It’s a common story in procurement: "We are backed by private equity and therefore financial monitoring isn’t necessary."
In reality, private equity ownership can sometimes amplify financial risk rather than reduce it.
The recent unraveling of Medallia illustrates why customers should not take ownership as a proxy for health, but focus on the underlying financial health of their suppliers. Ownership is a consideration; it just doesn’t mean a company is strong or weak.
Medallia
In 2021, Thoma Bravo acquired Medallia for $6.4 billion in one of the largest software buyouts of the year. Like many buyouts, the transaction relied heavily on debt. That debt became unsustainable when rising interest rates and lower-than-expected growth came into play.
As a result, Thoma Bravo walked away and relinquished control of the business to lenders such as Blackstone, KKR, and Apollo Global Management. That transaction alone is expected to wipe out around $5 billion of equity value, making it one of the hardest-hit software losses in recent years.
For Medallia’s customers, many of which are among the world’s largest enterprises, the consequences extend far beyond investors’ losses. Financial distress of a critical vendor may create operational disruption, service degradation, reputational risk, revenue loss and uncertainty.
Why Ownership Does Not Equal Stability
Private equity sponsors can provide expertise and capital, but they may also employ leverage to enhance returns. That leverage introduces obligations that can become problematic when operating conditions deteriorate.
When a debt-heavy company encounters pressure, management priorities can shift from innovation and customer service to liquidity preservation.
This shift can manifest in subtle but meaningful ways. Product roadmaps may slow, hiring plans may be delayed, support functions may be streamlined, and infrastructure investments may be deferred. Borrowers may also become increasingly reliant on amendments, restructurings, or covenant relief to remain compliant with lender requirements.
While these actions can help conserve cash in the short term, they gradually erode a supplier’s ability to deliver consistent service and maintain operations.
Then there are interest rates to consider. Most leveraged private equity portfolio companies have borrowed floating rate debt. This means they pay more in interest when rates are high. For a company that borrowed in a low interest rate environment like in 2021, the interest expense is radically higher in 2026, siphoning cash out of a business otherwise expected to go towards all the other things that may make a good supplier a good supplier.
Broader Stress in Private Credit
Medallia isn't an isolated event.
The private credit market is showing growing signs of strain. In the first quarter, KKR’s largest private credit fund reported a $560 million loss as a rising number of loans moved into default. Among those were loans to Medallia and Affordable Care.
At the same time, “shadow defaults” are becoming increasingly common. These include payment-in-kind (PIK) restructurings, maturity extensions, and mid-deal amendments that allow borrowers to avoid default while signaling financial stress.
According to analysis from Lincoln International, these restructuring events have more than doubled in recent years.
Why This Matters to Supply Chains
Suppliers don’t fail overnight.
Financial deterioration leads to underinvestment and operational compromises that are difficult to detect through traditional monitoring.
As liquidity tightens, suppliers may postpone maintenance, reduce quality assurance spending, stretch payments to their own vendors, experience higher employee turnover, or miss critical product and service milestones.
These pressures weaken resilience long before a bankruptcy filing occurs. To be clear, not all distressed companies fail. The number of bankruptcies in a supply chain is not the appropriate measure. Companies in weak financial health that affect business performance, is the measure to protect.
For enterprise buyers, the consequences can include service interruptions, product quality issues, cybersecurity vulnerabilities, delivery delays, and sudden contract renegotiations. In regulated industries, these disruptions can also create compliance concerns, as organizations remain accountable for the performance and stability of their third parties.
Ultimately, the impact extends beyond the enterprise itself. When a critical supplier falters, customers may experience delays, degraded service, or other disruptions that directly affect their experience and trust.
Financial Health Is the Leading Indicator
Ownership structure and valuation are useful context, but they should never be taken as indicators of financial strength.
The critical question is whether a supplier has the financial health to withstand stress while continuing to invest in its operations.
Regulatory guidance underscores this as well. Interagency guidance from the Office of the Comptroller of the Currency, Federal Reserve System, and Federal Deposit Insurance Corporation makes clear that companies are responsible for understanding and monitoring the financial condition of their third parties on a continuous basis
This is why predictive financial health analysis is essential, so organizations can identify emerging risks before they become operational disruption, regulatory issues, or customer-facing failures.
The Medallia situation underscores an important lesson for procurement and risk leaders: private equity backing does not eliminate supplier risk. In some cases, leverage can leave suppliers more vulnerable to changing market conditions.
Whether a company is sponsor-backed, publicly traded, or privately held, financial health remains the most reliable indicator of resilience.
