AI冲击SaaS：私募股权杠杆收购风险引关注

Congratulations on this story. We talk a lot about the apocalypse, but this is really a deep dive into leveraged buyouts and what initially was so attractive to some of these private equity firms about software. That's where I want to start. Because, you know, there was this joke like, you know, oh, that software margins, the margins on these companies for so long was so high. And that was part of the attraction. Absolutely.

Because the better the margins, the more debt you can load it up with. Right. The whole basically private equity business model is to use that to lever up a company when they buy it. The debt is not borrowed by the private equity firm. The debt is borrowed by the target company being acquired. Please repeat that last part, because that is a really crucial thing when it comes to a lot of classic private equity. Also move.

Yeah, exactly. This is how private equity makes so much money. It's through leverage. But the key thing is that the private equity firm is not on the hook for that leverage. The target company is. And that's kind of what's at stake right now. Well, so let's talk about this because I think one of the things we keep thinking is it wants you to drop. Is it too shoes to drop. Is it a lot of shoes to drop? Because so far it seems to be manageable.

So tell us about kind of what we are, what we've seen, but why? Maybe the situation or environment is changing for some of these names. Yeah. So that's an important distinction to make. This last fall eclipse has not happened yet. Right, right. This is all about the fears that it could be coming. So at the heart of it, AI technology has a potential to disrupt existing software businesses that were considered pretty much fine.

And the fear is that, you know, you'll have certain types of software companies especially affected, you know, if you are providing software that's like the infrastructure layer of a company, probably okay, if you're doing data visualization and that's your main product, you can just plug that into Gemini or ChatGPT. And those business models could be especially at risk. Can you do that that easily like a fear point.

And that's one of the defenses people have, which is that, you know, if you're a big corporation, you have all your, you know, employee's using certain products. You're not going to have them just go off on their own and use AI. But, you know, cloud code has developed very rapidly and that's maybe taking the place of some products that would help software development. Is the concern specifically that with some of these types of services you describe and you write about, you would have internally, uh, people create some sort of program, maybe vibe coding or use cloud code to do this.

That would replace paying for seats of certain paying, like on a per seat basis for certain companies. Exactly. And the fear is that even if this doesn't fully disrupt revenue, it could chip away at it. Can you even just chip away at revenue growth? And that's where the debt comes in. I don't know. I'm still okay. We'll get I'm just still. So I'm still skeptical of the whole the whole thing that you believe that it's going to actually work and that companies are going to entrust exactly the data analysis.

Part of it has to do with part of it has to do with like the pipeline of innovation at some of these companies, like they're constantly iterating on their products and making their products better and better for their customers. I mean, that's the way it that's the way that it's worked. You can't just get, you know, one person within a company to create a, you know, to replicate something that they've been paying for with you for years.

And then but isn't that the updates and make it better and better? I don't know. I think this is I'm not trying to be a defender of all these, but mean like, no, I think this is the big question in this exact discussion we're having right now is what investors are trying to figure out, right? Is this a real risk? Is this not a real risk? And then you get to this point where, okay, I'm an investor. How do I pick winners and losers?

How do I anticipate winners and losers? And that's where a lot of the questions are right now. Yeah. But the thing is the bets have been made. The deals have been made, the debt's been issued. Right. So that who's at risk? Like let's, let's let's carry it out. Let's say there is a SaaS apocalypse. It's so hard to say, um, but let's say this does happen. What does that look like? Who gets hurt? What investors get hurt?

What companies get hurt? Who's on the line for the debt that ultimately doesn't get paid back or pennies on the dollar? So there are a lot of people who could be affected by this in the investment community. Um, so first let's talk about how leveraged buyout works. So when a private equity firm decides to do this kind of transaction, they typically have two types of debt markets. And I think we have a chart on this. I'm not sure.

So we'll bring it up and forgive for everybody on radio. But Paul is going to walk you through it. Yeah. So basically, you know, the way this works is that the private equity firm is buying a company and it can essentially finance some of that with his own equity commitment, which is just cash. And then it can finance part of that with debt. And when it decides to finance part of that with debt, it can have one of two markets, the public syndicated debt markets, that consists of high yield bonds and leveraged loans, or the private credit market, which grew very rapidly starting in roughly 2020 to compete with the high yield bond and leveraged loan markets.

That private credit component is very interesting. We should never discount the leveraged one on household bond markets. Those are still very big parts of this financing process, right. But private credit grew a lot. And they were also willing to do more aggressive deals than the syndicated counterparts. Um, and so, you know, having debt on your balance sheet really creates two problems for a company. The first is you have to pay the interest expense.

And the second is you have to refinance it. And both of those will have issues if revenue starts to come down at some of these companies. Right. And we just had a chart up, but it really shows, you know, what the buyer, the title on that graphic was how a PE fund can buy a $6 billion software company for $3 billion because they just put up 3 billion, and then they've got the lenders on the debt side putting up the rest.

Exactly. And so what we're seeing now is basically questions over how this will unfold. Because when a private equity firm levers up a company in this way, they're doing it because they believe that they can rapidly increase revenue and rapidly slash costs so that the company can basically grow over time to adapt to its large debt load. That means revenue has to grow, right? So if revenue growth slows, or even worse, reverses at all, that makes the debt potentially untenable.

Who's at the top of the debt stack here? So that would be the senior secured lenders. Is this varies depending on the exact structure. But notably the private equity firm is at the bottom of repayment. Right. Because the way debt works is basically the debt. Investors get paid back first. And if there is restructuring or bankruptcy, typically the equity is wiped out. Medallion is a very interesting example of this. It's important to note.

Medallion is a software company. Its problems predate the current AI. Concerns. It had its own set of issues, but not situation. Toma Bravo and his co investors lost $5 billion. One of the largest wipe outs in private equity in years. Well, let's talk about Toma Bravo. I mean, people who are, uh, watch or listen to our program. We've spoken to Orlando Bravo in the past. We spoke to him at Milken years ago in a different, completely different environment than it is today.

We weren't talking about a SaaS apocalypse, but no, h