The 80% failure rate nobody underwrites
I was up in Indianapolis last week watching my eldest son compete in the DCI Marching Band World Championships. Watching all these groups of young adults perform creative and beautiful shows that they've perfected over nine weeks, rehearsing ten hours a day with their diverse and unique (non-electronic) skill-sets, was a much-needed tonic to all the talk of AI apocalypse.
Following on from this I read a fascinating article in this month's Wired Magazine, which highlighted that kids and young adults are amongst the most skeptical in the population about AI, use it way less than we imagine they do and are far better prepared for an AI future than many of us 'more experienced' adults.
There's a new PE Data Guy episode this week, and it is a good one. Kit Lisle has spent 30 years in private equity and now runs TheOperators, a community of about 800 PE-backed executives and operating partners. We talked about why so many founder-led companies go sideways after the deal closes, and his answer had almost nothing to do with spreadsheets.
I am speaking to Kit's operator community this Thursday, running a live exercise on why a portfolio company can report green on every KPI and still miss its plan. If it goes well I will tell you about it next week. If it goes badly I will tell you anyway, because that would be the better story.
Enjoy the rest of the memo!
Cheers,
Graeme
Three Things I Learned This Week
The 80% failure rate nobody underwrites
Kit Lisle’s number, from three decades of watching lower mid-market deals. When PE acquires a founder-led or family-owned business taking institutional capital for the first time, the likelihood of significant misalignment, of things going properly off the rails, is 80% or higher. His explanation is brutal in its simplicity. There is no training, no onboarding, no certification for a founder becoming a PE-backed CEO. It is sink or swim. The sponsor observes, decides who is sinking, and replaces them with experienced operators. In Kit’s words, the industry believes that is logical and efficient. “It’s ridiculous. It is not logical. It is not efficient.”
Kit has made an admirable and much-needed attempt to define value creation itself. He once asked a hundred PE professionals what the term means and got a wall of different answers, so he spent six months building the definition. Six levers. Alignment first, translating reality before anything else. Then operational improvement. Then fact-based decision making, which is where data, analytics, and reporting live. Then organic growth, add-ons, and preparing for exit from day one.
Notice where data sits. Third. Not first. Alignment precedes it, because a dashboard cannot fix a CEO and a sponsor who are quietly working toward two different companies. Behind every data problem there is a people problem, and the failure rate says the people problem usually wins. Watch the full conversation here.
Buyers have learned to separate AI activity from AI strategy
EY’s 2026 Global Private Equity Exit Readiness Study is the clearest statement yet that the AI section of the equity story is now diligence material, not marketing material. Buyers are testing whether a company has a credible plan for AI to improve productivity, commercial effectiveness, and decision making, and they have learned the difference between activity, meaning pilots and licenses and enthusiasm, and strategy, meaning AI embedded in the operating model with measured benefits and governance that scales under the next owner.
One sentence from the study deserves to be taped inside every CFO’s laptop lid. Without clean, accessible and well-governed data, AI claims can quickly become difficult to evidence in diligence. That is a Big Four firm telling sellers that the AI premium is really a data premium wearing a fashionable coat. Firms that can show tangible progress with quantified benefits build buyer confidence. Firms that cannot face deeper scrutiny, longer diligence, and valuation pressure.
The study also found GPs and portfolio company management almost perfectly aligned on AI as an exit concern, 18% and 17% respectively. Alignment on the worry is a start. Alignment on the evidence is the work.
Source: EY Global Private Equity Exit Readiness Study 2026
Value creation planning is moving into diligence, and it is bringing a data question with it
PwC’s midyear deals outlook describes leading acquirers pulling value creation planning forward into due diligence itself, with first-30-day plans replacing the traditional first-100-day version. Integration timelines are compressing, and the winners are underwriting the improvement plan before they own the company.
The same outlook now lists three dimensions for assessing AI in every transaction, regardless of sector. Defensibility, whether AI erodes the moat. Acceleration, whether AI expands margins. And readiness, in their words whether the target has the data infrastructure, talent, and organizational design to execute. That third dimension is a data audit by another name, sitting inside standard diligence, pointed at every mid-market company that sells to a sophisticated buyer from now on.
If the buy side is underwriting your data infrastructure before the LOI ink dries, the sell side preparing that answer in advance is not gold plating. It is matching the market’s homework.
Source: PwC US Deals 2026 Midyear Outlook
Two News Stories From This Week in Mid-Market PE and Data
The unsold pile made the front page of the New York Times
Source: NYT, Private Equity Is Stuck With 33,575 Unsold Businesses
What happened. The Times reported PitchBook’s mid-year count. 33,575 companies sitting unsold in PE portfolios as of June 30, up from 32,451 at the end of last year and 15,923 a decade ago. Third consecutive year the pile has grown. Exit value in Q2 ran at roughly half of Q1.
Why you should care. Two editions ago this newsletter covered the same phenomenon from Bain’s data, when it was an industry conversation. It is now a mainstream one, which changes its behavior. Your LPs read the Times. So do the founders you want to buy from and the corporate buyers you want to sell to. The number is now common knowledge, and it plants a standard question in every annual meeting. Which of ours are in that pile, and why. Sponsors are going to need a better answer than the market, because the same week this ran, deal value globally is tracking toward its best year since 2021. Buyers are buying. They are just buying the companies whose numbers they can believe, at speed, and passing on the rest. The pile is not evidence that exits are impossible. It is evidence of what happens to the companies that cannot prove themselves quickly, one year at a time.
Deal value up 13%, deal count down 13%. The K-shaped market is official.
Source: PwC Global M&A Trends 2026 Mid-Year Outlook
What happened. PwC’s global midyear puts 2026 deal value on track for roughly $4 trillion, up about 13% and the strongest year since 2021, while deal volume falls about 13% to roughly 42,000 deals. Megadeals above $5 billion now account for nearly half of total value. Below that line, PwC describes mid-market dealmakers constrained by valuation gaps, slower growth, and a stubborn exit backlog.
Why you should care. Value up, volume down is not a market recovering or a market failing. It is a market sorting. Capital is concentrating in the assets that clear the bar and starving the ones that do not, and in the mid-market the bar is increasingly about verification. Wide bid-ask spreads are what it looks like when a buyer cannot get comfortable enough with the numbers to meet the seller’s price. The macro is out of everyone’s hands. Which side of the sort your company lands on is substantially about whether your numbers survive a hard look, and that part is buildable, on a timeline you control, for a fraction of what the discount costs.
Free Tool of the Week - The Mid-Market PE Firm Directory
Third feature in a row, and it stays until something else earns the slot. The directory remains the most-visited thing we have ever published, which says plenty about how thin the free, structured data on this corner of the market really is.
A use for it this week, given the stories above. If the exit conversation is coming for a company you back or run, the directory is the fastest way to map who actually buys in your space. 218 US mid-market firms with check sizes, target EBITDA, sector focus, and whether they build through add-ons, filterable by sector, state, or strategy. Knowing your likely buyer’s shape a year early changes what you get ready.
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As always, forward this on to your favorite PE-backed friend.
Cheers,
Graeme