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| The Daily Pitch |
| PE, VC and M&A |
| Your edge on global private capital markets |
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| Q&A: Francisco Partners on the software sell-off |
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| Dipanjan "DJ" Deb |
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By Rod James, Senior Private Equity Editor
It's been a chaotic February for investors in the software space.
The first week of the month saw a steep sell-off in tech stocks, driven by fears that AI could disrupt SaaS companies, a popular and profitable play for PE firms.
Dipanjan "DJ" Deb co-founded Francisco Partners in 1999. Today, he leads a $45 billion private equity and credit investment firm focused on technology- and tech-enabled services companies. It's known for doing complex middle-market deals, including carveouts and take-privates.
Deb spoke with PitchBook about the significance of the sell-off, the opportunities it has brought, and how to navigate the AI boom.
How are you thinking about the threat of AI in relation to your portfolio?
We've been preparing our portfolio since ChatGPT came out. Just because the stock market reacted [three] weeks ago, it doesn't mean anything has fundamentally changed.
People don't like change because it requires effort. Customers want to use their incumbent vendor, but they want the vendor to do better, to give them more tools and provide more value.
Is the reset in software valuations an opportunity for your credit business?
I think there should be. Most of what we do is direct origination, but we often buy loans trading at a discount.
We're definitely seeing opportunities to buy loans just because people are afraid. What you need to be able to do is not worry about the pricing at a moment in time. If you hold it to maturity, almost unequivocally, you're going to get par back.
You describe Francisco as a second- or third-order technology investor. How do you chart that course when AI is growing at such a furious pace?
They are losing tons of money. I don't know which of these LLM models will win, but history suggests not all of them can. Netscape was the first portal to the web, and Netscape no longer exists.
We have to figure out the implications of this technology for everything else in the ecosystem, and what is likely to get stronger. We're not in the Anthropics and OpenAIs, which can have huge returns. We're in a consistent, steady-as-she-goes business. |
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• Anthropic's acquisition of Vercept underscores the explosion of AI startup-to-startup M&A, which accounted for 38% of M&A deals in the sector globally last year. Find out more
• The gap between European and North American VC returns is widening as slower dealmaking and exits drag Europe further behind. Read more
• Private credit is the talk of the market, but not for the reasons its boosters would want. Blue Owl's recent actions have drawn scrutiny of the asset class—and highlighted concerns for individual investors. Go deeper |
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| Mapping PE stocks' horrible February |
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By Jacob Robbins, Jordan Rubio and Rod James, PitchBook News
It’s been a rollercoaster ride for the stocks of some of the world’s biggest PE firms.
Since Feb. 1, the shares of Ares, Blackstone, BlackRock, Apollo Global Management and The Carlyle Group declined on average by more than 16%, while the S&P 500 Index was relatively flat.
Driving these companies down, analysts say, are fears of an overheated credit market and of AI upending the SaaS market.
"The private credit scare trade—much like and in tandem with the AI scare trade—has really walloped the group this past month," said Greggory Warren, senior equity analyst at Morningstar. |
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Investors have been spooked since Blue Owl began restricting withdrawals from one of its private credit funds, sparking broader concerns about liquidity access. That has been coupled with fears that AI will weaken the SaaS portfolios of several firms.
Firms with greater exposure to private credit, such as Ares and Blue Owl, have been hit the most, with their stocks down 29% and 26.7% YTD.
New tariffs imposed by the Trump administration Monday were another bump in the road for publicly listed PE firms, caught up in a broader market sell-off triggered by fresh uncertainty linked to the Supreme Court's ruling and the president's workaround.
Some US PE executives have expressed frustration about the damage that tariffs, a flagship policy of the second Trump administration, have done to business sentiment, though their concerns remain largely private for now.
Stock prices of the major listed PE firms rose after the president's inauguration but haven't hit that height since.
"These are macro-exposed names," said John Barnidge, an equity research analyst at Piper Sandler covering KKR, Apollo and Brookfield. "You're just seeing all of these things coming together, causing a lot of market volatility." |
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Smart reads that caught our eye.
• Anxiety around the job market is causing Bain and McKinsey to start recruiting early. To catch up with the adjusted schedules of investment banks and get top talent, the firms are already looking for college interns for summer 2027. [Bloomberg]
• Having been the first to crack retail PE, Switzerland's Partners Group is now being outflanked on its own turf as US giants muscle into the market it pioneered. [Financial Times]
• For the first time in over three years, the US mortgage rate is below 6%, but the drop is likely temporary and won't have a lasting impact as supply constraints impact the housing market. [Reuters] |
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