Learn why SolomonEdwards’ Matt Pencek believes “zombie buildups” are stalling PE exits in 2026 and how firms can unlock value through disciplined integration instead of financial engineering.
In an era of higher interest rates and tighter multiples, the traditional “buy, bolt-on and flip” playbook is no longer enough to guarantee premium returns. For middle-market private equity firms, the path to value creation has shifted from financial engineering to operational excellence. In this interview, Matt Pencek, National Private Equity Services practice leader at SolomonEdwards, joins ABF Journal Editor in Chief Rita Garwood to discuss the “zombie buildup” phenomenon, the critical importance of the first 100 days post-acquisition, and the warning signs lenders should watch for when integration goes off the rails.
Rita Garwood: You specialize in helping companies navigate critical inflection points. What is the most common challenge that you see middle-market leaders face when they hit that high-growth wall?
Matt Pencek: What I always tell our clients is that revenue typically scales linearly, but operational complexity scales exponentially when you hit those levels of revenue. Most middle-market CEOs and CFOs are operators first and not integrators of add-on M&A. When your growth is coming from inorganic growth, that operational complexity explodes. Without a structured approach to integration — having the right ERP system, reporting and HR systems to absorb acquisitions — it can be degrading to the core business.
Garwood: How has your perspective on value creation changed from the early days of your career to the current interest rate environment we’re seeing in 2026?
Pencek: It’s changed a lot. In the early days, value creation really came from revenue growth and multiple expansion. We had a low-interest-rate environment, and that rising tide lifted all boats. You could paper over integration failures with cheap debt. Now, with base rates meaningfully higher than pre-pandemic levels, you really can’t financially engineer your way through returns anymore. Every basis point of EBITDA margin matters. The “buy, bolt-on, and flip” playbook only works nowadays if those bolt-on acquisitions are actually integrated. Otherwise, you’re just adding complexity and overhead. Margin improvement and cash conversion are the new value creation currency.
Garwood: When we met to plan this podcast, you used a term that I found really striking: “zombie buildup.” Could you explain what that is and why it’s becoming such a prevalent issue for PE firms?
Pencek: I refer to a zombie buildup as a private equity-backed platform that has made multiple acquisitions but never truly integrated them. On an org chart, they might look like one company, but they’re operating as three, five or 10 different businesses with siloed systems, P&Ls and cultures. They’re alive in the sense of generating revenue, but “zombie-like” because they can’t demonstrate the synergies of unified reporting and scalable infrastructure that a buyer wants to see. It becomes an issue when prepping for exit because valuation signs aren’t coming in at the premium expected.
Garwood: What specific back-office or procurement wins should firms be targeting for the first 100 days?
Pencek: Preparation starts during deal execution, prior to day one. In the back-office bucket, look at things like moving to a single payroll provider for immediate visibility into costs, unifying AP and cash management, and consolidating into a single chart of accounts. On the procurement side, look at the top 10 vendor contracts between the entities to drive pricing benefits through combined scale. This includes insurance policies and technology architecture. There is often redundant technology spend; you need a structured plan to come onto one tech stack, so reporting to the PE sponsor is efficient.
Garwood: How can a lender tell if a portfolio company is suffering from a temporary working capital lag or an underlying failure to integrate its acquisitions?
Pencek: I encourage lenders to take a look under the hood. Is this a one-time DSO spike due to a system migration or seasonal inventory build that can be explained with clear data? Or is it a failed integration? The symptoms of the latter are usually a persistent creep in DSO with no clear cause, margin compression across the acquired entity, or an inability to produce segment-level P&Ls. If you ask a management team to provide an entity-by-entity cash flow bridge and they can’t produce it within 48 hours, that’s a flag that the businesses aren’t integrated at the reporting level.