):
Because I certainly wasn't. Funny you should say that
because I I remember in my second year uni I had applied
for Ernst and Young to do a placement year in my following
year and then forgot all about it and actually I got a letter
12 months later with a contract with full payment bank put my
(03:59):
bank account details in. I even had phone calls saying
where are we? We're having some beers at the
pub. You should come catch up with
your mentor. And I was just like hang about.
So yes, I did get off on the jobwhilst I was at uni.
And actually it turned out it was just a different Anthony
Chung. They had the wrong 1.
So I think I, I unfortunately didn't bank the other Anthony's
(04:22):
first paycheck. But it was looking.
I had a guy call me up from a bustling pub on Upper Street, he
said. And I was sat in Nottingham at
the time and he was going where are you?
We're all here. And I was like.
The wrong guy. Yeah, that is a great story.
Oh, the. Well, if the real Anthony Chung
(04:43):
is listening to this, I hope you're doing well at Ernst and
Young, but no but. No, I'm not as desirable as some
of I'm about to hear some of these candidates are.
No way. So the so, so this is a story
emanating out of out of Wall Street and out of the US and
this is private equity firms, the likes of Apollo and KKR and
TPT etcetera offering graduates or soon to be graduates jobs
(05:11):
three years after they have completed their investment bank
analyst experience. So these are candidates that
have already landed a job at Goldman Sachs or JP Morgan as an
investment bank graduate analystand are being are being locked
in after those three years by the likes of Apollo, KKR, TPG,
(05:35):
etcetera. And it is going from kind of the
sublime to the ridiculous in terms of reports of clandestine
meetings between between candidates that are even on
their internship, their second year internship, nipping out in
the middle of the night to go and speak to TPG about a job
(05:56):
that is actually about five years in the future for a second
year intern, right? You've got to graduate, then
you've got to do your analyst, then you join TPG.
And it is such an arms race. And students are going to such
extreme lengths to be in the right place at the right time
for these interviews. There are stories of students
(06:18):
who had, you know, celebrating their, the, the completion of
their, their undergraduate college degree by going to
Hawaii and then getting called back $1000 ticket back to have
that meeting with a, you know, with a recruiter.
Apollo. It is, you know, it's a game
that everyone is playing. And I would say it is a game
(06:38):
that is getting totally out of control.
You know, so it's this, you know, we record this at the
beginning of June, 6th of June is, is when we're recording
this. And there are private equity
firms that are recruiting right now graduates for three years
time. It's not I.
(06:59):
I can't imagine what this must do to the well-being of these
these candidates. I mean in a positive and a
negative way. I guess I'm assuming in a
negative way. Just a level of stress must be
insane. Like you're in the midst of,
let's say, a banking internship,you know, putting in the hours
and then you're having to also manage a stress of another shot,
(07:24):
another process in another opportunity.
But then on the other side of the coin, I can see it being a
real negative in a sense of who are these these students?
I mean, they must think that they're like, I mean, they've
not even worked a day in their life yet.
And yet it's kind of like that high school prodigy basketball
player. And it's like, hang about, can
(07:45):
they play pros? And they're like, so the kid
already thinks he's made it in the pros, starts acting like
he's a pro, and he's not even done the hard yards yet.
I totally agree. This kind of inflated sense of
self esteem that must come by being part of this gravy train.
And again, you haven't, you probably you've never done a
(08:07):
you've never done a deal in yourlife, right?
And yet you're being courted by and courting these different
firms. It definitely at the end of the
day, let's be totally honest youknow a lot of what you do in the
first few years as a investment bank analyst and then there's a
private equity associate is grunt work is hard labour,
(08:28):
right? It's not you know, you're not
using your your genius in order to come up with amazing new
structures you're not a prodigy.You're just willing to work 80
or 90 hours a week doing spreadsheets Again, obviously
the upside reads through bleeds through into the future years,
but yeah, I I would probably putmy ego aside even if I was
(08:51):
getting courted by the likes of TPG and Warbur Pincus.
So just just to be clear to me then like from the private
equity side, why bother? Why not stick to the traditional
method of let them go to school?I invested banks and then once
they Graduate School year 3, they're ready to come into my
(09:11):
company and I therefore, I don'tneed to set up the structure.
I don't need to get involved in all of this marketing and campus
recruitment and all the rest of it.
What are they getting out of going early when they can still
pinch to talent later? Yeah.
And I think there's there's there's a sense that you would
get the best can. You know, there's a, again,
(09:32):
there's a bit of an arms race. You get the best candidates.
If other people are trying to nab these potential superstars
at a graduate level, as opposed to three years later, they might
get the first pick of the bunch.I would really strongly refute
that because the amount, you know, the, let's say these,
these candidates are 2122 years old.
(09:54):
A lot can change in your life inthree years time, in three
years, right? You can learn so much about the
person, whether they can really cut it, whether they've actually
got a kind of growth mentality, whether they actually want to do
the job. In three years time, you know,
that's an eighth of your life, right?
You know, there's a lot of growing and developing that you
can do. I would much rather just wait
(10:16):
for a little bit of maturing andthen get to see who the people
are that are flourishing and canreally be a good culture and and
strategic fit for my company. But it just seems that
everything I think the, you know, the process is broken.
It's bonkers. And spare a thought for our
beleaguered investment banks whoare getting a little bit upset
(10:37):
about all this, right? Yeah.
So I'm guessing, I know in the quant world there are some
pretty arduous get out of contract clauses, which means
that you can't, you know, non competes and so forth.
I'm assuming a standard internship contract
traditionally has not looked like that.
Is that just where we're going to move to, which is just like
(10:58):
like lock insurance where they just can't do what they're
doing? Yeah, I think we can take JP
Morgan as a good example. And Jamie Diamonds come out on
the record and said that this PE, this private equity hiring
is, is is unethical. And I think absolutely you're,
if you come as a student and youwant to work at JP Morgan, you
(11:21):
should not accept the future jobthree years later that, you
know, your foot's halfway out the door and effectively JP
Morgan is paying you to get trained in order to jump ship,
right? And what JP Morgan is now saying
is, you know, stricter contractsthrough, you know, the analyst
(11:41):
program is now at least three years mandatory disclosure of
future job offers and a warning that private equity job
acceptances might impact staffing or employment status.
Quite frankly, if I was JP Morgan and someone disclosed to
me that they had a future job offer, add renege on that offer
straight away, that just just it's a, it's a, it's a deeply
(12:04):
flawed process. And quite frankly, people would,
you know, people would cut off their arm for a career at JP
Morgan. So if you've already got 1 foot
out the door because you believethat it's just a stepping stone,
I just, yeah. Even if in the back of your mind
you think it's just a stepping stone, at least play the game,
right? Any solutions that you you can
(12:25):
think of right now how to address this?
Well, so this is market failure,right?
The process is broken. It doesn't work for private
equity firms. It doesn't work for investment
banks and it doesn't work for students.
It's just, it's just a game thateveryone seems to feel like they
have to play. So maybe the private equity
firms can get together and say, look, we're not doing this
(12:48):
possibly quite difficult becausethere could be some kind of
collusion concerns there. I would, if I was, if I was a
young person and I would add a little bit of an entrepreneurial
streak. I would say that there's a, you
know, whenever there's market failure, there's an opportunity,
right? And is there a, is there an
(13:08):
elite SAS training camp that youcan provide that does the work
of a three-year analyst program in six months to expedite the
process of joining a private equity firm so they can skip out
the three-year JP Morgans of this world, right?
Because you know, you're these firms are using JP Morgan as a
(13:33):
training ground, but they're also having to wait three years
until these good people come on board.
So there's got to be an opportunity there.
Interested to see how this one kind of plays out.
So reading between the lines, what you're saying is they
should come to amplify me, they should take your full suite of
private equity simulations you've created to expedite the
(13:54):
process in six months, and there's your solution.
Look, I'll get them trained up. They will be the SAS of the
private equity world. I'll even get them their own
chalets. There you go.
All right, so KKRII did see thisthis headline earlier this week.
But yeah, maybe just a bit of first of all, what was the
initial deal and then what's thelatest?
(14:15):
Yeah. Just a reminder, we, we feed to
this on the podcast a few weeks ago and it's very, very, I think
one of the things that we sometimes struggle with in the
world of finance and in the world of finance as
entertainment is we love talkingabout these stories that
probably don't really affect ourlives that much.
Whereas Thames Water for 16 million people here in here in
(14:37):
the UK, it affects their lives, right?
The pollution effects their lives, the cost of water effects
their lives. And you know, this is a story of
Thames Water, one of the biggestwater utilities in the UK going
from crisis to crisis under £20 billion worth of debt, only
recently securing a emergency 3 billion dollar £3 billion loan
(15:01):
from from Silver Point and, and,and from Elliott.
And it got so hairy that that I think the the chairman went on
record a couple of weeks ago andsaid at one point there was as
little as four weeks cash left for Thames Water before going
totally bankrupt. And KKR came in, There were 5 or
(15:23):
6 potential bidders to rescue this company.
KKR was deemed to be the preferred partner and entered
into 10 weeks of due diligence, really intense due diligence,
hiring 100 due diligence expertsfrom different consultancies and
such like. And the hope was that KKR would
have the structure, the strategy, the firepower to
(15:46):
rescue Thames Water, to put in place an 8 to 10 year turn
around plan and, and, and thingswould be fine.
But the headline, as was last week, was that KKR has withdrawn
from the £4 billion rescue deal,it said in its statement.
We will not be in a position to proceed and our and our
(16:08):
preferred partner status has nowlapsed.
Now this was interesting becauseit only it was, it seemed like a
very, very quick turn around from from KKR being the
preferred partner. So it looked like it was kind of
going through as soon as as recently as the as the Friday
(16:30):
before last. And then the announcement came
out that KKR was withdrawing. Now, there's lots of different
potential reasons, you know, thedifficulty over the structure,
the debt burden, the amount of time that it would take to turn
around. But there's a lot of
commentators that are talking about the role that the Labour
(16:50):
government and Keir Starmer played in KKR pulling out.
So just going to do a couple of quotes.
KKR, which only submitted its equity bid a week last Friday,
harbor concerns over the scope for policy, policy changes by
Starmer's administration or future governments.
(17:11):
So I think reading very loosely between the lines, KKR was
looking for some guarantees here, right?
Some guarantees in terms of the price of water, some guarantees
in terms of potential subsidies and support and backstops if it
was going to take on this massive liability that is Thames
Water. And it felt, it seemed like the
(17:34):
government was not playing ball.In fact, off what the
independent Ombudsman for for Water recently fined Thames
Water £123 million for breaking the laws on its wastewater
operations. So it doesn't seem like there's
any leniency there or any wiggleroom.
And KKR were like, look, you know, we're not going to take
(17:54):
this thing on. If we're not going to have a
positive relationship with the regulator, we're not going to
have a positive relationship with governments as well.
In the end though, if they become, it becomes more
precarious a situation for Thames Water.
It's a somewhat systemically important company in a sense of,
(18:16):
as she describes, it's utility to a large portion of the
country. The government will have to play
ball. You could, let's make some
assumptions here. So the government when push
comes to shove has to play ball and so does this does not make
then other P firms or capital sources, does this not play in
(18:37):
their favour where we've just got further down the precipice
of like the Cliff edge. And so actually now you could
probably force an even better deal if you were the new PE firm
coming in having seen this one. Yeah, it's it's, it's an
interesting one. And and who knows whether it
this, this feels quite definitive.
It doesn't necessarily feel likea a negotiating tactic from KKR,
(19:01):
but there are three options now for Thames Water.
The 1st is that it could fall into what's called a special
administrative regime. And this is actually what the
Environment Secretary, Steve Reed said was possible and
they're ready for it. Basically going under government
or national ownership. That's the first time a water
(19:24):
company would have done that since 1989.
By the way, there's still, I think there's still a kind of
hope for a market LED solution. Now, the market LED solution
could be the existing bondholders, the owners of that
£20 billion worth of debt comingtogether and announcing A
restructuring plan that probablywill involve a quite significant
(19:47):
haircut on their bonds. But you know, that's probably
the least of their worries at the moment.
So that's option #2A restructuring from within.
And then option #3 is there werefive other bidders.
Well, there were five other interested parties, right?
So if you remember CK Infrastructure, the Hong Kong
(20:07):
come big Hutchinson Hong Kong company, they were very
interested few others that couldstill be on the table.
So you never know, there might be a white knight that comes in
and and and saves this thing from a private.
Well, yeah, for, for, for a kindof private equity end.
Can I just say for anyone who's watching the video version of
(20:29):
this, Stephen, you're doing verywell to keep your composure as
your dog runs around your your feet there.
Yeah, not only is the dog running around my feet, but it's
also stolen my slipper, so thereyou go.
Yeah. What?
What? Watch the YouTube.
Look at that. Yeah, you said SAN from PE
world. You are the literal, you're the,
you're the corporal here. So well, let's finish this, this
(20:51):
side of the conversation, talk alittle bit then about just a
bit. Let's step back a little bit and
talk about the more broader sector of private equity
fundraising and what that's whatthat looks like now that we're
halfway through the year. Yeah, let's.
So the headline is that private equity fundraising has dropped
35% globally in quarter 12025 versus quarter 1/20/24.
(21:13):
Let's let that sink in, in the context of the first story,
which is this mad rush to recruit, you know, investment
bank analysts into private equity firms.
Remember that recruitment, you might think that it's a cast
iron job three years hence, but think about the cyclicality, the
(21:36):
cyclical nature of private equity.
You know, they, they're not beyond, it's not beyond their
purview to renege on that offer.And you suddenly really, you
know, really upset JP Morgan, who you were working for by
saying that you had an offer at KKR.
Then KKR say we've got a hiring freeze and we can't, you know,
try and think a few years ahead and just plot out all of these
(21:56):
options because it's not lookingparticularly rosy for private
equity, I have to say. And just like I am, I'm just
trying to think. So in invested banking terms,
obviously some of the US banks have that culling of the bottom
performers on an annual basis. Others have like the ebb and
flow and you know, the rug can be pulled quite quickly in
(22:18):
private equity. Is there enough kind of
precedent at a graduate level tounderstand whether or not there
is that same boom and bust atmosphere?
Or could it just be assumed thatPE and IBD is is the same thing
so it's going to mimic the same kind of hiring patterns?
Yeah, it's, it's a really interesting one.
I think you're right to say thatthe precedent has not been
(22:40):
established because the cohorts through the cycle have not been
big enough. I mean, private equity firms are
only really starting to recruit interns and graduates over the
last few years in order to in order to get ahead of the game.
Private equity is obviously verydifferent from investment
banking in that you have a fund that is locked in for a number
(23:05):
of years and pays a management fee.
So if you are recruited to a particular fund and that funds
life lifespan is 10 years or 12 years or whatever it might be
and the fees are 1.75% or 2%. There is a degree of job
security that may not be apparent in the investment bank,
(23:28):
which goes through the oscillations of, of, of, of good
MNA markets and, and not so goodMNA markets.
But on the flip side, there is, there is performance and money
on the line because you are contributing to the success of a
fund and therefore you need to show ROI in a way that maybe you
(23:50):
don't quite need to show the same level of ROI in a bank.
So if you're not very good, you know, if you're a bad hire, you
will see the door very, very quickly.
It won't be mass layoffs, maybe in the same way as you might see
the investment bank through the cycle, but you need to be
really, really good because thisthing needs to make carry.
(24:11):
This thing needs to make a significant return on its
investments. And every contributor from the
associate up to the to the fund manager that the the GP needs
to, needs to be pulling their weight.
So yeah, definitely worth thinking about in the context
of, of, of a career. And this is nothing new, right?
We've known that private equity fundraising has has has
(24:33):
significantly slowed. Reasons behind this well, again,
the attractiveness of of privateequity, the luster, the shine of
private equity has definitely come off because returns haven't
been that good over the last couple of years.
You look at any of the reports that that track private equity
(24:56):
buyout vintages through the cycle and compare it to returns
on the S&P 500, even adjusting for fees, you know, from 2020 to
2019-2020. So for 20 years, if you had
invested a pound, a dollar in private equity, you would have
outperformed the S&P 500. From 2021 to 2025, you would
(25:17):
have lost out to the S&P 500 because private equity firms
bought a load of companies, inflated valuations in 2021 and
before the rate hiking cycle of 2022 and are left with a bunch
of companies that they can't flog and they can't make a no
return on investment on. So they're trying all of these
fancy things like continuation vehicles and kind of structured
(25:39):
recapitalizations and all of this stuff, but it's not really
good delivering the the IRR. So why would I put my money into
private equity funds? The second reason is there are
only as I said at the top of this episode, there are only so
many private equity targets, right.
So private equity which is now atrail $12 trillion assets under
(26:01):
management industry, it can onlybe so big.
You know the strategies can onlyaccount not every company should
be owned by private equity and the buyout strategy that
underpins a lot of these different funds.
So it it stands to reason that there is a natural limit on the
size of the private equity market relative to total total
(26:24):
assets under management. So yeah, so if fundraising is
down, then hiring is going to bedown because you need less
analysts to fill the new funds. Right, as you said earlier,
we're recording this on the 6th of June, so it's Friday.
This isn't going out till Monday, but you've had the big
beautiful bust up happen in the last 24 hours between Trump and
(26:45):
Musk. One would think that's going to
get a lot worse, no Musk's style.
So tying that back to the private equity landscape for the
next 6 months looking forward, one of the things here you talk
about, you know, kind of macroeconomic volatility and
Trump is kind of epicenter through his tariff policies to
(27:07):
the macroeconomic climate globally.
I don't see anywhere of that changing, IE could become more
volatile. So is it not looking good either
for the next 6 months arise at least sort of short term?
Yeah, this, I mean and this kindof expands across M&A in the
kind of short to medium term outlook.
Whenever I teach, whenever I teach on this subject, I always
(27:31):
say, look, the two most important contributing factors
to buoyant M&A or a buoyant buyout market are interest
rates. We always know that the answer
is interest rates and stability doesn't necessarily need to be
exuberance or confidence or whatever.
It just needs to be certainty and stability.
(27:51):
Because what we're doing as analysts is we're getting our XL
shaped crystal ball out and we are trying to forecast returns
out into the future. And if there is significant
macroeconomic volatility, you'renot going to be able to have any
certainty that your returns are going to match what you've
modeled, right? Your base case scenario is going
(28:13):
to be so dramatically different from your downside case.
All of your sensitivity analysisanalysis are going to produce
wildly different results depending on tariff levels for
input, you know, for inputs intothe products whose company that
you're trying to buy. So I would be sitting on my
hands and just being like, you know, interest rates aren't
(28:35):
particularly low. They're not particularly high.
That's kind of almost a moot point to an extent.
But it's this certainty factor that's going to stop deals being
done and it's going to make private equity as a as a as an
asset class slightly more under threat.
To finish then maybe on this section, what?
Why, if I was one of these students had locked in JP and
(28:58):
then locked in Apollo and left JP, and then the rug gets
pulled, the PE market declines, I'm out on my ear out of Apollo
within six months. Where does that leave me?
It's really interesting. So private equity is a very,
very employable set of skills ifyou've been there.
(29:19):
I mean, even if you've only beenthere for a short amount of
time, the advantage of being in private equity is your off ramp
is either you know a smaller private equity firm, a middle
market investor, maybe private credit, maybe a distressed debt
fund. There are all of these kind of
growths, these additions that are that are still relatively
(29:40):
buoyant outside of pure private equity buyout.
But also you have operating experience or you're at least
adjacent to operating experience.
It's one thing you just don't get in M&A.
You don't get to see how a company is working, operating
and being turned around. So a lot of private equity as if
you get to a kind of reasonable level, you've got the ability to
(30:03):
go in as a, you know, as a head of strategy or head of corporate
development or even CFO at a, you know, large ish company in
an industry that you might have a degree of expertise in.
So the off the off ramps are fine.
I think if you get the rug pulled within six months of a
job at Apollo, you might be knocking back on the door of a
(30:26):
JP Morgan with your tail betweenyour legs.
But let's hope that doesn't happen to any listener.
All right. Well, look, we've got a couple
of deals here that we need to also get through, so maybe we
can move on and talk about the The Telegraph.
Yeah, Telegraph, this takes me back.
This is the Daily Telegraph, thethe the broadsheet, the UK right
leaning broadsheet that we covered.
(30:48):
I was looking back on my notes we covered back in November
2023. So there you go year and a half
or more than a year and a half ago and and even in November
2023, this deal had been dragging on for quite a long
time. And this was the so the deal was
Telegraph up for sale potentially being bought by
(31:10):
Redbird, which is AUS private equity firm and IMI, which is a
Middle East UAE investment vehicle.
And it was proposed back in November 2023 and it has just
been announced and confirmed. And the, the quote that I'm
going to give from the FT says after 717 days, two law changes,
(31:36):
1 election and a revolving cast of Tory power brokers, they
finally done the sale might be drawing to us.
It might have done the sale. There's still a few regulatory
things to get over. And this is all about and it's
super, super interesting. It's all about the extent to
(31:56):
which the British media landscape should be under the
control of British owners. Is there a threat to the UK that
something like the Daily Telegraph is owned in part by
the US by AUS private equity firm, but also by the UAE And
(32:20):
actually as part of this long going 717 days saga, you know,
the, the UA ES IMI fund led by Sheikh Mansur.
He's the guy that owns Man City got really upset.
He was just like, look, you knowwhy?
Why are all these politicians hating on me?
Rescuing A struggling loss, making, you know, broadsheet.
(32:43):
I, I, I want to uphold journalistic integrity.
I don't want to be the editor. I just want to, I just want to
invest in it. You know why?
Why do you think that having Middle Eastern ownership is
going to in some way have a national security implication?
Like there's something not quiteright about there.
You were very, very happy to take my kind of my donations to
(33:04):
the party a few years ago and now you're not letting me even
invest in in, in the Daily Telegraph.
But it seems like it might get through.
And just to just to give a little bit of a focus on Red
Bird strategy. So red bird's strategy.
So these guys $12 billion private equity fund, they own I
(33:26):
think AC Milan, Skydance Media, they're in the process of
acquiring Paramount. They want, they want the
Telegraph to be a leading voice for the kind of center right.
They also want the Telegraph potentially to have a presence
in the US, which I find quite strategically interesting. the
(33:51):
US kind of print journalism markets relatively saturated and
I'm not sure whether the Telegraph can make a significant
impact or imprint, excuse the pun, into the country, but but
yeah, so that you know, they've got big plans, obviously online
subscription based, etcetera, etcetera, the usual stuff.
(34:12):
But yeah, we'll see where this one goes.
Again, if we're actually thinking about day-to-day, this
one does have an impact because a lot of people still read the
Telegraph. Yeah, I wonder how many of our
listeners read the Telegraph. They'll, they'll have to let us
know in the in the comment section.
I'm showing too many political colours here.
Yeah. And then the the final deal,
(34:34):
because actually someone did leave a comment.
You have to forgive me, I can't remember their name, but they
did leave a comment asking specifically and we always
listen of the Salesforce deal onInformatica, which was a pretty
big one, right? Yeah.
So this is Salesforce agreeing to acquire Informatica and a
deal worth $8 billion. I'm going to get into the
(34:56):
strategy pretty quickly. I just want to do a little bit
of a background. So Salesforce were flirting with
Informatica this time last year,April last year, when
Informatica's market cap was up at $11 billion, They were
thinking about potentially acquiring the company for
upwards of $13 billion. Deal couldn't be, I don't think,
(35:17):
you know, the terms weren't there.
The, the, the, the deal fell through and now they're back at
the table picking up Informaticafor $8 billion.
So I don't know whether there was someone, someone on the
board, Informatica saying you'reselling too cheap for $13
billion last year, who's now gotsignificant egg on their face
(35:39):
having to say, all right, we'll sell for $8 billion.
You know, you've just lost 40% of value right there.
But anyway, Salesforce, Salesforce are an interesting
company, obviously one of the world's most, well the world's
most established enterprise SAS,CRM relationship management
software company. They're quite acquisitive.
(36:03):
They bought, if you remember they bought Slack a few years
ago for 27 billion. They've, they bought Tableau, a
kind of data representation and data structuring software as
well. And you know, they are, they are
making, as a lot of these types of companies are, they're making
(36:24):
an absolutely huge push into agentic AI.
They already bought a company called Mulesoft a few years ago,
which again is all architecture and data infrastructure for this
move towards agent driven AI processes.
(36:44):
And I don't know whether there'sa load of adverts about the
sales force agentic AI that are coming out on the television at
the moment. They're making a massive push.
And just a bit of background, you know, agentic AI is deemed
to be or hoped to be the, the big, big, big mega money maker,
(37:05):
the actual underlying use case at an enterprise level of this
new wave of artificial intelligence.
I think there's a, there's a general opinion that the, the
chat bots and the open AIS are good and interesting, very, very
hard to figure out really how tomake, you know, multiple
hundreds of billions of dollars.But within enterprises, these
(37:30):
agentic AIS, which basically have the ability to make
decisions and tie together many different processes together and
react to the data that exists within these different
processes, that is going to be the way that you're really,
really going to see the value ofAI.
Now, I would quit, I would suggest, I would say that
(37:50):
there's a, there's a lot of hypehere, right?
These autonomous agents, very, very hypey.
And, and you know, as well as meand anyone that's been in a
business before knows the processes are super variable.
Data is very unstructured, requiring lots of different
(38:11):
parameters and lots of, you know, rabbit holes to go down in
order to derive the right set ofdata in order to power the right
process that will lead to another joined up process that
will lead to an outcome. It's still very, very difficult
to get anywhere even with these amazing autonomous agents.
So yeah, let's wait and see. Sales force are on the front
(38:34):
foot. They think that this is going to
be the future. We're going to have to wait and
see. Yeah.
And I'm, I'm assuming that the competitive tension would be
players like ServiceNow, people of the same same domain who
competing, I don't know, ServiceNow are heavy, heavy
pushing AI themselves. It's exactly the same play,
essentially the same thing. So who, who would, who are
(38:56):
advising on these deals? Because I mean, this is 8
billion, this is pretty big fee for the year, right?
Yeah. So this is JP Morgan on the, on
the Salesforce side and Goldman Sachs on the Informatica side.
So if you look at the M&A leaguetables, you'll see a little
spike for the, for both of thoseguys.
Again, by the way, that there could be some the some antitrust
(39:19):
concerns because Salesforce bought Mule Soft a few years
ago, feels like they do quite similar things.
Is this market capture? I think you'll probably get
through because it, it's big butnot massive and the Trump
administration seems not unfavorable towards these types
of deals. Again, I'm not an expert in
(39:41):
terms of the way that Informatica is going to
transform agentic AI within within Salesforce, but you know
they're certainly putting their stall out, right?
With software deals being fairlycommon, just not now, but
generally, does the lead person from JP Morgan and the lead
person from Goldman Sachs know each other?
(40:03):
Intimately. And they say, what does that
battle look like? I'm just thinking maybe I'm
getting carried away with like succession in my head or
something like that where it's like, you know, cloak and
dagger, but how, what does that look like in reality?
Yeah, they will definitely know each other.
They would have been to the samedrinks parties, the same
watering holes and the same conferences.
(40:24):
And they would have heard each other speak and they would have
been on the other side of plentyof deals together.
And what's what's good about that is that they know each
other's, they know, they know each other's positions.
They can talk kind of person to person.
There's a relationship there. They can potentially take, you
know, take things to use a horrible phrase, take things
(40:46):
offline and just have a right, OK, this is what my client is
actually wanting. You know, they're saying this,
but what they actually want is that they have to say this from
a, you know, from an optics perspective.
But this is where the hardline is.
And if you've got a relationshipwith that other side that that
counterparty, you can have thosetypes of conversations that are
(41:06):
actually smooth deals over so much more than if you're up
against someone that you've you've never worked with.
You don't know from Adam and youknow they might be a totally
different and totally different style of negotiation or whatever
it might be. What?
What's the formal line between like the transfer of information
(41:29):
then, because as you've described, I can imagine if I'm,
let's say I'm Goldman's, your JPand we've, we've known each
other a long time. We like each other.
It's in both our interests. We get maximum price for maximum
fee. But surely this can have
conflict of interest with them operating in and around the
(41:51):
boards that we represent, the company we represent and so
forth. Like what?
What's the actual lines here? Or are they fairly grey?
They're they're, they're definitely Gray.
If I was a, if I was an MD working on this deal, acting on
behalf of Salesforce, I would bevery, very clear.
I would get very, very clear approval from the board that I
(42:14):
can discuss certain things in a person to person interaction.
And it might and Salesforce might say, look, you know, I am
open to you saying that our, youknow, our maximum price is X.
And I want you to go away and make sure that you've
communicated that successfully. So it you, you can't, you can't
(42:34):
take, you can't have a kind of back line conversation that is
totally unsolicited and unsignedoff.
But part of your skill. And this is, again, this move
from being a, you know, producerof spreadsheets to being a
really, really good human negotiator is to find that area
(42:55):
of common ground, to know where your limits are, to know what
you can and can't say, and try and find that you know that that
number that works for both parties.
And that's where the skill comesin.
That's where the fun comes in, really.
Yeah, All right. Well, look, thank you as always,
Stephen. We'll wrap it up there.
And for anyone watching on Spotify, you might notice that
(43:16):
you can see us now. We're in video, full video
format, so please do drop us a message if you prefer this or
just the audio. It's a new change.
We're happy to do what you, you,the community like, so let us
know in the comments. Otherwise, we'll see you next
week. Thank you very much, Steve.
Thanks, Ann.
Hello and welcome back to The Deal Room.
And in this episode we're going to go all in on private equity
signing with Recruiting Mania. You might have seen some press
articles in the UK, at least in the FT, and it was talking about
the hyper competition, which is things like PE firms giving
offers even three years in advance of start dates, which is
(00:23):
pretty insane. So we're going to talk about
that and how it's kind of shaking up recruitment pipelines
and the investment banks and howthey're operating on the hiring
side. We're also going to talk about
the latest with KKR in Thames Water.
We did cover that in an episode just a few weeks ago.
There has been some movement on that deal and we're finishing
with an update of P fundraising and its implications.
(00:45):
But I know a lot of you come here as well to hear about M&A
deals. So can't go a conversation with
Stephen without getting his latest thoughts about the long
standing acquisition of Telegraph and then Salesforce
announcing the acquisition of Informatica for $8 billion, the
biggest deal last week. So, Stephen, how are you?
(01:06):
Yeah, I'm OK. Anne and I thought we'd talk
about private equity, in part because it's on my mind and in
part because I was actually, I was out last week in Oxford, one
of my favorite cities, judging the NBA Global Private Equity
Competition, where NBA schools from around the world had to
(01:29):
submit a a take private leverage, buyouts and
presentation. And yeah, we got, we got the
guys from Yale, from Kellogg, from Chicago, from Bocconi into
Oxford to compete against Oxford.
And guess who won? We did bring it home.
(01:49):
Oxford, Oxford, what a deal. Yeah, look, there were some
brilliant presentations and and some really interesting
perspectives on what makes a good LBO candidate because it's
really, really interesting. And just before we go into this
recruiting mania, there were five very different flavors of
business. And there was a business that
(02:12):
got discounted because it was too good a business.
Where's the upside? You know what can you actually
change? There was a business that got
discounted because it was too bad a business.
There is no, there is not. You can't do enough to turn this
company around. It's too much of a kind of a, a
bad story. There was a business that got
(02:32):
discounted because the model didn't work and it didn't make
sense from a returns perspective.
And there was a business that got discounted because the
sector that it was in was in structural decline.
So the only business that won was a underperforming business
(02:52):
in a good market, which had realtangible things that you could
do to improve the profitability and improve the exit multiple.
So just when thinking about whatmakes a good LBO candidate,
there's all sorts of things thatdon't make a good LBO candidate.
And and only one of those five companies just hit all of those
(03:16):
different sweet spots. So maybe something to to think
about as we discuss private equities recruiting mania.
This is a pretty bonkers story. And I don't know about you aunt,
but when you were leaving university, were you being
offered a job for three years time?
(03:36):
Because I certainly wasn't. Funny you should say that
because I I remember in my second year uni I had applied
for Ernst and Young to do a placement year in my following
year and then forgot all about it and actually I got a letter
12 months later with a contract with full payment bank put my
(03:59):
bank account details in. I even had phone calls saying
where are we? We're having some beers at the
pub. You should come catch up with
your mentor. And I was just like hang about.
So yes, I did get off on the jobwhilst I was at uni.
And actually it turned out it was just a different Anthony
Chung. They had the wrong 1.
So I think I, I unfortunately didn't bank the other Anthony's
(04:22):
first paycheck. But it was looking.
I had a guy call me up from a bustling pub on Upper Street, he
said. And I was sat in Nottingham at
the time and he was going where are you?
We're all here. And I was like.
The wrong guy. Yeah, that is a great story.
Oh, the. Well, if the real Anthony Chung
(04:43):
is listening to this, I hope you're doing well at Ernst and
Young, but no but. No, I'm not as desirable as some
of I'm about to hear some of these candidates are.
No way. So the so, so this is a story
emanating out of out of Wall Street and out of the US and
this is private equity firms, the likes of Apollo and KKR and
TPT etcetera offering graduates or soon to be graduates jobs
(05:11):
three years after they have completed their investment bank
analyst experience. So these are candidates that
have already landed a job at Goldman Sachs or JP Morgan as an
investment bank graduate analystand are being are being locked
in after those three years by the likes of Apollo, KKR, TPG,
(05:35):
etcetera. And it is going from kind of the
sublime to the ridiculous in terms of reports of clandestine
meetings between between candidates that are even on
their internship, their second year internship, nipping out in
the middle of the night to go and speak to TPG about a job
(05:56):
that is actually about five years in the future for a second
year intern, right? You've got to graduate, then
you've got to do your analyst, then you join TPG.
And it is such an arms race. And students are going to such
extreme lengths to be in the right place at the right time
for these interviews. There are stories of students
(06:18):
who had, you know, celebrating their, the, the completion of
their, their undergraduate college degree by going to
Hawaii and then getting called back $1000 ticket back to have
that meeting with a, you know, with a recruiter.
Apollo. It is, you know, it's a game
that everyone is playing. And I would say it is a game
(06:38):
that is getting totally out of control.
You know, so it's this, you know, we record this at the
beginning of June, 6th of June is, is when we're recording
this. And there are private equity
firms that are recruiting right now graduates for three years
time. It's not I.
(06:59):
I can't imagine what this must do to the well-being of these
these candidates. I mean in a positive and a
negative way. I guess I'm assuming in a
negative way. Just a level of stress must be
insane. Like you're in the midst of,
let's say, a banking internship,you know, putting in the hours
and then you're having to also manage a stress of another shot,
(07:24):
another process in another opportunity.
But then on the other side of the coin, I can see it being a
real negative in a sense of who are these these students?
I mean, they must think that they're like, I mean, they've
not even worked a day in their life yet.
And yet it's kind of like that high school prodigy basketball
player. And it's like, hang about, can
(07:45):
they play pros? And they're like, so the kid
already thinks he's made it in the pros, starts acting like
he's a pro, and he's not even done the hard yards yet.
I totally agree. This kind of inflated sense of
self esteem that must come by being part of this gravy train.
And again, you haven't, you probably you've never done a
(08:07):
you've never done a deal in yourlife, right?
And yet you're being courted by and courting these different
firms. It definitely at the end of the
day, let's be totally honest youknow a lot of what you do in the
first few years as a investment bank analyst and then there's a
private equity associate is grunt work is hard labour,
(08:28):
right? It's not you know, you're not
using your your genius in order to come up with amazing new
structures you're not a prodigy.You're just willing to work 80
or 90 hours a week doing spreadsheets Again, obviously
the upside reads through bleeds through into the future years,
but yeah, I I would probably putmy ego aside even if I was
(08:51):
getting courted by the likes of TPG and Warbur Pincus.
So just just to be clear to me then like from the private
equity side, why bother? Why not stick to the traditional
method of let them go to school?I invested banks and then once
they Graduate School year 3, they're ready to come into my
(09:11):
company and I therefore, I don'tneed to set up the structure.
I don't need to get involved in all of this marketing and campus
recruitment and all the rest of it.
What are they getting out of going early when they can still
pinch to talent later? Yeah.
And I think there's there's there's a sense that you would
get the best can. You know, there's a, again,
(09:32):
there's a bit of an arms race. You get the best candidates.
If other people are trying to nab these potential superstars
at a graduate level, as opposed to three years later, they might
get the first pick of the bunch.I would really strongly refute
that because the amount, you know, the, let's say these,
these candidates are 2122 years old.
(09:54):
A lot can change in your life inthree years time, in three
years, right? You can learn so much about the
person, whether they can really cut it, whether they've actually
got a kind of growth mentality, whether they actually want to do
the job. In three years time, you know,
that's an eighth of your life, right?
You know, there's a lot of growing and developing that you
can do. I would much rather just wait
(10:16):
for a little bit of maturing andthen get to see who the people
are that are flourishing and canreally be a good culture and and
strategic fit for my company. But it just seems that
everything I think the, you know, the process is broken.
It's bonkers. And spare a thought for our
beleaguered investment banks whoare getting a little bit upset
(10:37):
about all this, right? Yeah.
So I'm guessing, I know in the quant world there are some
pretty arduous get out of contract clauses, which means
that you can't, you know, non competes and so forth.
I'm assuming a standard internship contract
traditionally has not looked like that.
Is that just where we're going to move to, which is just like
(10:58):
like lock insurance where they just can't do what they're
doing? Yeah, I think we can take JP
Morgan as a good example. And Jamie Diamonds come out on
the record and said that this PE, this private equity hiring
is, is is unethical. And I think absolutely you're,
if you come as a student and youwant to work at JP Morgan, you
(11:21):
should not accept the future jobthree years later that, you
know, your foot's halfway out the door and effectively JP
Morgan is paying you to get trained in order to jump ship,
right? And what JP Morgan is now saying
is, you know, stricter contractsthrough, you know, the analyst
(11:41):
program is now at least three years mandatory disclosure of
future job offers and a warning that private equity job
acceptances might impact staffing or employment status.
Quite frankly, if I was JP Morgan and someone disclosed to
me that they had a future job offer, add renege on that offer
straight away, that just just it's a, it's a, it's a deeply
(12:04):
flawed process. And quite frankly, people would,
you know, people would cut off their arm for a career at JP
Morgan. So if you've already got 1 foot
out the door because you believethat it's just a stepping stone,
I just, yeah. Even if in the back of your mind
you think it's just a stepping stone, at least play the game,
right? Any solutions that you you can
(12:25):
think of right now how to address this?
Well, so this is market failure,right?
The process is broken. It doesn't work for private
equity firms. It doesn't work for investment
banks and it doesn't work for students.
It's just, it's just a game thateveryone seems to feel like they
have to play. So maybe the private equity
firms can get together and say, look, we're not doing this
(12:48):
possibly quite difficult becausethere could be some kind of
collusion concerns there. I would, if I was, if I was a
young person and I would add a little bit of an entrepreneurial
streak. I would say that there's a, you
know, whenever there's market failure, there's an opportunity,
right? And is there a, is there an
(13:08):
elite SAS training camp that youcan provide that does the work
of a three-year analyst program in six months to expedite the
process of joining a private equity firm so they can skip out
the three-year JP Morgans of this world, right?
Because you know, you're these firms are using JP Morgan as a
(13:33):
training ground, but they're also having to wait three years
until these good people come on board.
So there's got to be an opportunity there.
Interested to see how this one kind of plays out.
So reading between the lines, what you're saying is they
should come to amplify me, they should take your full suite of
private equity simulations you've created to expedite the
(13:54):
process in six months, and there's your solution.
Look, I'll get them trained up. They will be the SAS of the
private equity world. I'll even get them their own
chalets. There you go.
All right, so KKRII did see thisthis headline earlier this week.
But yeah, maybe just a bit of first of all, what was the
initial deal and then what's thelatest?
(14:15):
Yeah. Just a reminder, we, we feed to
this on the podcast a few weeks ago and it's very, very, I think
one of the things that we sometimes struggle with in the
world of finance and in the world of finance as
entertainment is we love talkingabout these stories that
probably don't really affect ourlives that much.
Whereas Thames Water for 16 million people here in here in
(14:37):
the UK, it affects their lives, right?
The pollution effects their lives, the cost of water effects
their lives. And you know, this is a story of
Thames Water, one of the biggestwater utilities in the UK going
from crisis to crisis under £20 billion worth of debt, only
recently securing a emergency 3 billion dollar £3 billion loan
(15:01):
from from Silver Point and, and,and from Elliott.
And it got so hairy that that I think the the chairman went on
record a couple of weeks ago andsaid at one point there was as
little as four weeks cash left for Thames Water before going
totally bankrupt. And KKR came in, There were 5 or
(15:23):
6 potential bidders to rescue this company.
KKR was deemed to be the preferred partner and entered
into 10 weeks of due diligence, really intense due diligence,
hiring 100 due diligence expertsfrom different consultancies and
such like. And the hope was that KKR would
have the structure, the strategy, the firepower to
(15:46):
rescue Thames Water, to put in place an 8 to 10 year turn
around plan and, and, and thingswould be fine.
But the headline, as was last week, was that KKR has withdrawn
from the £4 billion rescue deal,it said in its statement.
We will not be in a position to proceed and our and our
(16:08):
preferred partner status has nowlapsed.
Now this was interesting becauseit only it was, it seemed like a
very, very quick turn around from from KKR being the
preferred partner. So it looked like it was kind of
going through as soon as as recently as the as the Friday
(16:30):
before last. And then the announcement came
out that KKR was withdrawing. Now, there's lots of different
potential reasons, you know, thedifficulty over the structure,
the debt burden, the amount of time that it would take to turn
around. But there's a lot of
commentators that are talking about the role that the Labour
(16:50):
government and Keir Starmer played in KKR pulling out.
So just going to do a couple of quotes.
KKR, which only submitted its equity bid a week last Friday,
harbor concerns over the scope for policy, policy changes by
Starmer's administration or future governments.
(17:11):
So I think reading very loosely between the lines, KKR was
looking for some guarantees here, right?
Some guarantees in terms of the price of water, some guarantees
in terms of potential subsidies and support and backstops if it
was going to take on this massive liability that is Thames
Water. And it felt, it seemed like the
(17:34):
government was not playing ball.In fact, off what the
independent Ombudsman for for Water recently fined Thames
Water £123 million for breaking the laws on its wastewater
operations. So it doesn't seem like there's
any leniency there or any wiggleroom.
And KKR were like, look, you know, we're not going to take
(17:54):
this thing on. If we're not going to have a
positive relationship with the regulator, we're not going to
have a positive relationship with governments as well.
In the end though, if they become, it becomes more
precarious a situation for Thames Water.
It's a somewhat systemically important company in a sense of,
(18:16):
as she describes, it's utility to a large portion of the
country. The government will have to play
ball. You could, let's make some
assumptions here. So the government when push
comes to shove has to play ball and so does this does not make
then other P firms or capital sources, does this not play in
(18:37):
their favour where we've just got further down the precipice
of like the Cliff edge. And so actually now you could
probably force an even better deal if you were the new PE firm
coming in having seen this one. Yeah, it's it's, it's an
interesting one. And and who knows whether it
this, this feels quite definitive.
It doesn't necessarily feel likea a negotiating tactic from KKR,
(19:01):
but there are three options now for Thames Water.
The 1st is that it could fall into what's called a special
administrative regime. And this is actually what the
Environment Secretary, Steve Reed said was possible and
they're ready for it. Basically going under government
or national ownership. That's the first time a water
(19:24):
company would have done that since 1989.
By the way, there's still, I think there's still a kind of
hope for a market LED solution. Now, the market LED solution
could be the existing bondholders, the owners of that
£20 billion worth of debt comingtogether and announcing A
restructuring plan that probablywill involve a quite significant
(19:47):
haircut on their bonds. But you know, that's probably
the least of their worries at the moment.
So that's option #2A restructuring from within.
And then option #3 is there werefive other bidders.
Well, there were five other interested parties, right?
So if you remember CK Infrastructure, the Hong Kong
(20:07):
come big Hutchinson Hong Kong company, they were very
interested few others that couldstill be on the table.
So you never know, there might be a white knight that comes in
and and and saves this thing from a private.
Well, yeah, for, for, for a kindof private equity end.
Can I just say for anyone who's watching the video version of
(20:29):
this, Stephen, you're doing verywell to keep your composure as
your dog runs around your your feet there.
Yeah, not only is the dog running around my feet, but it's
also stolen my slipper, so thereyou go.
Yeah. What?
What? Watch the YouTube.
Look at that. Yeah, you said SAN from PE
world. You are the literal, you're the,
you're the corporal here. So well, let's finish this, this
(20:51):
side of the conversation, talk alittle bit then about just a
bit. Let's step back a little bit and
talk about the more broader sector of private equity
fundraising and what that's whatthat looks like now that we're
halfway through the year. Yeah, let's.
So the headline is that private equity fundraising has dropped
35% globally in quarter 12025 versus quarter 1/20/24.
(21:13):
Let's let that sink in, in the context of the first story,
which is this mad rush to recruit, you know, investment
bank analysts into private equity firms.
Remember that recruitment, you might think that it's a cast
iron job three years hence, but think about the cyclicality, the
(21:36):
cyclical nature of private equity.
You know, they, they're not beyond, it's not beyond their
purview to renege on that offer.And you suddenly really, you
know, really upset JP Morgan, who you were working for by
saying that you had an offer at KKR.
Then KKR say we've got a hiring freeze and we can't, you know,
try and think a few years ahead and just plot out all of these
(21:56):
options because it's not lookingparticularly rosy for private
equity, I have to say. And just like I am, I'm just
trying to think. So in invested banking terms,
obviously some of the US banks have that culling of the bottom
performers on an annual basis. Others have like the ebb and
flow and you know, the rug can be pulled quite quickly in
(22:18):
private equity. Is there enough kind of
precedent at a graduate level tounderstand whether or not there
is that same boom and bust atmosphere?
Or could it just be assumed thatPE and IBD is is the same thing
so it's going to mimic the same kind of hiring patterns?
Yeah, it's, it's a really interesting one.
I think you're right to say thatthe precedent has not been
(22:40):
established because the cohorts through the cycle have not been
big enough. I mean, private equity firms are
only really starting to recruit interns and graduates over the
last few years in order to in order to get ahead of the game.
Private equity is obviously verydifferent from investment
banking in that you have a fund that is locked in for a number
(23:05):
of years and pays a management fee.
So if you are recruited to a particular fund and that funds
life lifespan is 10 years or 12 years or whatever it might be
and the fees are 1.75% or 2%. There is a degree of job
security that may not be apparent in the investment bank,
(23:28):
which goes through the oscillations of, of, of, of good
MNA markets and, and not so goodMNA markets.
But on the flip side, there is, there is performance and money
on the line because you are contributing to the success of a
fund and therefore you need to show ROI in a way that maybe you
(23:50):
don't quite need to show the same level of ROI in a bank.
So if you're not very good, you know, if you're a bad hire, you
will see the door very, very quickly.
It won't be mass layoffs, maybe in the same way as you might see
the investment bank through the cycle, but you need to be
really, really good because thisthing needs to make carry.
(24:11):
This thing needs to make a significant return on its
investments. And every contributor from the
associate up to the to the fund manager that the the GP needs
to, needs to be pulling their weight.
So yeah, definitely worth thinking about in the context
of, of, of a career. And this is nothing new, right?
We've known that private equity fundraising has has has
(24:33):
significantly slowed. Reasons behind this well, again,
the attractiveness of of privateequity, the luster, the shine of
private equity has definitely come off because returns haven't
been that good over the last couple of years.
You look at any of the reports that that track private equity
(24:56):
buyout vintages through the cycle and compare it to returns
on the S&P 500, even adjusting for fees, you know, from 2020 to
2019-2020. So for 20 years, if you had
invested a pound, a dollar in private equity, you would have
outperformed the S&P 500. From 2021 to 2025, you would
(25:17):
have lost out to the S&P 500 because private equity firms
bought a load of companies, inflated valuations in 2021 and
before the rate hiking cycle of 2022 and are left with a bunch
of companies that they can't flog and they can't make a no
return on investment on. So they're trying all of these
fancy things like continuation vehicles and kind of structured
(25:39):
recapitalizations and all of this stuff, but it's not really
good delivering the the IRR. So why would I put my money into
private equity funds? The second reason is there are
only as I said at the top of this episode, there are only so
many private equity targets, right.
So private equity which is now atrail $12 trillion assets under
(26:01):
management industry, it can onlybe so big.
You know the strategies can onlyaccount not every company should
be owned by private equity and the buyout strategy that
underpins a lot of these different funds.
So it it stands to reason that there is a natural limit on the
size of the private equity market relative to total total
(26:24):
assets under management. So yeah, so if fundraising is
down, then hiring is going to bedown because you need less
analysts to fill the new funds. Right, as you said earlier,
we're recording this on the 6th of June, so it's Friday.
This isn't going out till Monday, but you've had the big
beautiful bust up happen in the last 24 hours between Trump and
(26:45):
Musk. One would think that's going to
get a lot worse, no Musk's style.
So tying that back to the private equity landscape for the
next 6 months looking forward, one of the things here you talk
about, you know, kind of macroeconomic volatility and
Trump is kind of epicenter through his tariff policies to
(27:07):
the macroeconomic climate globally.
I don't see anywhere of that changing, IE could become more
volatile. So is it not looking good either
for the next 6 months arise at least sort of short term?
Yeah, this, I mean and this kindof expands across M&A in the
kind of short to medium term outlook.
Whenever I teach, whenever I teach on this subject, I always
(27:31):
say, look, the two most important contributing factors
to buoyant M&A or a buoyant buyout market are interest
rates. We always know that the answer
is interest rates and stability doesn't necessarily need to be
exuberance or confidence or whatever.
It just needs to be certainty and stability.
(27:51):
Because what we're doing as analysts is we're getting our XL
shaped crystal ball out and we are trying to forecast returns
out into the future. And if there is significant
macroeconomic volatility, you'renot going to be able to have any
certainty that your returns are going to match what you've
modeled, right? Your base case scenario is going
(28:13):
to be so dramatically different from your downside case.
All of your sensitivity analysisanalysis are going to produce
wildly different results depending on tariff levels for
input, you know, for inputs intothe products whose company that
you're trying to buy. So I would be sitting on my
hands and just being like, you know, interest rates aren't
(28:35):
particularly low. They're not particularly high.
That's kind of almost a moot point to an extent.
But it's this certainty factor that's going to stop deals being
done and it's going to make private equity as a as a as an
asset class slightly more under threat.
To finish then maybe on this section, what?
Why, if I was one of these students had locked in JP and
(28:58):
then locked in Apollo and left JP, and then the rug gets
pulled, the PE market declines, I'm out on my ear out of Apollo
within six months. Where does that leave me?
It's really interesting. So private equity is a very,
very employable set of skills ifyou've been there.
(29:19):
I mean, even if you've only beenthere for a short amount of
time, the advantage of being in private equity is your off ramp
is either you know a smaller private equity firm, a middle
market investor, maybe private credit, maybe a distressed debt
fund. There are all of these kind of
growths, these additions that are that are still relatively
(29:40):
buoyant outside of pure private equity buyout.
But also you have operating experience or you're at least
adjacent to operating experience.
It's one thing you just don't get in M&A.
You don't get to see how a company is working, operating
and being turned around. So a lot of private equity as if
you get to a kind of reasonable level, you've got the ability to
(30:03):
go in as a, you know, as a head of strategy or head of corporate
development or even CFO at a, you know, large ish company in
an industry that you might have a degree of expertise in.
So the off the off ramps are fine.
I think if you get the rug pulled within six months of a
job at Apollo, you might be knocking back on the door of a
(30:26):
JP Morgan with your tail betweenyour legs.
But let's hope that doesn't happen to any listener.
All right. Well, look, we've got a couple
of deals here that we need to also get through, so maybe we
can move on and talk about the The Telegraph.
Yeah, Telegraph, this takes me back.
This is the Daily Telegraph, thethe the broadsheet, the UK right
leaning broadsheet that we covered.
(30:48):
I was looking back on my notes we covered back in November
2023. So there you go year and a half
or more than a year and a half ago and and even in November
2023, this deal had been dragging on for quite a long
time. And this was the so the deal was
Telegraph up for sale potentially being bought by
(31:10):
Redbird, which is AUS private equity firm and IMI, which is a
Middle East UAE investment vehicle.
And it was proposed back in November 2023 and it has just
been announced and confirmed. And the, the quote that I'm
going to give from the FT says after 717 days, two law changes,
(31:36):
1 election and a revolving cast of Tory power brokers, they
finally done the sale might be drawing to us.
It might have done the sale. There's still a few regulatory
things to get over. And this is all about and it's
super, super interesting. It's all about the extent to
(31:56):
which the British media landscape should be under the
control of British owners. Is there a threat to the UK that
something like the Daily Telegraph is owned in part by
the US by AUS private equity firm, but also by the UAE And
(32:20):
actually as part of this long going 717 days saga, you know,
the, the UA ES IMI fund led by Sheikh Mansur.
He's the guy that owns Man City got really upset.
He was just like, look, you knowwhy?
Why are all these politicians hating on me?
Rescuing A struggling loss, making, you know, broadsheet.
(32:43):
I, I, I want to uphold journalistic integrity.
I don't want to be the editor. I just want to, I just want to
invest in it. You know why?
Why do you think that having Middle Eastern ownership is
going to in some way have a national security implication?
Like there's something not quiteright about there.
You were very, very happy to take my kind of my donations to
(33:04):
the party a few years ago and now you're not letting me even
invest in in, in the Daily Telegraph.
But it seems like it might get through.
And just to just to give a little bit of a focus on Red
Bird strategy. So red bird's strategy.
So these guys $12 billion private equity fund, they own I
(33:26):
think AC Milan, Skydance Media, they're in the process of
acquiring Paramount. They want, they want the
Telegraph to be a leading voice for the kind of center right.
They also want the Telegraph potentially to have a presence
in the US, which I find quite strategically interesting. the
(33:51):
US kind of print journalism markets relatively saturated and
I'm not sure whether the Telegraph can make a significant
impact or imprint, excuse the pun, into the country, but but
yeah, so that you know, they've got big plans, obviously online
subscription based, etcetera, etcetera, the usual stuff.
(34:12):
But yeah, we'll see where this one goes.
Again, if we're actually thinking about day-to-day, this
one does have an impact because a lot of people still read the
Telegraph. Yeah, I wonder how many of our
listeners read the Telegraph. They'll, they'll have to let us
know in the in the comment section.
I'm showing too many political colours here.
Yeah. And then the the final deal,
(34:34):
because actually someone did leave a comment.
You have to forgive me, I can't remember their name, but they
did leave a comment asking specifically and we always
listen of the Salesforce deal onInformatica, which was a pretty
big one, right? Yeah.
So this is Salesforce agreeing to acquire Informatica and a
deal worth $8 billion. I'm going to get into the
(34:56):
strategy pretty quickly. I just want to do a little bit
of a background. So Salesforce were flirting with
Informatica this time last year,April last year, when
Informatica's market cap was up at $11 billion, They were
thinking about potentially acquiring the company for
upwards of $13 billion. Deal couldn't be, I don't think,
(35:17):
you know, the terms weren't there.
The, the, the, the deal fell through and now they're back at
the table picking up Informaticafor $8 billion.
So I don't know whether there was someone, someone on the
board, Informatica saying you'reselling too cheap for $13
billion last year, who's now gotsignificant egg on their face
(35:39):
having to say, all right, we'll sell for $8 billion.
You know, you've just lost 40% of value right there.
But anyway, Salesforce, Salesforce are an interesting
company, obviously one of the world's most, well the world's
most established enterprise SAS,CRM relationship management
software company. They're quite acquisitive.
(36:03):
They bought, if you remember they bought Slack a few years
ago for 27 billion. They've, they bought Tableau, a
kind of data representation and data structuring software as
well. And you know, they are, they are
making, as a lot of these types of companies are, they're making
(36:24):
an absolutely huge push into agentic AI.
They already bought a company called Mulesoft a few years ago,
which again is all architecture and data infrastructure for this
move towards agent driven AI processes.
(36:44):
And I don't know whether there'sa load of adverts about the
sales force agentic AI that are coming out on the television at
the moment. They're making a massive push.
And just a bit of background, you know, agentic AI is deemed
to be or hoped to be the, the big, big, big mega money maker,
(37:05):
the actual underlying use case at an enterprise level of this
new wave of artificial intelligence.
I think there's a, there's a general opinion that the, the
chat bots and the open AIS are good and interesting, very, very
hard to figure out really how tomake, you know, multiple
hundreds of billions of dollars.But within enterprises, these
(37:30):
agentic AIS, which basically have the ability to make
decisions and tie together many different processes together and
react to the data that exists within these different
processes, that is going to be the way that you're really,
really going to see the value ofAI.
Now, I would quit, I would suggest, I would say that
(37:50):
there's a, there's a lot of hypehere, right?
These autonomous agents, very, very hypey.
And, and you know, as well as meand anyone that's been in a
business before knows the processes are super variable.
Data is very unstructured, requiring lots of different
(38:11):
parameters and lots of, you know, rabbit holes to go down in
order to derive the right set ofdata in order to power the right
process that will lead to another joined up process that
will lead to an outcome. It's still very, very difficult
to get anywhere even with these amazing autonomous agents.
So yeah, let's wait and see. Sales force are on the front
(38:34):
foot. They think that this is going to
be the future. We're going to have to wait and
see. Yeah.
And I'm, I'm assuming that the competitive tension would be
players like ServiceNow, people of the same same domain who
competing, I don't know, ServiceNow are heavy, heavy
pushing AI themselves. It's exactly the same play,
essentially the same thing. So who, who would, who are
(38:56):
advising on these deals? Because I mean, this is 8
billion, this is pretty big fee for the year, right?
Yeah. So this is JP Morgan on the, on
the Salesforce side and Goldman Sachs on the Informatica side.
So if you look at the M&A leaguetables, you'll see a little
spike for the, for both of thoseguys.
Again, by the way, that there could be some the some antitrust
(39:19):
concerns because Salesforce bought Mule Soft a few years
ago, feels like they do quite similar things.
Is this market capture? I think you'll probably get
through because it, it's big butnot massive and the Trump
administration seems not unfavorable towards these types
of deals. Again, I'm not an expert in
(39:41):
terms of the way that Informatica is going to
transform agentic AI within within Salesforce, but you know
they're certainly putting their stall out, right?
With software deals being fairlycommon, just not now, but
generally, does the lead person from JP Morgan and the lead
person from Goldman Sachs know each other?
(40:03):
Intimately. And they say, what does that
battle look like? I'm just thinking maybe I'm
getting carried away with like succession in my head or
something like that where it's like, you know, cloak and
dagger, but how, what does that look like in reality?
Yeah, they will definitely know each other.
They would have been to the samedrinks parties, the same
watering holes and the same conferences.
(40:24):
And they would have heard each other speak and they would have
been on the other side of plentyof deals together.
And what's what's good about that is that they know each
other's, they know, they know each other's positions.
They can talk kind of person to person.
There's a relationship there. They can potentially take, you
know, take things to use a horrible phrase, take things
(40:46):
offline and just have a right, OK, this is what my client is
actually wanting. You know, they're saying this,
but what they actually want is that they have to say this from
a, you know, from an optics perspective.
But this is where the hardline is.
And if you've got a relationshipwith that other side that that
counterparty, you can have thosetypes of conversations that are
(41:06):
actually smooth deals over so much more than if you're up
against someone that you've you've never worked with.
You don't know from Adam and youknow they might be a totally
different and totally different style of negotiation or whatever
it might be. What?
What's the formal line between like the transfer of information
(41:29):
then, because as you've described, I can imagine if I'm,
let's say I'm Goldman's, your JPand we've, we've known each
other a long time. We like each other.
It's in both our interests. We get maximum price for maximum
fee. But surely this can have
conflict of interest with them operating in and around the
(41:51):
boards that we represent, the company we represent and so
forth. Like what?
What's the actual lines here? Or are they fairly grey?
They're they're, they're definitely Gray.
If I was a, if I was an MD working on this deal, acting on
behalf of Salesforce, I would bevery, very clear.
I would get very, very clear approval from the board that I
(42:14):
can discuss certain things in a person to person interaction.
And it might and Salesforce might say, look, you know, I am
open to you saying that our, youknow, our maximum price is X.
And I want you to go away and make sure that you've
communicated that successfully. So it you, you can't, you can't
(42:34):
take, you can't have a kind of back line conversation that is
totally unsolicited and unsignedoff.
But part of your skill. And this is, again, this move
from being a, you know, producerof spreadsheets to being a
really, really good human negotiator is to find that area
(42:55):
of common ground, to know where your limits are, to know what
you can and can't say, and try and find that you know that that
number that works for both parties.
And that's where the skill comesin.
That's where the fun comes in, really.
Yeah, All right. Well, look, thank you as always,
Stephen. We'll wrap it up there.
And for anyone watching on Spotify, you might notice that
(43:16):
you can see us now. We're in video, full video
format, so please do drop us a message if you prefer this or
just the audio. It's a new change.
We're happy to do what you, you,the community like, so let us
know in the comments. Otherwise, we'll see you next
week. Thank you very much, Steve.
Thanks, Ann.
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