Don't sell to Private Equity

What does a PE firm want from a physiotherapy clinic? Why do they roll up many of them into one?

It works just like Thrasio. Thrasio is a roll-up of Amazon merchants. According to Vista Partners (they’re like “Suits” on Netflix, but somehow worse), all companies are like chickens. They have the same few problems. The sameness means they can all be rolled into one, slapped with 500 AI-driven workflows by operating partners, and voilà: you have an AI-first PT clinic whose contribution margin is better than those of SaaS.

Thrasio has closed down. Operating partners moved on to Ramp. Ramp was the off-ramp for operator PEs. So when I hear that General Atlantic is rolling up BPOs, my mind immediately goes to: “Which VC-funded company does a GA analyst go to, and can I buy that stock on the secondary market?” OK, enough of talking like a “parody PE bro” on Twitter. Let’s talk AI.

I get the lure of aggregating companies, slapping on AI, and reducing cost. It’s marginally exciting for three years because every company will have the same transformation initiatives in four years, and their margins will all look the same.

Someone who is an actual PE or more educated than me should explain this: do PEs care to stay ahead of the pack in terms of margins (and hence valuation), or will simple aggregation-led scale get them decent multiples and the AI unlock is just table stakes? I ask this because AI will lift everyone’s margins.

This brings me to my next question / thought exercise: new business lines.

At Moative, we do a bunch of interesting things that don’t neatly fit into the definition of consulting or product startups. I would call these “new lines of business,” not for us but for the companies we work with.

A case of this would be an industrial company doing something with AI that unlocks cost savings for them, but it’s so tied to understanding their engineering or production that it’s not very apparent—unlike RCM or accounting, where cost savings are easy to theorize from the outside in. One has to spend months, if not years, to realize the potential.

The big win is not when you realize the cost or time savings but rather the generalisable IP that you can take to similar companies. That’s a new line of business or startup, if you will. You, the industrial company, have the context and data. But why should a startup walk away with the residual knowledge and build IP out of it?

You have the data and know-how.
You hobnob with a dozen of your industry peers every summer in Vegas.
You know exactly where the value unlock is and how to sell that value—because you are the buyer, first and foremost.

I see this. Hence I don’t see the PE game of margin optimisation nearly as exciting, nor do I find the idea of funding a vertical AI startup that takes three years for product-market fit and yet won’t have the data and context.

Instead, we like helping our clients think big. They have the secret sauce. We can cook.

As any 15-year-old would say these days, “Let’s cook!”