Key Takeaways

  • Michael Bruun manages private equity investing at Goldman Sachs Asset Management, backed by a bench of over 110 operating partners.
  • Off-ledger assets like clean tech stacks and unified data architectures drive exit pricing when strategic buyers evaluate acquisitions.
  • Corporate carve-outs act as clean breaks, allowing sponsors to bypass legacy software debt and install modern data infrastructure during an initial J-curve period.
  • Strategic buyers with operational fit routinely outbid continuation vehicles for top-tier assets, giving sponsors their cleanest path to real distributions.
  • Long-dated continuation funds cannot replace the discipline of regular cash returns to limited partners across the fund lifecycle.

The Off-Ledger Value in Unified Data Architecture

Sponsors often assess targets through historical EBITDA compounding, but exit multiples now hinge on technical architecture. When strategic acquirers look at a target, they price the friction of integrating messy, fragmented systems. A company with fragmented databases and legacy software debt faces discounted bids because the buyer must fund the cleanup post-acquisition.

Bruun points out that these operational assets do not show up in traditional accounting: “One of the most important things that you can't actually see in financial ledgers right now is does this company have a good tech stack? Does this company have a homogeneous set of data? Is it a clean data set?”

Carve-outs provide the clearest venue to build that technical advantage. While separating an enterprise unit creates an initial operational dip, it gives the sponsor an immediate mandate to strip out parent-company bloat. Instead of slowly modifying legacy systems, the deal team deploys a modern stack on day one.

“The good news about doing carve-outs is however painful some people might think they are, it's also a line in the sand,” Bruun notes. “It's an opportunity to put the best tools into the company instead of changing a lot of legacy stuff.” When the sponsor builds clean data lakes across the holding period, the asset commands a premium at exit because the strategic buyer can integrate operations without a multi-year software overhaul.

Why Strategic Bids Beat Continuation Vehicles

Continuation vehicles have expanded as sponsors look for ways to hold quality businesses longer. Yet secondary structures face a structural ceiling when competing against corporate balance sheets. Strategic buyers who can capture operational efficiencies and shared distribution channels almost always pay more for top performers.

As Bruun observes: “The strategic investor with operational advantages should at most moments in time prevail, and that's certainly what we've seen in our strategy: that the well-performing asset where we have built that intrinsic value usually gets sold to a strategic buyer.”

Continuation vehicles offer liquidity options, but they do not solve the fundamental requirement of private equity: returning realized cash to institutional investors. Holding winners indefinitely inside secondary structures defers liquidity events and risks angering limited partners who need cash flow to meet their own capital obligations.

“You need to generate DPI along the way,” Bruun explains. “It shouldn't be one of those where you wait for 10 years and then you try and deliver everything in year 10.”

Why It Matters

This dynamic signals a shift in how sponsors view asset duration and exit design. As continuation vehicles face scrutiny from limited partners seeking real liquidity, the highest valuations remain concentrated in corporate M&A. Firms that spend their holding periods building clean, unified data architectures will capture outsized strategic premiums, while sponsors relying on financial engineering will face discounted exits.