Exits, AI and Asking 'What’s Next?' w/ Advent International's John Maldonado

Previously on Dry Powder, John Maldonado, managing partner at Advent International, explained how Advent has been one of the most consistently global firms in the industry. Today on the show, we'll explore how the firm is navigating longer holding periods, harder exits, and rapid technological change. Deals are happening, but they're earned and not given. You need to be really intentional, even at the underwriting of the investments you're making, how you are going to exit, to whom, and why will they buy it. I'll ask John how he's thinking about GPLP alignment. We'll explore the practical ways AI is creating value across their portfolio companies. We'll also look at how they're using AI within Advent, including what John calls a surprisingly fun tool for their investment committee. We have an IC AI robot. I want to be clear, that robot does not have a vote, not a voting member, it's an observer, but it has proven to be an incredibly valuable tool, and we just started using it in the last three months. I'm Hugh MacArthur, chairman of Bain's Global Private Equity Practice, and this is Dry Powder. I'd like to shift gears, John, and ask you to get out your best crystal ball and look a little bit into the future, because as someone who runs a very sophisticated, scale private equity firm, I think our audience would really benefit from your views today on kind of where things are going as best as you can actually read the tea leaves. What's your current read on the exit environment and liquidity outlook? As you know, LPs have been waiting for money to come back for quite some time. The average deal that was exited in 2025 was a 2018 deal, so the holding periods have gotten longer and longer, and so everybody wants to hear from folks like you, how are you feeling about the exit environment, and how are you feeling about Advent's ability to create liquidity over the next, you know, six to 18 months? Well, the perspective that we have is that deals are happening, but they're earned and not given. And you need to keep that in your mind's eye, not just at underwriting, but throughout your whole period and build toward that outcome. So the job of selling assets, as a private equity firm, it used to be a given. You did your job over five years, you hired a bank, and it moved off the shelf. It requires a new muscle that needs to be flexed and built, and we've told our whole organization that. It requires a different approach than it might have historically. When we're evaluating deals, we're asking ourselves, what is the likely exit outcome, and what percentage probability would you give to, a private equity firm buying it, it going public, or it being bought by a strategic? And what gets us most excited is this idea of, we're going to build something that's so great that strategics will be fawning over themselves to buy it. And deal teams will often present a view, if we execute this plan, here are four to five tier one buyers that will line up to buy this business. And the muscle that we've been building is telling deals to buy it, and telling deals to buy it. And deal teams, okay, validate that. Go talk to those tier one buyers today and understand why they are not at the starting line for this opportunity now, but would be if we could present them with the fully formed vision of what we want to create. And taking verbatim feedback from those conversations back into investment committee so that we can have a think around whether that is a credible path. So that is this idea of, you don't just hypothesize the strategics, you engage with them at your underwriting to gain greater comfort that you will have that as an exit option. And that's exactly the right question. And as we're approaching the market, maybe no surprise, pricing is bifurcated. Right. The best assets are clearing at still fantastic prices. Everything else is negotiated, which is why it's that much more important to build the conviction and your thinking around the process. You will construct the process. You will construct to yield a good outcome. And then lastly, IPOs, they will reopen. They are opening, but quality is leading. And I have no idea what the advent of trillion dollar first-time public companies is going to mean for the system more broadly, SpaceX, Anthropic, OpenAI. I'm woefully ill-positioned to imagine what that could mean. But what it does mean in certainty is it sucks a lot of oxygen out of a lot of rooms. So if you are going to show that you're going to for the public markets as an exit, again, just like you would be if you were selling to a strategic or a sponsor, you need to be really intentional around the process, around how you're going to market that company. You need to plan well ahead of time. You need to entice interest. You need to spend a lot of time much earlier than you planned with long-only investors because simply doing a test the water meetings a few weeks before you're planning to launch, it's not sufficient. You need to build credibility and conviction on the part of public equity stock buyers so that you know you have a viable IPO exit. So we talked a little bit about LP concerns like liquidity, and you've addressed some of that. How are you thinking about GP-LP alignment today? I speak frequently at LP conferences. There was one recently where I was sitting at dinner and I asked them, generally speaking, how are you feeling about the GP-LP relationship? And the word that came out was fraying, that we're a about the past for a number of reasons. What does Advent do to keep that relationship strong with its LPs? By the way, I think I might have been at that dinner with you. So it certainly is a sentiment that we hear in the marketplace. But from Advent's perspective, we keep it really simple. We made a clear strategic choice a couple of years ago to remain singularly focused on private equity and alpha generation. And just starting there, we're going to be able to get you 80 yards down the football field. But then when we wrap it with, and oh, by the way, we aren't public, we haven't sold a stake in our GP, we don't have plans to, those are increasingly rare statements in private equity. But they are the bedrock of alignment. It may not be the fashion of the day, but increasingly, our investors are telling us, that is refreshing. And we really want to get behind those managers that are telling us and covenanting that they are going to keep alignment in the center of what their core strategy is. Now, I have to actually use the letters AI, because as longtime listeners of the podcast know, if I don't say it, nobody will actually listen. I was at the Milken conference in Los Angeles. And while it wasn't a focus of the conference, in all of the one-on-ones I had with managing partners, I was at the Milken conference in Los Angeles. And while it wasn't a focus of this was a focus of the conversation. AI, where is it going? What is it doing? What's really happening out there? So first question to you, John, is where is AI slash tech actually moving the needle in your portfolio companies? Well, first and foremost, in our world, AI stands for Advent International. So we could not be more excited about this trend. But increasingly, AI, it's embedded in our value creation work. Right now, just to give you a we've got 30 North American portfolio companies. We have over 80 different AI initiatives up and running across the 30. So in a world that's changing quickly, some of those are pilots. Some of those are full scale. Some of those are commercial. We're working with our internal data science team. We're working with third parties. So it is part and parcel with what we are doing with our companies to drive value creation. Where we're seeing the most is process automation, consumer intelligence, and some core operating workflows. Churn identification and churn management has been one of the areas where we've had a lot of success. For us, we are experimenting in some respects, but we also don't want to experiment forever. So some of the things that I just described, we're out of experimentation phase. We have high conviction. When we've identified certain problems in portfolio companies, we've got a tool that we know works. So that's about productivity. It's about margin improvement. It's about better decision making. So where we've built some conviction are across all those levers. And we also have some AI experts within the portfolio support group that are working directly with management teams to usually evaluate the opportunities where we can deploy AI. Sometimes they're going to roll up sleeves and execute some of those initiatives. Usually it's to a minimum viable product stage. And then we've got to figure out a better way to do it. So that's where we're at right now. Right. The other lens that I'm hearing a lot about from GPs is kind of how are you applying AI internally in your own investment process? How does it help you source better? How does it help you underwrite better? How does it help in the value creation process and exit? What kinds of things have I been doing to actually apply AI internally? Well, I'll give you one fun example. I want to be clear that robot does not have a vote, it's not a voting member, it's an observer. But what that robot is doing is a tool that the investment committee is using. It is generating topics and questions and queries that it thinks we may want to explore further. And it's trained on all the investment committee memos from time immemorial. It's also being trained on the questions that the investment committee members pose to the deal teams. So what have we historically found to be of particular interest as we're vetting these deals? So we built it. It's already quite good, but we're continuing to improve it. So just to give you a flavor, one of the recent enhancements was when the robot is evaluating a given investment committee memo, can it automatically, in addition to the questions, tell me what changed from when this was presented three weeks ago? Has the thesis changed? Have the core assumptions changed? Are we talking about a different management team? Because it's really time intensive for humans to flip back and forth. So we're doing that across time within a deal. And now what we've asked it to do is what's really hard to flip between is what about different deals? So it's highlighting assumptions that should be the same across deals that are not. So what should be the same? Interest rate assumptions. FX assumptions. Right. So it can automate that and highlight the things that we should bring more IC governance consistency to. So it's fun. The members of the investment committee are prompting and trying to make it better every day. But it has proven to be an incredibly valuable tool. And we just started using it in the last three months. There has to be an advantage to having all of your accumulated history. And then you juxtapose it with what you just described, John, which is the ability to update it on almost a daily basis for things that are changing. So it's kind of real time and it's all time. At the same time. It's real time. It's all time. And importantly, it's not replacing our judgment. It's just enhancing it. So it's exactly what you would want in that use case from an AI tool. It makes a huge amount of sense. And I hear this in other industries as well. You know, obviously, nobody wants AI to replace your doctor. Nobody wants AI to replace your financial advisor. It's an and, not an instead of. But utilizing the advantages of AI is a smart thing to do. Now, you mentioned earlier, John, that Advent has done. Some significant strategy work in recent years. How do you think about balancing, refreshing the business while preserving your core principles and how you think about you want to go forward with the evergreen that will never change and the things that you stare at when you say, you know, we need to evolve? So the core tenants that are immutable are we want to be specialists at scale. We want to be constructive collaborators amongst ourselves. We're a private partnership. We need to collaborate with ourselves. We think that's a great tool to be good collaborators with management teams and our ecosystem more broadly. But the third pillar of how we've described ourselves over a long time is this continuous pursuit for better. And what that means is it gets to the heart of, well, how do you evolve? How do you keep the best of what's gotten you here and prepare for what's coming? This third pillar creates an electric opportunity. It's an electric opportunity for the entire organization to realize if you have identified a seam in the market that allows us to do incredible deals, fantastic, those don't last forever. It will be exploited by the rest of the market, and you will need to evolve. And if you are unable to evolve, we no longer have a path to alpha. So we've instilled this entrepreneurial idea. That we as dealmakers and as an organization have to constantly ask ourselves, what's next? Because if you stop asking yourself that question, your next deal is not your best one. And when you push that into the organization with the additional overlay of, and by the way, it's okay to make mistakes. We say, Peter, when he founded this firm, he made a lot of mistakes. He talked about those mistakes. We are okay to make mistakes. It's the only way we'll successfully find what's next. Be smart about it. When you make a mistake, learn from it, and don't make the same one twice. And with that encouragement, this idea of, you can think of us as a big place, but ultimately, when you think about the dealmaking units, they're SEAL teams. And we encourage them to find new ground, stake out new territory, be a voyager, be the first one that uncovers a new subsector that's going to be our next deal. And we have the history to look back and say, and by the way, that's how some of our best and biggest subsectors started. They started with one person or one team and one idea, and look at what it became. So when you marry the constants of, we're specialists at scale, we're going to collaborate. Well, you've got a sandbox. You can go wherever you want with it. Dealmakers love it. And it's been the way that the place has been vibrant through 42 years. I love that, John. I love the way you describe it, because I always talk about private equity as being an extremely entrepreneurial and innovative industry. And you guys have walked that walk since your founding. You were the first to do a lot of things and continuing to challenge yourself as to what the next thing is. I totally agree. That's where you're going to find alpha. Doing the same thing again and again and again is probably not the road to lots of alpha creation. And so I've learned a huge amount during this conversation about advent and the way that you do things. I'm sure the audience is. I've learned a tremendous amount as well. I wanted to thank you again, John, for coming on the show. It's been a terrific conversation. Thank you, Hugh. I had a lot of fun. Really appreciate it. I'm Hugh MacArthur. Thank you for listening. Thank you.