Apollo's John Zito tells all: private equity marks are wrong, small software LBOs could recover 20-40 cents on the dollar
Mar 16, 2026
Key Points
- Apollo co-president John Zito says private equity valuations are systematically wrong, predicting mid-sized software LBOs backed by private credit could recover only 20 to 40 cents on the dollar.
- Zito expects Thoma Bravo's $20.2 billion Medallia take-private to trigger worse losses than anticipated, as PE-backed companies prove lower quality than public peers trading at higher valuations.
- Zito sees recession as more likely than not, citing forced AI spending and consumer confidence collapse as economic headwinds that will cascade to smaller, highly leveraged software companies.
Summary
John Zito, co-president of Apollo's asset management arm, told UBS clients in late February that private equity valuation marks are systematically wrong and smaller software companies financed with private credit face severe headwinds. The Wall Street Journal obtained audio recordings of the discussion.
Zito predicted that a generic mid-sized software company backed by private equity and loaded with private credit could recover only 20 to 40 cents on the dollar, a 60 to 80% markdown that dwarfs the 5% haircuts most private credit managers have taken so far. He singled out Thoma Bravo's $20.2 billion take-private of Medallia as a warning case. Lenders including Apollo have already written down its debt, and Zito expects the credit to deteriorate faster than the market anticipates.
The root cause, in Zito's view, is quality deterioration. Companies bought from 2018 to 2022 by private equity are lower quality than those that remained public and trade at much higher valuations. Public software company weakness driven by AI uncertainty will cascade down to smaller, more leveraged peers with fewer options to recover.
Zito also flagged forced AI spending as an economic headwind. Companies face pressure to show clear AI execution and are being pushed to deploy technology before it actually works. This artificial urgency marks the first step of a broader economic slowdown, and Zito views recession as more likely than not, specifically a consumer confidence-led contraction.
Zito expects private credit originations over the next 12 to 18 months to improve sharply in vintage quality, with better documentation, lower leverage, and wider spreads. He backs enforcing the typical 5% quarterly redemption limit rather than flexing for flooded withdrawal requests, arguing that bending in one quarter often looks like a really bad decision a quarter later.
Zito accused the private markets industry of arrogance and blamed media framing for whipping up private credit frenzy. His own positioning is defensive. Apollo's balance sheet is 95% investment grade, and he has positioned the firm to benefit from larger companies outperforming smaller ones. He expressed skepticism of the secondary private equity boom. Investors are eager to buy stakes in existing PE portfolios but nervous about private credit, which finances 80% of those same portfolios. That contradiction does not add up to him.
On macro, Zito painted a deflationary picture and cited technology attacking every profit pool. He suggested Powell is needling Trump with daily inflation commentary rather than reporting genuine price pressures. The high-yield bond market's flatness despite surface strength masks significant dispersion beneath the surface. Zito told his wife the market should be down at least 10%. What is keeping it afloat remains opaque to him.