Underwrite It Again
Alexis Underwood has a rule for a sale that dies. "I like to treat it like a new investment decision, not like a failed event." The Wynnchurch partner asks the question a new buyer would: "if we bought this business today, What would our value creation plan be now?" The wrong move is pride. "I think the worst reaction is kind of defensiveness or trying to force a process that the market's clearly rejecting."
Failure is ordinary. Brian Cassidy, president of Crestview: "I think even in the good times, I think close to 50% of sale processes fail." His fallback is a smaller exit. "You're not going to always sell 100% of the business in this market."
The diagnosis can land on the sponsor. Alex Greenbaum of EQT: "that may mean that you have the wrong management team. So who's going to admit that they're the wrong management team? It may be that the sponsor had a really unrealistic view of value or of strategy." A stalled sale also leaks to customers. "They know you're in a sales process and they go, I know you can't afford to lose my contract right now." At OMERS Private Equity, Lane McDonald's team worked through every piece of buyer feedback after a stalled process. The fix included selling off two divisions.
The panel closed the AlixPartners-sponsored exit series that ran here the last two weeks.
The LPs are doing the same thing to the GPs. Erlina Yeo Terwelp oversees private markets at Columbia's endowment. Higher rates change buyout math, she says, so Columbia has "spent a lot more time re-underwriting our managers". The bar is operations, not leverage. "We like firms that have proven a lot of value in the operating pieces." She is also spreading bets across years. "We don't want to put all your eggs in a 2026 bucket. Where people feel good about AI."
Inside the portfolio, the plan is provisional from day one. Paul, of Parker Gale's operations team, on the firm's own show: "I don't think we're a firm that looks on what we learn in diligence as like the immutable plan for the 1st couple of years." His partner Ryan on why the plan keeps moving: "Like the bottlenecks are changing faster than ever throughout an organization."
Two weeks ago the funds moved the exit clock. This week the plan itself is up for review.
Sources: Interviews from Private Equity Spotlight (Oct 13, Alexis Underwood of Wynnchurch, Brian Cassidy of Crestview, Alex Greenbaum of EQT and Lane McDonald of OMERS Private Equity), Capital Allocators (Oct 12, Erlina Yeo Terwelp of Columbia Investment Management Company), and Private Equity Funcast (Oct 14, Paul and Ryan of Parker Gale).
Private equity investors describe recovering from failed sale processes by re-underwriting the asset as a new deal, while LPs re-underwrite managers for higher rates.