Private Equity in 2026: Liquidity, Growth, and AI Execution

[Music] Get ready to peer behind the curtain of the Private Equity Universe with each episode of Best but Never Final. Hi, I'm Lloyd Metz, joined by Doug McCormick and Sean Mooney. Together, we'll navigate the corridors of Private Equity revealing the uncommon knowledge, challenges, successes and lessons that drive the world of Private Equity and business forward. Let's go. [Music] It is great to be back with Lloyd and Doug. Doug and Lloyd, how are you guys? Hey Sean, hey Doug, doing well. Great man, good to be back. It's been too long, I've missed you guys. Oh, somehow a year has passed and another one is running by quickly here. Sure is. It's hard to believe we're in February, right? It's nuts and I think we're going to be talking next and we're going to say it's hard to believe we're in October pretty soon. With years moving by quickly and I think we said last time we had this conversation, stands to the hourglass and we talked about grandmothers and so forth, soap operas that we used to wash together with our elder, our statesmen and our family. I think at that point of time again, it might make sense to have this look back and look forward conversation. How does that sound? Let's do it. Let's go. All right. Like we did last year at the same time this year, it's always good to reflect. I don't know about you guys, I'm not one of these people who dares to look into the past too often. It usually scares me and makes me anxious and somewhat upset at times. But it is a useful exercise. And so why don't we do this? I'd love to hear from both of you all. What are your kind of key takeaways and reflections from last year? Key takeaways and reflections last year. So I think I'll start a little bit with priorities for the year, last year, which I think not only are, or our priorities, but the industry's priorities. There's been a real big focus on returning liquidity. And so I think that we spent a lot of time doing that here. And then ultimately got two businesses sold. So I think that also kind of speaks to the backdrop in which M&A is happening. And my general view is with the exception of a couple things, it was a pretty attractive backdrop. And so, you know, M&A activity certainly better than it had been the previous several years. And I would say we spent a lot of time navigating the volatility associated with tariff policy. And it looks like we're going to spend some more time navigating that volatility given the Supreme Court will language is material. I think we'll talk about a little bit more here in 26, but AI was a big topic of focus. And I'm struck by we were talking about it in the beginning of 25. And we're talking about it all the time here as we enter into 26. So it's a key theme, but like the velocity and and mind share that that topic is getting is increasing dramatically to impact that a little bit. One of the things is liquidity. And that's that's the thing that we heard from a lot of our customers and from you and Lloyd across the year is this whole idea that private equity firms were geared up to return capital to investors. Why was returning capital and liquidity such a big topic, particularly in the minds of your LPs who invest in you in that specifically yours, but maybe the LP world in general. Why was last year such a big year for returning capital for many P firms? It improved over last 25 over 24 in terms of distributions and liquidity, but it's still at a pretty low level. And it's probably been going on four years now where distributions have been lower as a percentage of the invested capital. And that's what LPs rely on to obviously meet the obligation to their pensioners and their members. But it's also the liquidity that supports continuing investment and commitments to the asset class. So it's better, but that's a relative common. It's still pretty low. All things considered. Yeah, I also think there are a couple important contextual backdrops. The first is in the COVID period really low interest rates, pretty good fundraising environment lots of capital raised 2020 to 2021 timeframe. You've got all that capital in the market that needs to be deployed. And that's one indicator. I think the other is candidly the overall asset class is maturing. And as it's matured, the duration of the average hold continues to extend. And so I think a lot of private equity investors at an institutional level were assuming like average hold periods of like four, four and a half years. And I think the latest thing I've seen would say average hold period is moving out five and a half or six years. And so that has big implications of how the overall portfolio is allocated. And I would say if you want to raise capital, you've got a return capital. And so I think there's a pressure at the GP level just to like reflect on delivering on the promise. I think on the positive side equity values are up. And that really helps in the context of even though I've returned less private equity. Still at an acceptable concentration level given the valuation increases in the publics. It's kind of interesting. I think even this time last year I know as we were maybe talking together and certainly as I was looking at the data. I thought the deal market was going to be big much earlier in the year because the P firms were gearing up. And as I look back kind of through all the project activity over the prior years, it was almost impossible to transact because there was so much constant disruption and churn. The markets were just noisy. And then we had seen like real instances of the deal market coming back in the first quarter of last year. And then what happened there? Liberation that we had liberation day. And then they're like, all right, it's going to be okay. And then what happened? We had a 12 day war. And so right as the engine was getting ready to go, you had disruptions. And I think it's important for people on industry to appreciate is like, you need a period of stability in order to transact. It's not like a stock where you can just hit send on a your brokerage account where you get in and out. A sale process takes at best four months and usually up to six months plus to do it. And if you've got this all this crazy churn, you just can't do it. And so it was like, I don't know like from your perspective, like could you even have the gumption to say we're going to bring something to market when there was just constant chaos? So a couple of interesting points like the good folks at BIMO have a good set of stats around middle market M&A. And both the dollar amount and the deal count in 25 were down versus 24 down slightly on the value. But meaningfully on the deal count. And these are deals between enterprise value between 20 million and a billion. So pretty wide range, but clearly middle market. There's a clear bifurcation between like the big mega multi billion dollar deals that got all the headlines and share of mine and sort of. I don't want to say propped up but elevated the aggregate private equity M&A activity stats. But for the middle market, it was a bit of a down year in 25 by deal count and value and think some of the turbulence volatility uncertainty that you're talking about Sean played a role. When I look at our activity at ICB partners in terms of what we received in we didn't see to your point about how long it takes to get a company sold when you look through April, May, June, even into July. We were slightly above 2024 in terms of what we saw. It wasn't until the back part of the year that we start to see less attractive investment opportunities right because that April turbulence shows up in as you were saying, September, October, November, December activity levels. Hey, look, would you just very simplistically say one of the takeaways here is big businesses are kind of better able to navigate, you know, some of this policy turbulence or a little bit of economic choppiness. And so they can still transact in the lower middle market, a 5 or 10% revenue miss has meaningful negative operating leverage. And so it's just we're in a bit more beta in that part of the market. I don't know if I go that far. I think the takeaway is the large private equity and alternative asset firms that ecosystem moved and behaved differently. It didn't flex as much and whipsaw as much right with all the volatility with tariffs and policy and the like. They were still able to get your two five 10 billion dollar deals done IPOs right even returned. And that to me kind of makes it harder to see what was going on with smaller companies in the middle market and the M&A market, the private equity market. I would just overlay one observation on that I agree with everything you're saying holistically in the entire market and then what we saw is real pockets of strength in certain sub segments like food, healthcare, defense. And then you had other things that are kind of more directly economically sensitive and those were where I think the weakness resided. Absolutely. It's really interesting here blue wave we get to see things probably a quarter in advance of what actually happens, particularly in the new deal front. It might even be more than a quarter shop. Yeah, might be up to a year. Well, certainly in macro trends, but even like the. the tactical things, like so, like the deal volumes were really soft. And typically, you'll see, as you guys know better than I do, you're going to see the deal market kickoff in an August and September for the last big push for people trying to get deals done by your end. That's right. This year, it happened really late because people were just waiting to see more and more calm as my sense. But then in the fourth quarter, we saw a 40% increase in volume and due diligence requests for things like specialized commercial due diligence studies, tech diligence, senior advisors, all of those type of things. And so it took off real late, but it's accelerating even more so now. And so as I look at our real-time data, commercial diligence requests are up 500% year over year over the last 90 days. For our listeners who aren't behind the curtain, when they're doing these studies, that's real money you're spending. You're getting conviction that something is happening and there's going to deal, this can done. I'd say in prior periods, which we would see, particularly maybe fourth quarter of 2024, we would see like demand, but people would go pencils down because there's just too much churn and they just wouldn't go to spend it. So people are spending that kind of money. And these can be in the hundreds of thousands of dollars as you all know. We're seeing a demonstrable increase that happened late in its continuing to occur as we enter this first quarter. And it was almost really shocking because January is usually crickets in the private equity world because everyone's kind of waiting for new deals to show up. So I think there's just a lot on the shelf and it's going to start coming more and more and more in part because it has to, but really I think because the conditions, at least, caveat for like the latest Black Swan that my flyer passer for has, it's been pretty stable enough for you all to actually do some things and be confident that the world will have a six-month runway where it'll be calm enough to transact a really good company. Does that kind of resonate with you all? It does. And I think it also speaks to something that we've been talking about for some time on this podcast, but Doug and I've been living it. I don't know if you guys have seen the most recent Bane Private Equity report, but they have a new expression. 12 is the new five, right? You need 10, 12 percent EBITDA growth per year to make two and a half times your money sort of deals, which means you got to really drive operational improvements. And so a lot of what you're talking about speaks to that. You sort of can't buy something and then figure it out after the fact. And so that's probably what you're experiencing showing and pulling all that diligence and all that commercial intelligence, commercial diligence, developing your plan before you even bother to try to own something is what it sounds like is happening. So I have not seen that report, but it sounds super interesting, but I'm just going to piece it together and maybe make some of the implicit assumptions explicit. I think what you're telling me is their study would suggest that purchase price in terms of valuation has gone up enough and leverage has come down enough that the only way to get to those same metrics is growth. Yes. I believe it. I hadn't seen the study, but that's daunting. 12 is not easy, man. Again, we can talk about this for some time if you want, but it has implications. And you've probably seen this too, Doug. There's been a barbelling of the M&A market, certainly in the middle market, where I'll call them a grade assets, people pay up for and everything else, b's, c's, they're almost kind of lumped together. So that's part of what's driving that longer hold period, right? Your B and C assets and then your B and C assets get different valuations, get different level of attention when you're trying to exit. This episode is brought to you today by HCI equity partners, a lower middle market private equity firm focused on partnering with family and founder owned manufacturing, service, and distribution companies. I see V partners, an innovative private equity firm supporting management teams of leading companies at the lower end of the middle market and Blue Wave. The business builders network connecting the most proactive business builders in the world, the best of the best service providers for critical, variable, on point and on time due diligence and value creation needs. Now back to the episode. It's really interesting on your points there, guys, because it's, you know, A, I think you're right, it's economics one to one, right? If there's continuing to have a lot of capital that's growing, chasing the same supply of deals, purchase prices by kind of economic theory have to go up. And if you don't transform and create value returns are going to go down, you all are some of the most tenacious proactive business builders in the world. So you're not going to sit there. So as I mentioned in our PE insights report, we shared all this data where the diligence may have gone up 40% in the fourth quarter, but the value creation demand went up 45%. And we usually don't see big changes in the fourth quarter. That's kind of a time when people are kind of like, you're not going to start new things, you're going to get done what you've already started. So to see absolute volumes go up is exactly to that point, Lloyd, it's like, we got to do more. We got to do it fast. And then if I look at kind of the data on sales over the last 90 days, the projects run sales force effectiveness, pricing strategy, all the growth ended like service provider kind of aisles. That's a 300% over the last 90 days. And Sean, I got asked, it's because of the market and the reasons that Lloyd said, but I also think it's because there's a whole new host of tools and it gets back to the AI where all the sudden sales initiatives like the data is more fungible with cheaper to get and there's easier insight to derive. Yeah, I think that's absolutely part of it. And this is a conversation that we'll spend more time on later in our conversation here. But to me, it's the most exciting time to be a business builder ever, except for those high prices. But now every one of your dollars that you invest in your port coast goes three times further. That's the exciting part too. As I hear kind of the themes here from last year, we had shop that led to stability that led to an ability to transact. And we're starting to see a lot of deals start hitting. And then certainly there's the AI stuff. Lloyd, how about you? What were some of your reflections in 25 that are in addition to that? For us, most of our activity for 2025 was the result of efforts and initiatives and work that we put in in 24. As we went through the year, we were more focused on platform work, portfolio company work, a lot of the activities that we were talking about, professionalizing companies, go to markets around these sales, pricing, etc. And then add on acquisitions. So our deal total count was essentially the same 24 to 25, but the composition shifted. So it was materially higher with add on acquisitions. Basically, we had three new platforms put in the ground. And so we were very active in finding add-ons for those. And so the platform, we raised the bar on platform investments. So overall, deal count that we took in was essentially the same, but the mix shifted. We spent a bunch of time trying to upgrade a lot of the capabilities that you talked about, whether it was procurement, HR and talent, go to market, pricing. So again, that's why we love you guys at Blue Wave, but that's where we spent most of our time. Well, we love the services. So everyone but Sean, part of us, you know what I'm going to say. So the other reason why some of our platform investments volume kind of tapered off, we did raise the bar in terms of what we were looking for quality wise. But we also spent a bunch of time as Doug started off at the top of the conversation, folks in our liquidity. So we have several companies that are in the process of being sold and others that were in the process of getting ready. So as you know, with your work at Blue Wave, Sean, you start bringing resources, whatever, nine, 12 months before you're trying to hit the market to get your portfolio companies ready for exit. That took up a lot of our time in 25. That's very much resonates with what we're seeing more broadly. That's a strong area of focus and makes sense, right? And one of the things that I think both of you had said is like, your companies are coming along. The investments made in 24 are coming in 25. I think that continues to reinforce the exit narrative that people are seeing in that market. And one of the other big shifts that I think we saw that was really pretty fascinating was a lot of the companies that had previously not been coming to the market were starting to come to market and actually selling. And so we saw manufacturing company in projects of the last 90 days go up for 300%. We saw distribution businesses go up by about the same amount. We saw healthcare services go up 250%. And so there's companies that had previously been on the sidelines because I candidly think a lot of the economy, if you break apart GDP and look at PMI measures, a lot of the economy was in recession over multiple periods. It's just the entire economy wasn't. So now these companies that were previously kind of just like battling have now kind of come through that J curve and seem to be doing well. Two interesting observations, I think back to Lloyd's comment about focus on out on acquisitions if you go back to this 12 is the new five in terms of even dive growth. Let's just acknowledge how hard that is. If GDP is growing at 3%, you may have a sector that's growing at 10%, but that's not easy and there are few of them. And so one of the things that our whole community is doing is leaning into the value creation stuff that you guys are intimately involved with, but also M&A is a way to fuel that growth. And so I think that's another driver. And then I was saying that there were pockets that were very attractive for people last year like defense, food, healthcare. In some ways I think that's pivoting and it's related to your comment about an industrial renaissance. And so not that those other businesses are not still favored and there are some very attractive attributes. But I think there is a rotation happening because listen, there's a ton of investment in US infrastructure and reshoring that's actually happening. Is that driven by tariff policy or AI? I mean there's a whole bunch of reasons on why it's happening, but it's clear it is happening. Yeah, that's a very good point, Doug. Can't ignore that trend. It's interesting. So like we take all this data and we'll make these predictions each year and we're surprisingly pretty good at it. Well, actually not that surprising because we're just being able to see what you all are doing in mass and then you roll the tape forward. One of the predictions was that there's going to be a manufacturing renaissance occurring both inside and outside PE and candidly that was one that I would have said absent the last like fourth quarter. I was like, oh, we're missing it like this is the one where we whiffed and then it just started taking off. And so like we're seeing it now. I think we're a little late, but it goes back to this whole conversation like you need stability in order to do some of these things and policy has impacts on these things. Every dog has it today. But it seems like now like the things that they had been putting in place are now able to be activated by you all. Is that a fair observation? I think that's fair. The reshoring, the reindustrialization, the trend back toward making things in the United States. That trend started some years ago and was going through periods of acceleration and deceleration. I think that's a trend that's going to continue. Private equity is definitely looking back into that space. And I think the best way to play it is with middle market participants. So you're well positioned, Sean. Don't sleep over it. It's not going to change. Sometimes they say a blind dog finds a bone or something like that. Well, just to build on your comment. As you think about that, ensuring my view is it has, have been floed and that's a byproduct of the economy and policy. But what I think has changed this time is I think there is a fundamental commitment and it's pretty broad consensus around decoupling from China. And a view around the concept of strategic industry, whether it's pharma, whether it's defense, whether it's semiconductors or artificial intelligence. We were thinking about 26 themes that you want to bet on. I think being aligned with the strategic industries that have the opportunity to grow at outsized levels because of that unshoring commitment, I think is interesting. And then especially for guys like Lloyd and I, I mean, like most of us don't really think about the market outside of the US. We're North American based focused. It's pretty tough put to be buying global businesses. We're uniquely well positioned to kind of play in some of those sandboxes. This kind of Renaissance point on manufacturing that you are talking about as a good one to maybe double tap on that. This is strategic. It's something where we realize that we kind of hollowed out a number of our core ills of our manufacturing capacities. And you have to be able to make things. Economics 101 works really well when everyone benefits with free trade. But if you lose your manufacturing capabilities, your ability to get key raw materials that puts you in a pickle these of the global dynamics that emerge right in the world is a 3D chess game. And so I think it's become very real that in the DC world and you all know better than me. But it's just like this is something we have to have. We can't just not have the ability to make things and have the materials to make things. And so we're pivoting maybe back a little bit probably towards more like a 90s past year where like we do both and we free trade. No, it is. And the trend you're describing some people would say has been in place for like 40 years since the 80s. The following out has gone through different periods since since the 80s and you're making me think about a time when we were looking at how to play a trend. We're looking at transportation logistics, which is an area we like a lot. And we were trying to find the service companies that support shipping because the US has a Jones Act, which protects shipping and mandates. Goods going to US ports can coming from US ports needs to be on US ships, crewed by Americans, etc. And so you have that protection, but you only had what maybe three shipyards in the United States. And so we were trying to figure out how to play that dynamic. And I suspect some of that's going to change. And some other private equity firms have played that pretty well, particularly around shipyards and shipbuilding. I think there's going to be more opportunities like that. One of the interesting trends that we're seeing is a lot of activity in the retraining of the workforce to be able to make things like ships. In using kind of the latest and greatest tools to accelerate learning. But it's like we got to rebuild the workforce that can do this stuff as well. And they're generally high paying jobs that required skill expertise. It'll be really interesting to see how this kind of rolls forward. Sean workforce robots. It depends on which coast you're on, I think. Clearly Sean didn't go to CES or any of the other tech gatherings at the end of the last year. Robots, that's a consideration. I think that's a fair point. One of the other things maybe as we start pivoting our conversation here until like what's coming forward that I just want to reinforce that I think a lot of people are sleeping on amongst the noise that comes from both sides of the polarity in the media and other places and not taking a side of one or the other. But I think it's not incorrect to acknowledge that there's polarity in a lot of the information that is put out there. But I think something that a lot of people are sleeping on within the churning the noise is that the economy is actually pretty good and it's strengthening. And I think it's going to be white hot this year for reasons that I'll share in a second. As we were looking at the year last year, we really started seeing GDP picking up going into the end of 24. It crashed in 25 with the liberation day and with a 12 day war. But then it took right back up. And so if you look at GDP going into Q2, it was 3.8%. Q4 is 4.3%. Q4 will see when it gets painted. But at least the Atlanta Fed was estimating in their GDP now estimate at upwards of 5% in the fourth quarter. And so we have a strengthening GDP. Part of that is labor productivity went from 4.9 versus 3.3 versus the year earlier in Q3. So you're seeing tons of productivity. And then PMI last year, so the manufacturing PMI, which measures whether they make more stuff than less and ship more stuff than less. Was expanding for 11 of the 12 months in December 2025. Before 25, it was really topsy-turvy. It was a fair bit of it was actually negative for long periods of time, which is why I think so much that the lot of the economy, particularly manufacturing, was in a recession. And then last thing I'll say is just the job market. It's still low to mid-4s, which is the hot end of full employment, almost too hot. And so I think the economy is certainly good enough and going to be strengthening. And I think with midterms coming on, the incentive really from both sides is to have a good economy, at least at your local districts. So there's going to be a lot of stimulus, including tax stimulus that's coming in. And reductions in regulation and compliance that's going to make this economy really boom in 2026. So I'm in a total agreement with the picture you just painted. And I would say the one thing that I'm surprised you didn't bring up was interest rate environment and inflation. I think the other kind of good news in that is I don't have the numbers in front of me, but directionally over the last several years, inflation's continued to come down. It's pretty close to target of 2.5%. And that's in spite of terrorists. So I think there's a really good argument around the tear of posture is going to normalize whatever it ends up being. It's not going to be such a contributor to inflation. And I do think a lot of the AI stuff that we'll talk about is a deflationary stimulus as well. And so I think the interest rate environment and inflationary environment looks pretty good as well. Sean and Doug, I understand the arguments that you're making. I get it. What I'd puzzle by is what to make of consumer confidence steadily declining. Certainly for the last three years and who knows we might be approaching 2020 levels with the most recent consumer confidence measure. Is there a barbell effect happening where there's certain parts of the population where the economy is good or the GDP stats that you're talking about are driven by the capital spend and all the trickle down effects of capital spending that's happening with data centers and AI and computing and infrastructure. But the vast majority of of people, consumers aren't feeling good. I don't know. Is there sort of a bifurcation of the economy? And I don't know what to make of it. So I throw that out there for the discussion. - It's a really good question. What's confounding about this is consumer confidence is declining, but they're still spending in a crazily resilient way. 'Cause that is the one thing we definitely do watch is the consumer debt levels. That has been stacking our consumers have a lot of experience over decades of carrying more debt than we should candidly. But they're still spending. Somewhat I wonder how much of that sentiment is a mirrored reflection of all of just the societal consternation that's going on across our country right now. And I don't know, but that's what my gut tells me. - Sean, I wouldn't have said that, but when I hear you say it, I think there's real merit to that. And then the other thing that I fundamentally believe happening is you never recover from inflation, right? So if you have three, four years of inflation, that is embedded permanently. And the wage has to catch up over time before people feel appropriately wealthy. I think we're gonna have to dig our way out of five years of average inflation of 5%. That's a big hole. I think that'll take some time. - Yeah, I think that's probably the simple, elegant answer, Doug. And we talked about interest rate environments. What little bit I read about, federal reserve policy, the thing they want to avoid at all costs is deflation. So to your point, inflation's permanently embedded because they're not trying to have prices ever go negative. So you just have to have time for wages to catch up on a real basis. - I just want to say thank you. No one in my lifetime has ever used my name and elegant in the same sentence. (laughing) I'll take it. (laughing) - That's funny. (laughing) - You know, you gotta take 'em when you get 'em. (laughing) Let's start turning the page here. There's still scary things going on. There's a lot of exciting things going on. I think we agree the economy is in the good enough phase. And there's still scary things that happen every day. But things are picking up pace. And I'll just put my cards on the table. I think we're entering into the next and have entered into the next three to five year growth cycle. I think it's gonna be more of a prototypical five year, maybe six, seven year, not the 15 year Fed fueled bender that we went through. And the prior one, I think we're gonna go through a normal cycle. But I think things are gonna continue to go better save the black swan like if something really bad that no one can guess happens. So if current course and projection, it's up up and away. And I'll tell you candidly, I've bet on this trend with my own stakes. And so we took capital last year with this in mind. We are hiring like crazy with this in mind. I've put my own portfolio towards growth. I am using the information that we're seeing in the data both externally and internally to say good things are going to happen. Save a black swan. I wouldn't say we're utterly un-hedged and drinking Kool-Aid like crazy, but I do think we're heading into good times or better times maybe. And so with that maybe, what are you all thinking on 26 and not meaning to persuade or bias the conversation? - I'm curious as you think about, you said you're putting your portfolio into growth. Do you define growth as growth companies or equity exposure broadly? - Equity exposure broadly. Like less cash more in the market. I feel the same way. I have a lot of conviction in, it's assuming we don't like shoot ourselves in the foot. I feel like there's a good five year runway and large part driven by AI, which we'll talk about. So I feel good about the economic backdrop and I continue to struggle with the aggregate market valuation levels. And it's the aggregate that I'm speaking to. I'm not saying it's overvalued, but I don't know how to get my head around some of the AI driven frenzy and valuations. And like I think the long term potential is there, but it feels a little bit 2000ish when everything that had internet related to it had a big run up and then it blew up. I don't think that that's where we are, but I do think that those parts of the market are certainly valued radically differently than the broader market. - I think that's a good point. In part the way I get comfortable on it is I'm betting on growth and productivity overall. And so I'm not really picking winners per se individually. I'm picking a broad set. What I will say for our listeners here, we are not financial advisors. (laughing) Do your own work, talk to your own advisors, make your own trades. Don't come back to us and yell at us on this. - And you may be better off by doing the exact opposite. (laughing) I could be indicative. - We should buy the Jim Kramer reverse index that you've seen, which outperforms the real Jim Kramer apparently. My son is an investor and that's Bradley. He's cooking on it. That's a different conversation. I just think the world is going to be increasingly better, not worse. That's where I, too, get nervous is the absolute values. But we're betting on productivity that's coming. And then personally, my portfolio also probably tends on the public market side to be more conservative in the equity exposures I have. - Back to the lower middle market private equity (laughing) discussion. At least in my mind, 2026 is going to be a really interesting year where people, myself, dog, everybody in private equity is going to be forced or have an opportunity to show how skillful they are, right? Because let's assume the very, very smart people at Bay and Aright and 12 is the new five. And so you need 10 to 12% EBITDA growth. Every opportunity that you look at, every portfolio company that you own, you have to think about how much of that growth and that growth thesis, whatever it is that you have, is actually within your control. How much of that can you drive? Do you, does your team, does your firm have the operational skill set to actually drive that procurement improvement or sales team improvement or go to market strategy or whatever it is that's driving your growth thesis? I think you got to ask yourself that question and be super honest about it. And if you are confident in your answers to it, then I think 2026 can be a pretty attractive opportunity year. If you waffle or waver on the answer as you look in the mirror to those questions, then you're going to have to roll up your sleeves and get to work. So 26 will be a grind. Hey, look, I'm just reflecting on your conversation. I'm going to throw something out here and I'm curious your reaction. I think the Bane report's super interesting. I think it's influenced by a large cap. I argument for us is eight is the new five, because I think embedded in our strategy, your strategy, my strategy is I'm professionalizing sub-scale businesses and I expect to achieve multiple arbitrage. If I can deliver a business that's integrated with scale on a good team. And so it gets back to where's the most attractive part of the private equity market in today's environment? I'm not disagreeing with that at all, because in order to capture that multiple arbitrage, that you and I are both speaking. Gotta do the work. You're selling two larger firms. And so that's why I think that mindset is still relevant, because that's who you're selling too. So if that's the lens that they're going to be looking at, your port co, my port co, they're going to try to say, like, okay, how much of 10, 12% growth that you put in, that I put into that port co is sustainable and going to continue. They're going to sit in the investment community and go, we're better at this than Lloyd is. So we think we can do it. (laughs) - Okay, you know that's what they think, but still. You gotta make it very plain for them to see that, right? - I'm with you. - But then who, that's how I think about 2026, Sean. - How about yourself, Doug? - What are you thinking? - I don't know that I have a whole lot original relative to what you guys have said, other than like the AI conversation. I mean, I think the AI initiatives discussion at the private equity level, both at the GP and at the portfolio companies is going to dominate. - I agree with that. I, some of my colleagues are probably like so annoyed with me because I keep bringing these things up. I'm pushing it in my port co's as hard as I can of convened the CTOs at some of these port co's. And these are still relatively small companies, but getting them to talk to each other and share ideas and share our best practices. And even at board meetings, they keep nudging them to get closer to the leading edge on what tools are available. Because we hired CTOs that are actual coders, they still remember how to code. And they know how to code differently using tools. The current AI said it tools, but that frontier keeps moving fast and you gotta keep pushing them to like keep up. Again, just this is from last week, two weeks ago, to board meeting, one of our CTO said, hey, this client portal that we had used to have four and a half million lines of code, I got it down to 800,000. And I was like, well, we had a conversation about what tools and how he did it. And he wasn't using the current tools. I just heard yesterday he picked up a set of tools and his eyes lit up. And so that 800,000 lines of code is probably gonna drop even further. So it's gonna be better, faster, cheaper, better you. user experience, better interface, it's going to be a better product for our clients. That's possible. If that's what you want to talk about, I'm happy to talk about it. I think the AI age is the single biggest innovation that's going to have an impact on our society and is impacting our society since the steam engine. Bigger than the internet. I don't know if it's up there with a wheel. It's pretty big. Things are going to start moving quick. It was interesting. I did a study on chat EVT and I was trying to look at the paces of innovation and I started with the wheel. I go, "Okay, so wheel, the next big innovation was powered sale." That was a couple thousand years. I'm going to screw up the actual individual periods here, but it's a couple thousand years. From powered sale, it went all the way to electricity. That was another thousand years. It starts going into 100 year blocks and then 50 year blocks. It starts going into one year blocks and it's going to be six year blocks. If you pick up in the 70s, you get mainframe computers. From mainframe computers in the 70s, you go to personal computer or the individual computer in the 80s. The 80s, you go from personal computer to the internet in the 90s. You're in these decade blocks. From the internet in the 90s, you go to the cell phone, like the iPhone that's got power and mid-2000s. Then you go to the cloud 10 years later. Then you go to AI. It's going from decade blocks to five year blocks to one year blocks. I think it's going to be like six month blocks now. When we looked at this year, we did our predictions and people can request our PE insights report and see these. Two of them where I talked about the deal market is going to continue to rebound and the US economy heats up. The other ones is like, AI is moving from Busy Buzzword, just like the internet was in 1995. It's actually real actionable tactic. You're going to get, because of Lloyd, what you're talking about, he's almost disposable software now. You can code so quickly. One of my neighbors, who is a PE back CEO and a tech company, he used OpenClaw to build an entire home automation system for him in a weekend that controls his entire house. Now, another caveat, I do not encourage people to use OpenClaw unless you really know what you're doing. I was a coder. You will be soon. I think there's going to be an explosion of choice in these software tools. It's going to be really hard to pick the winners. Lastly, to your point, Lloyd, I think there's going to be a huge bifurcation between the winners and losers in business. Those who run towards these tools will thrive. The rest are going to fight to survive. It will take some time for that to come to pass, but I think encouraging people that you work with to play, to try, to experiment. It's funny that you say software is disposable. Participating in class last August, one of the instructors, who's a serial entrepreneur, said exactly those words. It's like software is disposable. It doesn't have to be super tight and elegant. You just make it if it works. Go with it. When you don't need it anymore, toss it, when you need something else different, make it over a weekend. It's funny that you have the same experience. The ability to build a solution to a specific set of problems or specific problem or specific function is now easily done. You can do it. As I'm listening to you guys talk, what I think is so interesting about this topic for our community is the impact is multi-dimensional. As I think about it, we start at the GP. I think it fundamentally changes the way we run our business. Things like thesis development, things like efficiency, developing power points, all those kinds of stuff. That's pretty simple stuff, but it affects how we're running the GP. I think it has huge implications for which industries benefit versus which are disintermediated. You saw the huge drop in public company valuations for software businesses like last week or two. Dislocation by market, then the one that I'm personally most excited about, but it's also the hardest is how do you drive this innovation down at the portfolio company level? It's a leadership challenge as much as it is a technology challenge. At the firm level and then at the portfolio company level, we're still at the early days of we have super users and we have people that are strongly advocating. Then we got a lot of people who still aren't really convinced that it's ready for prime time. It's not like anybody's denying the potential, but it's so easy to say, "I just don't have the data right." We don't have the right training yet, and so my big pitch to everybody is just start using it yourself because if you don't take the first step, you're never going to be proficient. I think that you're 100% right, Doug. That's what I'm most excited about is how do you get this pushed down into the portfolio company, whether it's our portfolio company or there are any business owners who are listening in your different functions in your company, payables, receivables, accounting generally. The Office of the CFO has massive opportunities to use these tools to be more effective, more efficient, pricing, billing. Those are all areas I think that are ripe, and quite honestly, if you get it figured out and you get it organized in a way, that becomes part of, for Doug, you and me, our firm's playbook if you want to use that word. One of my mantras is create the impact by targeting small tasks. The tighter you can get on, what is the activity that I want to really get after here, the more manageable it becomes, and the more tangible the benefit is. When people see that, then I think you get Roman on them. You're both so right. It's so much of this is change management. Change is scary for everyone, right? It's in for me. It's too, right? Just so much of it is like, how do you get people to know it's in their best interest and kind of frame things? I give a book to our team that's a children's book. It's like one of those almost like, "Tear going on your cheek things when you read it," kind of a thing. But it's this book that I read called "The Boy, The Mole, The Fox, and The Horse." It's a British illustrator who wrote it. It's just such a timeless thing where he just talked about like taking on fear. It was supposed to be a life story and he turned into a book for his kids. It's being read by all these adults because the whole premise is like, people get caught up in like how far they have to go and like how scary the journey is. He just makes this really elegant point, just like Doug does, where he's like, "Hey, how do you take on a challenge?" It's to your point. It's one step at a time. Then don't just look at how far you have to go. Take a look back every once in a while and see how far you've come. Then it becomes so digestible. It's just like for me, it's like maybe it's my childhood self that I can never leave. They're like, "Oh, okay. Those are good things ahead." We've actually made a lot of progress already. It's like those little things, which I'm not always good at because I'm always look forward type person. Yeah, absolutely. Why don't we do this? I think it would be really good to delve deeper into this AI topic because I do think this is my topic of our age. Agreed. To your point, Sean, certainly it was helpful for me if we can find some people that can help our listeners and others get a better sense, a tangible sense for what is possible, what good looks like because maybe it won't be so scary once you see it. 100%. We'll look at different aspects of who we can bring to bear. I know there's a lot of people in our organization that are doing some pretty interesting things. We can talk about how this is impacting, in general, the topic of innovation. We could talk about, I think a lot of people are thinking about the office of the CFO. I think a lot of people are talking about this explosion of software options. Why don't we do a little series on this where we explore these systematically to equip our listeners to win? That's a good idea. Sounds great. Yeah. And, frankly, ourselves too, right? Any help I can get, I'll take. Exactly. I learned a lot from you guys on this topic because there's so much to learn. So it'd be great. All right. More to come here for our listeners. In the meantime, Doug and Lloyd really appreciate you all pulling back to the curtain as usual and being open and candid and demystifying kind of the art of business building and private equity, which you all and your firms do so well. Thanks, sir. Thanks, Doug. Thanks, Sean. See you guys next time. 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