Middle Market DealMaker // Winter 2023

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ANASTASIA DONDE Senior Editor, Middle Market Growth adonde@acg.org

Finessing the Funnel

When you talk to business development executives, you inevitably end up discussing “the funnel”: that ratio of opportunities that firms look at compared to how many result in an investment. Sellers, buyers and intermediaries are all thinking about how their time is best spent and how they can get to the right deals quicker.

In our second annual installment of Business Development Professionals to Watch, some of the most successful players in the field discuss which strategies work for them. In light of weakening market fundamentals, some firms say they are seeing less deal flow from investment banks. Others think financial advisors are running more targeted processes: going to a short list of prospects they think will be more likely to bid or buy. This increasingly means buyers need to get in front of sellers early and often to make sure they are not missing out on quality opportunities.

Several private equity firms now say they are running on a “thematic investing” platform, which involves identifying sectors or subsectors they think will be fruitful for the next several years and using their networks, existing portfolio companies and their management teams to find deals or add-ons in those areas. Many are relying on Grata and other search engines to narrow down the opportunity set more effectively. Technology also comes into play with business development professionals using sophisticated CRM systems to track deals they looked at in the past. They can evaluate which worked or didn’t work—and why—to try to use past experience as a guide for where to focus their efforts in the future.

Some of the brightest stars in middle-market business development across private equity, corporate development and investment banking share these tips and more on pgs. 38-67. Katie Oswald, managing director in business development at Crossplane Capital, who was featured in last year’s BD list, also talks about the expanding demands of the BD role in her In Perspective column on pg. 12. And our feature story on pg. 68 discusses the nuances of sifting for quality late-stage startups at a time when many are getting hit hard by market headwinds. Read on for more tips and tricks of the trade. //

STEVE CASTINO Chair of Finance, ACG Board of Directors, and Chief Growth Officer, Rehmann

On the Road Again

With the pandemic increasingly receding into the rearview mirror, my colleagues and clients have gone back to our normal travel schedules, and I expect business travel to be even more robust this year. Getting back on the road has shown just how much people in the industry miss traveling and networking in person. While virtual events and Zoom still have their place, they are no match for face-to-face meetings and breaking bread over a meal with clients.

To that end, we’re excited about many networking opportunities at ACG this year. The newly rebranded DealMAX conference will take place at the ARIA Resort & Casino in Las Vegas in May. Many Capital Connection events across the country will also offer dealmakers and service providers a chance to link up in person.

This issue of Middle Market DealMaker focuses on business development, highlighting some of the standout BD professionals of 2022 and underlining strategies that work to bring in deals and new business. In-person meetings and conferences are especially important for the business development function.

While dealmaking is expected to slow down this year, it won’t grind to a complete halt when there is so much money sitting on the sidelines at private equity firms. According to PitchBook, there is $1.2 trillion of private equity dry powder available to put to work. We’ll definitely continue to see deals getting done, but at a time of high interest rates and deepening inflation, they might be financed with more cash than leverage.

A slight slowdown might also be a welcome change, as 2021 and part of 2022 were still very busy. Private equity executives, investment bankers and service providers oversaw an overwhelming amount of activity in the past two years, so a slight breather could be due.

A challenging environment can also prove to be a boon for networking, as people need to get out there more and make connections when deals are hard to find. In-person meetings will be even more valuable when the path to closing transactions might be lined with roadblocks. I look forward to seeing some of you on the road in 2023 and continuing to get deals done despite market headwinds. //

MIDDLE MARKET DEALMAKER // WINTER 2023 EDITION

PRESIDENT AND CEO

Thomas Bohn, CAE, MBA tbohn@acg.org

VICE PRESIDENT, ACG MEDIA

Jackie D’Antonio jdantonio@acg.org

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ART DIRECTOR, ACG MEDIA

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SENIOR DIRECTOR, STRATEGIC DEVELOPMENT

Kaitlyn Gregorio kgregorio@acg.org

68

Learn about the private equity, investment banking and corporate development professionals you need to know in 2023, including their proudest accomplishment in 2022, their goals for this year and the best career advice they’ve received.

IN THE

FOREST

Sky-high valuations for late-stage startups in recent years have drawn unicorn hunters from all corners of the investing universe, including private equity and growth equity funds. Yet as the dynamics in the venture capital market have shifted, PE and growth investors are treading carefully in search of high-quality businesses—and hoping their owners are willing to sell.

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Trend Watch

THE LATEST IN DEALS, FUNDRAISING AND PEOPLE MOVES IN THE MIDDLE MARKET

DEAL ROUNDUP

M&A trends from the fourth quarter signal an expected slowdown.

IN PERSPECTIVE: PRIVATE EQUITY

Crossplane Capital’s Katie Oswald on how the PE business development profession has evolved.

14 16 20

IN PERSPECTIVE: INVESTMENT BANKING

Stout's Eric Welsch discusses guiding investors through challenges and opportunities.

FOCUS ON FUNDRAISING

Why continuation funds have staying power.

ON THE MOVE

Recent hires and promotions among middle-market investors and advisors.

Our Middle Market Multiples report published in December offered data and perspectives from sources pointing to slower deal activity in 2023 because of worsening market conditions. The last quarter of 2022 already showed some of that expected slowdown— with sponsors seeing less deal flow from banks, lenders being increasingly cautious about which loans they take on, auctions taking longer to close and companies being more meticulous about getting their house in order before going to market.

Although year-end data wasn’t yet available at the time of writing, several investors and advisors say the end of the year showed less activity than usual. How bad things are getting depends on who you talk to. Investment bankers are often optimistic about deal flow because M&A is their bread and butter, while private equity firms are being selective and mostly focusing on addons. Lenders are especially cautious in this environment to avoid deals that could result in defaults.

“Bankers tend to focus on continued market strength while private equity is talking about a readjustment on pricing,” says Bob Goldsmith, founder and president at Northern Edge Advisors, a New York-based lower middle-market investment bank.

Still, several mid-market firms announced deals in December. Wind Point Partners’ Smart Care bought refrigeration company Refrigeration Anytime, while Cornell Capital’s Ingenovis Health acquired Springboard Healthcare, a healthcare staffing business. Gryphon Investors-backed Right Time also bought a Canadian HVAC business, Dunn Heating and Air Conditioning, in December.

Many firms transacting today are

DEALMAKING IN THE YEAR AHEAD

Deal activity at the end of 2022 pointed to an expected slowdown, as investors focused on bright spots and took longer to scrutinize companies

BY ANASTASIA DONDE

sticking to the sectors they know best, companies that might be more resilient in a downturn and, increasingly, smaller deals and add-ons.

“We were funding a few deals at year-end, but it’s less than we thought we would, as a slowing economy and higher financing costs took hold,” says Art Penn, founder at private credit firm PennantPark. “We’re in the careful and cautious camp—not putting it all into the market right now. This environment is going to last a while, so it necessitates careful deployment.”

Buyer and Seller Motivations

Bankers noted that owners of smaller, founder-run companies might still be motivated to sell, especially if they’ve been through several bear markets.

“Just because they can’t get the highest price, doesn’t mean they won’t sell. This is about individual people’s lives and needs. Some people need to retire. There are different drivers than in the public market,” Goldsmith says.

“There are a lot of founders who have been through a number of recessions and events who don’t want to go through another one,” agrees Stephen Rossi, managing director and co-founder of investment banking services at Palm Tree, who oversees the firm’s middle-market investment banking arm out of Los Angeles.

From the buyer perspective, private equity firms are scrutinizing deals. “They want to have more visibility on how the company will perform in a downturn,” says Goldsmith. “Lenders

also want your numbers lined up. The info has to be readily available, sometimes on a monthly basis as opposed to quarterly.”

Extending the timeline for launching and running an auction could prove to be a smart strategy in this environment, sources say. Companies have more time to do quality of earnings work and can show a longer period of performance through a recession.

Palm Tree’s Rossi says he hasn’t seen as much of a slowdown in middlemarket M&A, but there is a huge gap from one term sheet to another and deals are taking longer to close. “It’s taking longer to find the right partner at the best terms and price,” he says.

Several sources noted that while 2021 was very busy and many firms were rushing to get deals closed at the end of the year, the slower pace at the end of 2022 could be a welcome change. Bankers said in 2021 that they were telling some companies to wait to launch until 2022, so they would have more time to put materials together.

The mindset at the end of 2022 was a bit different than the year prior, with fewer deals in the market, ample time for prep work and more opportunity to get everything in order before launching a process. “In 2021, there was a blizzard. Last year, from the third quarter through the end of the year, it’s been kind of moderate, a lot of add-on acquisitions,” says PennantPark’s Penn.

Some companies are waiting on the sidelines for market conditions to improve, but Palm Tree wants to launch sooner, before market conditions worsen. “We’re in a recessionary and inflationary environment, and those concerns will continue to be a drag on availability and cost of leverage, and valuations,” Rossi says. But he’d rather start the auction process. Most transactions take six to nine months to close nowadays. That gives investors a longer time frame to get comfortable

with a company and its performance through a macro downturn.

Sector Trends

PennantPark is continuing to focus on its core sectors, especially defense and government services that could see more activity from the new defense spending bill that will raise salaries for service members and authorize military aid for Ukraine and Taiwan. Home maintenance and healthcare will continue to be strong, Penn says, while he’s more cautious about the consumer sector.

Palm Tree’s Rossi cites healthcare, technology and business services as areas with strong tailwinds. “Those sectors tend to be where the flight to quality is going. Some areas of concern are companies related to consumer buying trends or those with large international supply chains, especially from Asia,” Rossi says.

Despite the negativity toward consumer deals in this market, investors are still cherry-picking companies in the sector. Palm Tree closed a consumer services deal right before Christmas. “It was a great company with good cash flow, and we were able to get past investors’ knee-jerk concerns around the consumer industry,” says Rossi about the company, which he couldn’t yet name. “The particular sectors where this business plays tend to be recession-resistant, but there were a lot of groups that said, ‘Because it’s consumer, I just can’t touch it right now.’”

New Water Capital also didn’t shy away from the consumer sector. The Boca Raton, Florida-based private equity firm invested last year in Klosterman Baking, a Cincinnatibased bakery that makes a variety of breads, donuts and other products. The company is a fourth-generation family business, whose owners wanted to cash out, says Jason Neimark, managing partner at New

Water Capital. “The company needed to bolster its systems and processes and improve its management bench,” he adds. New Water Capital stepped in with those services and brought in a new CEO previously with Custom Made Meals, a food business that New Water Capital used to own. “It’s consumer nondiscretionary, recessionresistant and had good growth but also operational challenges that can be tackled,” Neimark says.

New Water focuses on special situations, deep value investing, carveouts, transitions and turnarounds: areas where the firm still sees a lot of opportunity, especially now. In the lower middle market, the firm often looks at small businesses that don’t have sophisticated processes or systems in place and could use an operational upgrade that an investor can bring to the table. “Sometimes they’re just run by the family checkbook,” Neimark says.

In December, New Water’s portfolio company LUXIT Group acquired a lighting manufacturing facility in Tennessee from Proper Group International. “The facility adds multicolor injection molding, anti-fog, and hard coating and assembly capabilities in a strategic location close to many of LUXIT’s customers,” a press release from the firm said. The asset was sold out of a large restructuring situation where the sale helped Proper Group’s lenders get the most value, says Neimark. Going forward, New Water is focusing on the OEM auto space, industrial technology and other manufacturing and consumer businesses.

“We have a saying that you can fix a bad business, but you can’t fix a bad industry,” Neimark says, so the firm targets areas where it believes fundamentals are still sound, despite market headwinds. //

ANASTASIA DONDE is Middle Market Growth’s senior editor.

PRIVATE EQUITY

Over the past decade, an increasing number of private equity firms have introduced the full-time business development role. Executive search firm BraddockMatthews estimates that the number of private equity BD professionals in the U.S. has increased by more than 300% since 2016. The BD role serves as the face of a private equity firm among intermediaries, including sell-side advisors, accountants, attorneys and other sources of deal flow.

While the core of the BD professional’s responsibilities remains the same—to fill a firm’s pipeline with actionable investment opportunities—the role has evolved significantly over the past decade, and the expectations of the position continue to expand.

The deal landscape in the middle market has never been more competitive, as the number of private equity players grows, technological advancements make the dealmaking process more efficient and the trend of smaller sell-side processes emerges. Simultaneously, there is a growing number of investment bankers, brokers and other sell-side advisors.

Business Development Goes Next Level

To effectively stay top of mind with the hundreds of relevant intermediaries, business development professionals must network creatively, differentiate their firms and build meaningful, long-lasting relationships. The best BD professionals utilize comprehensive knowledge of their firms’ portfolio companies, operating experience and strategic capabilities to effectively position their teams for inclusion in competitive sell-side processes. Finally, BD professionals must screen thousands of investment opportunities each year to ensure their investment team’s time and resources are utilized efficiently.

Sourcing Differentiation

BY KATIE OSWALD, MANAGING DIRECTOR, BUSINESS DEVELOPMENT, CROSSPLANE CAPITAL

All BD private equity professionals use conferences, in-office meetings, Zoom meetings, calls and city trips to develop and maintain strong intermediary relationships. The most efficient BD professionals utilize technology and datadriven CRM systems to understand where their time is spent most effectively, maximizing the probability of sourcing success.

The scope of the BD role keeps growing

To cultivate relationships with the most relevant advisors, BD professionals are hosting specialized, more intimate events that foster true connection. These smaller gatherings are more memorable and enjoyable. This past October, I hosted a group of 30 advisors from across the country for a pickleball tournament in Dallas with the Crossplane Capital team, and I plan to host similar events in the future.

When it comes to add-on acquisitions, business development professionals are smart to develop relationships with portfolio company management teams. These executives are intimately knowledgeable of their competitors and often already possess relationships with potential add-on targets. In my experience, conversations with prospects can span several months, if not years. I track these ongoing discussions and provide insight and updates to the investment team on a regular basis.

Portfolio Company Knowledge

The most effective business development professional possesses in-depth knowledge of his or her firm’s portfolio companies. This includes both current and past portfolio companies and can include the careers and experience of the investment professionals and operating partners prior to their private equity roles.

The BD professional’s ability to speak in-depth about a firm’s experience through current and past portfolio companies, as well as prior operating experience, is crucial during discussions with advisors, who seek firms with relevant experience and capabilities for their sell-side clients.

For example, my role includes conveying the track record of the Crossplane Capital team, which has decades of collective experience transforming industrial companies

as senior executives, operational improvement consultants, strategy consultants and restructuring advisors. That experience enables us to drive value at lower middle-market companies that are looking for an operationally oriented partner.

Conveying a firm’s unique expertise is especially important for investment opportunities that are brought to market in smaller, more targeted processes. A private equity firm must have an angle on the opportunity to be considered in these scenarios.

The ability of the business development professional to speak comprehensively about portfolio companies helps develop strong relationships with advisors, who appreciate the chance to get smart on a firm’s portfolio companies years in advance of potentially pitching for a sell-side mandate. As the Crossplane Capital portfolio has expanded into 31 investments, including eight platforms and 23 add-on acquisitions, my conversations with advisors focus heavily on trends we are seeing at our companies and our plans for growth, both organically and through acquisitions.

Filtering the Funnel

The best business development professionals not only source a high number of actionable investment opportunities through their networks but also serve as the initial strategic screen for these opportunities to ensure that the

time and resources of their investment teams are allocated efficiently.

To determine which opportunities are most relevant, a BD professional must utilize a clear grasp of his or her firm’s investment mandate beyond just size, industry focus and transaction dynamics. In my role as the first reviewer of opportunities, to assess whether a company is a good fit for our fund, I evaluate market share, industry niche, customer concentration, pricing power, commodity risks, value creation opportunities and other criteria. Collectively, this process screens out most companies. In a typical year, I will source over 1,000 opportunities but will screen out over three-quarters of these companies. Roughly onefourth of the total opportunities I review will be presented at our weekly investment team meeting. This is not necessarily because the opportunities sourced are bad investments, but rather because they are not a fit for Crossplane’s specific mandate and our strategic and operational strengths.

In the years to come, the most effective business development professionals will continue to network creatively, building strong relationships with relevant intermediaries. They will utilize comprehensive knowledge of their firms’ portfolio companies and operating experience, and they will add value to their investment teams by efficiently screening thousands of investment opportunities each year. //

KATIE OSWALD is the managing director of business development for Crossplane Capital, a private equity firm based in Dallas investing control equity in industrial business services, niche manufacturing and valueadded distribution businesses. She focuses on sourcing and evaluating new investment opportunities and supporting portfolio companies with their growth initiatives.

The role has evolved significantly over the past decade, and the expectations of the position continue to expand.

INVESTMENT BANKING In Perspective

A Q&A with Stout’s Eric Welsch

Stout’s head of financial sponsors discusses guiding private equity clients through turbulent times

Q: How is the opportunity set for 2023 shaping up so far?

A: After 2021’s near-perfect capital market conditions shaped a year characterized by exceptionally favorable M&A and financing dynamics, we found that 2022 was characterized by disruption across many dimensions of the capital markets due to inflation, labor market constraints, rising rates, supply chain issues and broader geopolitical factors. The resulting volatility and uncertainty caused many business owners to pause to take stock of their own outlook and risk appetites, and to explore the nuances of buyer and seller expectations in a lower valuation environment partially impacted by less robust debt financing. Stout’s bankers have been focused on helping our clients properly assess their options and market conditions. As 2023 has begun, we are thoughtfully bringing several new opportunities to market and are in advanced discussions about many others.

Q: Which sectors do you expect will be more attractive this year and why?

A: I’ll call out two sectors of focus at Stout where we expect robust activity in 2023 and beyond. The first is in home healthcare, an area of expertise for us (led by John Calcagnini) that is attractive for private equity as it presents a lower-cost treatment setting compared with extended acute care hospital stays or longterm care settings like skilled nursing. Patients generally prefer to be at home, and providers with home health models can increasingly serve this growing demand. We are active with companies that utilize statesupported family caregiver models for the Medicaid population; skilled home care companies that provide

ERIC WELSCH, MANAGING DIRECTOR AND HEAD OF FINANCIAL SPONSORS, STOUT

higher acuity services; and private pay agencies.

Another area of strong activity for us that is attractive to private equity is auto aftermarket (led by Steve Rathbone). Growth is being driven in part by the increasing average age of vehicles on the road in the U.S., which in turn spurs demand for parts, repair and collision services, and wheel and tire replacement. Greater complexity and technological advancement in vehicles are also stimulating the need for more specialized and sophisticated collision, repair and maintenance services, benefiting scaled providers. E-commerce within the auto aftermarket space also continues to lead the sector from an overall growth rate perspective.

We are working with a variety of companies and sponsors across both home health and auto aftermarket as private equity firms seek opportunities to back innovators and consolidators in these growing and highly fragmented markets.

Q: What are you hearing from financial sponsors about their sentiment and willingness to do deals in the current environment?

A: Most financial sponsors we work with are eager to find unique, differentiated investment opportunities. There’s been much discussion over the years about the growing reserves of dry powder in private equity. And that’s certainly a factor supporting deal appetite. However, history and hindsight also tell us that some of the best private equity investments (and fund vintages) date to periods of economic disruption like the one we are in now. Sponsors know this and are focused on trying to not only pursue the best deals, but also on working with bankers to uncover hidden opportunities and strategic situations that might require more creativity. That doesn’t mean investors aren’t

going to be disciplined in sale processes. In fact, it’s quite the opposite. We believe most private equity investors are leaning into their areas of past success and experience to find differentiated new investment opportunities. Similarly, with regard to exits, financial sponsors holding high-quality businesses will continue to have strong opportunities to sell.

Growing businesses that are winning based on differentiation, scale and consolidation opportunities are usually better positioned for success. Because private equity takes a relatively long-term view on creating value, paying up for great companies despite over-equitization and higher borrowing costs today still makes a lot of sense. For any given business, there are almost always several larger sponsors that see opportunity to back those businesses for the next four to six years to create even more value.

Q: What’s next for Stout’s financial sponsors group?

A: Since I joined Stout in 2022, our leadership team and I have been focused on hiring senior, experienced investment bankers into our financial sponsors group to lead and orchestrate strategic relationships with our priority sponsor clients. Our vision is to have a team of FSG bankers who are accomplished dealmakers acting as key trusted advisors to their sponsor clients and portfolio companies

while working closely with our industry, product and capital markets bankers. This seamless collaboration across our broader investment banking team, as well as with our experts in our valuation advisory and transaction advisory businesses, will enable us to deliver a uniquely committed partnership experience to our clients.

Q: What’s your advice to younger people starting out in investment banking?

A: First off, be deliberate about the people you choose to work with and with whom you align yourself. Try to surround yourself with colleagues, clients and mentors who have positive energy and demonstrate good intentions in their work and interactions with others. Nurture those relationships and friendships, and find ways to build your career progression around them.

Secondly, obtain robust and varied deal experience across a variety of M&A transaction types, industries and across the capital markets, including the debt and equity capital, private capital and fundraising markets. It’s important to have a thorough understanding of how these financial markets fit together and impact M&A, especially in volatile periods like the one we’re in now.

Lastly, look for windows to create entrepreneurial opportunities alongside professional friends and partners when they present themselves. Don’t be afraid of taking risks and trying new things when you can leverage your capabilities, professional relationships and create clear value for yourself and other key stakeholders.

ERIC WELSCH is a managing director and head of financial sponsors in the investment banking group at Stout. He has over 20 years of experience in investment banking and capital markets.

PE investors are leaning into areas of past success and experience to find differentiated new investment opportunities.

IN IT FOR THE LONG HAUL

Continuation funds are here to stay.

catch on, the continuation fund is a way for LPs to keep supporting them.

BY KAREN SCHWARTZ

This investment structure has gained a foothold as a tool for private equity general partners to release their investors from commitments if they’re interested in moving on, or it can provide more exposure to familiar assets for those that want to stay. The vehicle is usually set up by a GP to house one or more investments from a previous fund that the PE firm is not ready to sell. The GP can then roll existing limited partners into the new structure or find new investors.

For a fund with an underperforming asset, a continuation vehicle provides an alternative to selling during volatile market conditions. Meanwhile, for companies in growth markets with strong assets that are just starting to

ECP, Zenyth Partners, QHP Capital and Waud Capital Partners are among the fund managers that closed continuation funds in 2022, taking advantage of the market appetite for this type of investment. Of that set, ECP’s raise was the largest, with $1.6 billion in capital commitments. ECP in June 2022 announced that the fund had signed an agreement to acquire a portion of power company Calpine Corp., along with a consortium of investors from its funds ECP III and ECP IV.

If market conditions worsen this year and LPs have less capital to deploy, continuation funds can offer a way for investors to stick with names they like. “I think they’re going to be completely relevant,” says Jeff

Continuation funds are extending the runway for companies that might not be ripe for an exit, especially as market conditions get choppier

Edwards, partner at Raleigh, North Carolina-based private equity firm QHP Capital, which in November announced a single asset continuation fund backing global contract research organization Catalyst Clinical Research. “They’re an extra tool for the industry to use,” he adds. And if the global economy goes through a recession, he says these funds can balance investors’ needs for liquidity without forcing GPs to sell in an arbitrarily low valuation environment.

Gaining Momentum

The use of continuation funds has dramatically increased in the last few years, though they have been around for about a decade, says Peter Laybourn, a partner with law firm Ropes & Gray’s asset management practice. The firm was involved in $110 billion worth of continuation fund transactions on the LP and GP sides in 2021, according to Laybourn. The firm advised QHP and ArcLight Capital Partners on the formation of their continuation funds.

The standard holding period for private equity is often five to seven years; continuation funds started out as a tool for sponsors to manage assets they couldn’t easily unload after that time frame. Continuation funds offered a way to return capital to LPs or move assets to be able to liquidate an existing fund.

In both single- and multi-asset continuation funds, companies are moved from legacy funds to give sponsors another exit opportunity and a broader market for capital. “In particular, lots of the sponsors we have been speaking to over the years have expressed a real desire in holding a specific asset for a longer period of time, controlling an asset because they think it will continue to perform well,” Laybourn says. “You may have other sponsors willing to take over the asset, but there’s a lot of appeal

to having the sponsor that knows the asset, that has generated attractive returns, manage the asset.”

Lots of money has pooled into funds that are designated to participate in continuation vehicles, he says, adding that sponsors are increasingly raising dedicated pools of capital for this purpose.

“For the secondary fund making the investment in the continuation vehicle, they know which asset they’re acquiring,” Laybourn explains. “The potential for better economics is there and management fees are usually lower than you’d see in a blind pool private equity fund, so there’s some economic incentive to do these direct deals versus direct deals with a blind pool.”

Setting Up Shop

With many constituents to satisfy, the amount of work necessary to execute a continuation vehicle makes it a less attractive option for some firms than raising a blind pool. “I was surprised how difficult it is, but the investors that do these said it was very easy. I don’t have any plans to do another one anytime soon, but it is a structure that is available to us,” says Edwards.

Edwards also acknowledges that, when viewed from an LP standpoint, continuation funds raise concerns about conflicts of interest that GPs should take seriously. “You can’t just say, ‘We’re going to go create a continuation fund’ and get someone

to put capital in the fund and buy the fund,” he says.

The consent of LP advisory committees is key to mitigating conflicts of interest. LPs need to be consulted every step of the way, Ropes & Gray’s Laybourn adds. “There’s a healthy dynamic that keeps some checks and balances on it,” he says. “The existing investors or advisory committee will have to provide consent to do the transaction. They’ll give the sponsor some real-time feedback on what they think about it.”

QHP Capital’s recent continuation fund is primarily made up of new capital, although most current investors rolled over into the fund. Some LPs that had available capital increased their stakes, while others rolled what they could, Edwards says: “When you’re in Q3 or Q4 of a funding year, allocations are spoken for.”

It’s unusual for such a high number of investors to opt into a continuation fund, as many LPs want to take their money off the table and allocate it elsewhere, Edwards notes. “People must really like the asset or believe in what you can do with it,” he adds. His firm used a placement agent as part of its process, though it was speaking with investors that were already involved with multiple continuation vehicles. “I think we have a very global footprint, so our investors see the churn of these vehicles so often that they’ve gotten quick at looking at them and underwriting,” he says.

Weighing the Options

Sponsors with continuation vehicles have more time and capital to maximize value for investors, explains Mark Boyagi, a partner in Kirkland & Ellis’ Investment Funds Group. In 2022, Kirkland’s secondaries practice advised on more than $100 billion in deal volume, including transactions for Wind Point Partners, Trinity Hunt Partners, Waud Capital Partners and Vance Street Capital.

At its best, a continuation fund deal is an ‘everybody wins’ kind of transaction.

MARK BOYAGI, Partner, Kirkland & Ellis

2022 Highlights: Continuation Funds

“From a sponsor perspective, you don’t want to sell a crown jewel asset to a third party if you believe there’s room for significant additional growth and you’re best placed to realize it over an extended hold period,” says Boyagi. “At the same time, LPs are subject to their own internal drivers, and so offering them an option to lock in gains at an attractive price can carry a lot of value. At its best, a continuation fund deal is an ‘everybody wins’ kind of transaction.”

In most cases, LPs elect to sell instead of taking part of the continuation fund, adds Boyagi. “Sell rates at the moment are high, which I think is a reflection of macro conditions and the desire for liquidity among LPs,” says Boyagi.

Changing market conditions could slow deal flow in the short term, says

QHP’s Edwards, since in a downturn, it takes time for prices to fall in the private markets. “You may have a period where fewer deals are being done because investors and sponsors may not be willing to take a reduced price for an asset, especially when you have market conditions that could turn right around,” he says. That means sponsors with single-asset continuation vehicles might be more likely to wait to lock in the desired return for investors, if they can.

There’s a difference of opinion at present between secondary buyers and GPs on valuation, Boyagi explains: “There’s been a bit of a staring contest in the last six to eight months between the buy-side and the sell-side on these deals. I think it’s a temporary phenomenon—the underlying rationale for these transactions isn’t

going anywhere, whether you’re a GP, a secondary buyer or an existing LP.”

In the first half of 2022, before macro conditions worsened, there was movement back toward multiasset deals, he says, largely because of secondary fund LPs’ desire for diversification. Single-asset deals are still getting done, just not with 2021’s frequency.

In any case, Boyagi points out that GPs overall remain incentivized to do deals, LPs want the transactions to be offered to them for accelerated liquidity, and secondary buyers are dedicating pools of capital to it: “We think it is just going to continue to grow.” //

KAREN SCHWARTZ is a business reporter who has covered M&A, loans and trends in the U.S. and Latin American markets.

Source: Press releases, media reports, SEC filings

Six Leading Practices for a Successful Post-Merger Integration

Are you resourced for an efficient and effective post-merger integration?

Few mid-sized companies are equipped with all the people, processes, and technology integral to achieving valuable post-close results — not to mention, the ability to handle data, applications, and infrastructure to integrate the new company and drive the multiples you’re expecting.

Depending on the scope and scale of the transaction, what happens from Day 1 to Day 120 can vary greatly. A wellexecuted and communicated plan for that critical transition period can help reduce delays, unnecessary costs, and longterm unfavorable consequences. For a smoother handoff from the deal team to the integration team, think about these six priorities when planning the days following the close:

1. Document everything and assume nothing. Memorialize the value creation strategy. What is the integration approach? Where is the value? And what’s the timeframe to realize this value? When these factors are defined, the integration team can set the right priorities and repeatedly communicate those priorities throughout the early integration phase.

2. Prioritize consistent communication between key players. The right hand needs to know what the left hand is doing. That does not mean constant meetings between every member of the M&A team, but the moving pieces — e.g., M&A leaders, operations personnel, and the finance team — must regularly sync with each other. Set an early expectation for communication cadence.

3. Agree on the ultimate goal. Is the goal of the transaction an absorption, a mere holding, or a true integration? Agreement on the end game can create a solid common strategy, quiet the noise around non-priorities for the near term, and universally define what success looks like in 0 –90 days, 90 – 120 days, and beyond.

Written by: Amy Moore CLA Principal

4. Realistically assess team skills and what’s missing. In smaller companies, everyone on the integration team has a day job, and few have the experience or bandwidth to handle one-time tasks and niche elements of M&A. For most companies, it’s the first time they’ve been through such a transaction and the learning curve is steep. If you don’t have time for training or to do the job efficiently, consider contracting outside talent that regularly handles these types of transactions.

5. Make the target visible. What do new stakeholders expect to see in terms of reporting? In order to keep stakeholders properly informed, the integration team needs operations diligence and a plan for data amalgamation.

6. Understand (and respect) the culture. Every transaction will affect people — employees, customers, partners, and suppliers. Recognize the impact, plan for it, and communicate what you know when you know it. Focus on value creation for each audience.

As early as possible, right-size the project team with a collaborator who understands the nuances of the middle market, has nimble processes, a broad range of knowledge and expertise, and — most importantly — the ability to execute.

For more information on post-close transaction strategies, contact Amy Moore at amy.moore@CLAconnect.com or 781-402-6346.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment, or tax advice or opinion provided by CliftonLarsonAllen LLP (CLA) to the reader. CLA is an independent network member of CLA Global. See CLAglobal.com/disclaimer. Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor.

REBECCA O’CONNELL

Rebecca O’Connell was appointed to executive vice president and New York City metro market executive at Citizens Bank.

O’Connell has more than 25 years of experience as a banking executive and senior management consultant.

Before joining Citizens, she was managing director-region head, NYC metro, Long Island, in the apparel industry group at JPMorgan Chase.

She previously held roles of increasing responsibility with Bank of America as senior vice president, global commercial banker and director and working capital advisor, northeast region.

DAVE SHEPHARD

Seattle-based lower middle-market private equity firm Rainier Partners hired Dave Shephard as director of portfolio operations.

Before Rainier, Shephard worked at Bain & Co., where he managed teams focused on private equity due diligence and strategic challenges for leading companies across the consumer, technology and industrial sectors.

Before that, Shephard served as a combat arms officer in the U.S. Army where he held a wide variety of strategic, operational and leadership positions.

DAVID PRENDERGAST

New York-based private equity firm Enhanced Healthcare Partners named David Prendergast to principal, head of business development.

Prendergast joined EHP in 2019 and was vice president of business development before his promotion. Prior to EHP, Prendergast served as vice president of business development at Waud Capital and as a vice president at Great Point Partners. Before that, he worked as an associate at Summit Partners.

Maryland-based private equity firm FVLCRUM Funds hired Jason Lee as vice president. He will focus on managing FVLCRUM’s legacy portfolio and provide due diligence and portfolio company support for the current fund.

Lee recently worked as a managing partner at First Alta Management. He held several titles there, including interim chief financial officer and board member of Spineloop, a medical device company, and strategic adviser of Pure Vita, a tech-enabled medical supply company.

He also served as managing director of Muirfield Management Group, a Los Angeles-based family office, where he was responsible for joint venture partnerships investments and growth strategies across a broad spectrum of industries and verticals.

JASON LEE

MICHAEL NELSON AND DAVID GAU

Chicago-based family investment firm Pritzker

Private Capital (PPC) named Michael Nelson as managing partner and David Gau as chief operating officer.  The duo replaces Paul Carbone, a co-founder, president and management partner, who is stepping down from day-to-day management of the firm.

Nelson was previously head of investing at PPC where he led the sourcing and execution of new partnership opportunities with growth-focused middle-market businesses in the firm’s core sectors. In his new role, he will continue to lead PPC’s investing efforts and will oversee the firm’s investing and partner relations teams.

Gau was partner and head of operations before his promotion. He will continue leading PPC’s team of operating professionals and will oversee the firm’s internal operations team.

Nelson joined Pritzker Private Capital in 2012. Prior to that, he was a managing director at Chicago-based middle-market private equity firm Wind Point Partners, where he led investments in the specialty manufacturing and packaging sectors. Gau joined PPC in 2014. Before that, he was the chief executive officer of Intersystems, a manufacturer of material handling equipment for agricultural and industrial applications.

MATTHEW HUDSON AND SPENCER LIPPMAN

Global investment bank Houlihan Lokey hired Matthew Hudson and Spencer Lippman as managing directors in its business services group.

Hudson is leading a dedicated sector coverage team in Baltimore, while Lippman is based in the Houston office.

Before joining Houlihan Lokey, Hudson was a managing director and head of rental services investment banking at Oppenheimer & Co. He was also a director at CIBC World Markets and vice president at FBR Capital Markets. Before that, he worked as an associate at Deutsche Bank.

Prior to joining Houlihan Lokey, Lippman was the managing director in the rental services investment banking group at Oppenheimer & Co. Before Oppenheimer, he was an associate at Genesis Capital and an analyst at Silverton Capital Corp.

Before joining Piper Sandler, he was a managing director, covering the automotive aftermarket industry at Lazard for more than 10 years. He started as an associate at Lazard and was promoted several times, eventually holding the managing director title when he left.

Prior to Lazard, he was an associate customer account manager at Epicor Software and a national account representative at Black Box Network Services.

JAMES REILLY

Investment bank Piper Sandler hired James “Jim” Reilly as a managing director. He will co-lead investment banking coverage of the vehicle aftermarket space in the Minneapolis office.

DOUGLAS PALMER AND THIEN VAN TRAN

Tysons, Virginia-based middle-market investment banking firm Ascend Capital Group appointed Douglas “DJ” Palmer to managing director and Thien Van Tran to director.

Palmer has worked in global M&A, corporate strategy, private equity and investment banking for about 15 years.

At Ascend, he’s held many titles, including director and vice president. He’s currently an official member of Forbes Financial Council. Prior to Ascend, he worked as an investment banking associate at District Capital Partners, as an investment banking associate and investment banking analyst at Evergreen Advisors, as a senior associate and associate at PricewaterhouseCoopers and as a financial analyst at Deloitte.

Van Tran has spent 10 years focusing on M&A, capital raising, corporate finance and investment banking at a variety of firms.

Prior to Ascend, Van Tran was vice president in investment banking at Evergreen Advisors and a management associate at Regions Bank. He began his career as a mechanical engineer at the Space and Naval Warfare Center.

DAVID BROWN

David Brown recently joined investment bank Raymond James as managing director and head of strategic limited partner relationships. For more than 20 years, Brown has worked with private fund sponsors and limited partners.

Before joining Raymond James, he spent eight years with Moelis & Co.’s private fund advisory business, serving as the head of North American distribution. He was also the co-head of private equity and real estate advisory at Greenhill & Co.

Prior to Greenhill, he worked in the private funds marketing team at Lehman Brothers and as head of public funds distribution at New York Life Investment Management.

SHARI YOUNG LEWIS

Chicago-based private equity firm Cresset Partners hired Shari Young Lewis as a managing director in the private funds group. She is focusing on private equity funds and co-investments across buyout, platform buy-and-build and other control-oriented strategies.

Before joining Cresset, Lewis was a partner in the private equity practice at Aon Investments. She focused on buyout, growth equity, venture capital, private credit and infrastructure investments.

She is an Illinois Growth and Innovation Fund council member and she’s on the Midwest Steering Committee for the Women’s Association of Venture and Equity. She’s also an active member of the Private Equity Women’s Investor Network and serves on the board of directors for the Little Giraffe Foundation.

DREW MOLINARI, NICK STONE AND LISA VULIC

Cleveland-based private equity firm Cyprium Partners promoted Drew Molinari and Nick Stone to partner and Lisa Vulic to chief financial officer and chief compliance officer.

Molinari joined Cyprium Partners in 2008 and has more than 18 years of experience in mergers and acquisitions and private equity. Before joining Cyprium, he was associate, corporate development, at Agilysys and an analyst at Brown Gibbons Lang.

Stone has been with Cyprium since 2007, leading the firm’s origination and marketing activities since 2016. He’s held various titles at Cyprium, including managing director, director and principal. Before joining Cyprium, he was a director at Key Principal Partners.

Vulic joined the firm in 2004 and has held various positions since then, including senior accountant and controller. Before Cyprium, she was a senior accountant at Key Principal Partners, corporate tax analyst at Ceres Group and tax compliance specialist at Ernst & Young.

LOUISE HUSIN

Palo Alto, California-based private equity firm

HGGC named Louise Husin as chief talent officer, a newly created position.

She will manage all aspects of talent acquisition, talent management and development, organizational planning and employee engagement and will oversee HGGC’s diversity, equity and inclusion initiatives.

For more than two decades, Husin has worked for major companies and private investment firms in talent management, recruiting, leadership development, DEI and C-suite hiring.

Before HGGC, she worked at private investment firm Freemont Group, where she was the chief people officer. She also held roles as the human resources director at BlackRock, human resources manager at Williams-Sonoma and human resources manager at Bechtel Corp.

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What’s Next

EMERGING INDUSTRIES AND TRENDS IN DEAL SOURCING

28

NEXT TARGET

A pet wellness business leader makes the case for the industry’s resilience and why recession fears shouldn’t hold back investors.

32

BEHIND THE DATA

Grata’s Nevin Raj details how business development professionals can engage with prospects in a more personalized way.

34

ON THE HORIZON

Findings from GF Data offer insight into the current challenging environment, and how private equity transactions compare to those led by family offices.

36

ON THE HORIZON

Experts from Troutman Pepper outline five innovative approaches to evaluating privacy and cybersecurity aspects of a deal efficiently and effectively.

PUTTING THE PET CATEGORY’S

REPUTATION TO THE TEST

Pet food and at-home testing kits are among the retail categories expected to prove resilient through a downturn

BY CAROLYN VALLEJO

Pets have become members of our families, a culture shift that has owners seeking gourmet food, premium toys and advanced health and wellness care. With more U.S. households than ever welcoming a cat or dog, spending in the pet category has reached new heights.

Historically, the pet industry has been seen as recession-proof. But with inflation and recession concerns mounting, will pet owners’ insistence on spending more for higher-end products and services continue in today’s environment?

“There are a lot of nuances in the question,” says Dave Shephard, director of portfolio operations at middlemarket private equity firm Rainier Partners. He adds that, broadly speaking, the current economic climate will indeed impact the pet retail market. “But it will be felt harder in certain categories than others.”

For the most resilient niches, the investment opportunity remains strong.

Testing Its RecessionProof Reputation

The number of U.S. households with pets and the amount of money owners spend on their animals have never been higher.

According to the American Society for the Prevention of Cruelty to Animals, nearly 20% of U.S. households acquired a cat or dog since March 2020, while a separate analysis from the American Pet Products Association revealed a 16% year-overyear increase on pet spend in 2021, reaching $123.6 billion.

According to Shephard, while some of the consumer spending categories that experienced a boost

during COVID have now returned to pre-pandemic levels, the increased spending on pet products and services has remained elevated.

That’s good news for pockets of the pet industry should a recession materialize. While some owners may pull back from opening up their wallets for discretionary items like premium toys, other categories remain non-negotiable.

Pet food is one of the more resilient spots in the market, Shephard says. Earlier this year, Rainier acquired Pet Food Express, an omnichannel pet food retailer that Shephard says has several advantages amid high inflation.

As an independent, regional retailer, the company can be more nimble than big box stores or directto-consumer e-commerce outfits when responding to quickly changing customer behaviors. He also points to Pet Food Express’ high-touch customer service, which enables employees to point customers toward more affordable high-quality food products.

Even as growth in pet ownership levels out, Shephard says the outlook for retail remains strong.

“I don’t think we’ll see the same growth in pet adoption or pet ownership moving forward that we saw during COVID,” notes Shephard. “However, we do think that ownership will be relatively sticky, so it has provided a really strong base of growth, and I think it will provide a fairly resilient customer segment or market over the next several years.”

Identifying Market Gaps

As pet owners demand elevated products and services, Jen Hagness, CEO of pet wellness technology startup MySimplePetLab, says the pet retail opportunity goes even further than gourmet food.

“We’re seeing a lot of growth on the

retail side of the business,” she says. “Wellness is not just about food and treats anymore. It’s about how you care for your pet.”

Founded out of a rebrand in 2019, MySimplePetLab offers at-home health test kits for pet parents to supplement pet care in between veterinary visits. Pet owners can either purchase the kit in-store or online to screen for the most common nonemergency pet ailments. They then mail samples back to MySimplePetLab and receive results within about two days.

Hagness says the company identified a major gap in the market. As owners seek higher quality care for their animals, they’re also finding that vet appointments are harder to come by, with the surge in pet ownership. “Clinics are at capacity,” she says. “Most clinics are turning patients away daily, so if you can’t get in, let’s drop a test and see what’s going on.”

The business is positioned to serve pet parents as well as vets themselves, providing test results in easy-tounderstand language for owners and standardized formats for vet clinics.

Hagness emphasizes that the company doesn’t aim to replace vet visits but to provide supplemental care for overburdened providers, while adding value for clinics by improving the overall customer experience.

Wellness is not just about food and treats anymore. It’s about how you care for your pet.

JEN HAGNESS CEO, MySimplePetLab

MySimplePetLab’s growth strategy is to fill the gap left by today’s undersupply of veterinary care, while preparing for the pet wellness landscape of tomorrow. With consumers growing more comfortable with telehealth visits and at-home testing, Hagness says they’re now demanding the same flexibility when accessing healthcare for their cats and dogs.

“What we’re seeing on the animal health side is, veterinarians are going to have to do things differently going forward,” she notes. “What got us here won’t get us there. They ultimately need to provide parents with more ways to get care that is not in-clinic.”

Moving With the Challenges

So far, Hagness says, MySimplePetLab has tested just under 50,000 kits. The company anticipates more than doubling that volume next year as it expands lab capabilities and technology.

Investors have already taken note. Earlier this year the company secured seed funding from two individual strategic investors, and in September, the business announced its $5 million Series A raise from the Companion Fund, which is dedicated to investing in pet care startups.

While about 75% of the company’s operations are currently focused on working with vet clinics to sell tests, Hagness points to retail as one of its most promising expansion opportunities, with new retail partnerships in the works.

Those collaborations also support MySimplePetLab’s expectations for industry changes ahead, with pet health and wellness predicted to shift beyond the confines of the vet’s office and into pet product stores, groomers, daycares and more. “We’re playing in animal health and in retail, and we largely think that’s going to

help cross-pollinate and create more access to care,” says Hagness.

MySimplePetLab may help usher in at-home and telehealth for pets, allowing pet parents to access vet care without having to make an in-person appointment. But some of that expansion will depend on external factors, including regulation.

Currently, rules surrounding veterinarian client-patient relationships vary state-by-state. In Oklahoma, for example, a pet owner can obtain veterinary services virtually without first seeing the vet in-person. But in California, where telemedicine regulations are among the strictest, a vet must first physically see an animal before providing telehealthcare. Even then, a vet cannot provide treatment via telehealth unless a medical condition has already been diagnosed in-person. Hagness remains confident that lawmakers will catch up to pet owners’ needs. “I think we’re going to see more connected care,” she says, “and the legislation is going to continue to evolve.”

Growth for the business will

also rely on veterinarians’ ability to embrace the evolution of their practice. Clinics will need to trust and become familiar with receiving test results from a new third party, providing care remotely and collaborating with other participants in the pet health and wellness market.

And, not least of all, growth will depend on the pet industry’s ability to live up to its recession-proof reputation. Just as Rainier’s Shephard is confident in the food retail space, Hagness remains bullish on pet healthcare technology over the next five years.

“We’re pretty optimistic on the market,” she says. “There are definitely challenges, but the reality is, you’re not going to change the way you think about caring for your pet. You might look for new solutions and services, but our pets are part of our families, so it’s our job to make those experiences as simple and approachable as we can.” //

CAROLYN VALLEJO is Middle Market Growth’s digital editor.

The BD Teams Acting Like Sales Teams Are Closing More Deals

How a personalized approach can lead to more engagement with prospects

NEVIN RAJ Co-Founder and COO, Grata

Only 9% of mass sales emails get opened, according to Gartner. Despite this fact, PE business development teams still send mass emails, customized with nothing more than an executive’s name.

There’s a better way to do cold outreach: segmenting lists and leading with unique insights. Sales teams have been experimenting with these strategies for years and found that open rates dramatically increase when an email educates the reader about their industry or addresses a challenge they face (a 14% increase globally, according to a Mailchimp report).

“Company owners have told us on many occasions that they receive numerous calls on behalf of private equity firms,” says William G. Freels

III, managing director at M&A consulting firm Andra Partners. “And the fact is that many do not want to sell their life’s business to any firm that does not understand and know their sector well.”

From the onset, BD teams face the same challenges as sales teams— encouraging a recipient to not only open and read their email but to respond to it. Executives are busy. BD professionals have approximately 11.15 seconds to answer why an executive should read their email and also respond and begin a conversation with their firm.

Hedging their bets, many firms take an easier, less personalized approach, but there’s value in engaging with targets differently.

Thematic Sourcing Fuels Segmentation

A thematic, strategic approach to M&A breaks down an investment thesis in the industrials sector into specific categories, like “manufacturers of cryogenic equipment.”

With more specific categories, BD professionals can craft emails to those business owners that highlight a firm’s expertise in their specific subsector. And that kind of value proposition can increase open rates, meetings taken and deals closed.

With a broad investment thesis like industrials, you may see 1% of 1,000 email blasts respond. With segmented

Targeted Outreach Can Increase Deal Flow by 10x

outreach, you will see your close rate improve.

Thematic sourcing does not mean sacrificing the number of opportunities in your deal pipeline. In fact, the opposite is true. If you have a more effective sourcing method, you can cover more companies at the top of your funnel.

Thematic Outreach Requires a Deal Sourcing Platform

If the results are so dramatic, why aren’t more dealmakers looking to thematic sourcing to boost deal flow? Many firms have not invested in the right tools to accomplish this kind of customized outreach.

Without the ability to search by industry (“Industrials”), by business model (“Manufacturing”) and by keyword (“Cryogenic equipment”) all in one place, BD teams cannot map campaigns effectively. You need to find these companies before you can reach out to their executives, and you cannot find these companies without a deal

sourcing platform like Grata.

There’s a new way of sourcing called deep search that incorporates industry and keyword search in the Grata platform. This deep search capability has driven a new form of BD outreach that incorporates sales teams’ secrets about how to pitch.

Leaders in investment banking are already approaching outreach this way. “By utilizing marketing and deal outreach email campaigns with targeted contacts and highly tailored messaging, we experience open rates in the 40%-50% range and click rates in the 10%-20% range,” says Patrick Nolan, president at investment bank Nolan & Associates. “We have shifted away from a mass marketing approach to our communications by coupling Grata’s data with industry-specific messaging that provides value to our network of business owners.” //

NEVIN RAJ is the chief operating officer and co-founder of Grata, a private company intelligence engine for middle-market dealmakers.

There’s a better way to do cold outreach: segmenting lists and leading with unique insights.

Investors Brace for a Bumpy Ride

While market conditions are increasingly challenging, private equity firms and family offices will still compete for high-quality assets

The state of the M&A market heading into 2023 recalled the classic movie moment when Bette Davis, as aging Broadway diva Margo Channing, turns to her timorous friends and snarls, “Fasten your seat belts—it’s going to be a bumpy night!”

We’re not there yet.

GF Data’s completed deal data through the first nine months of 2022 featured valuations remaining elevated—actually edging to recent overall highs—on deal volume down markedly year-over-year.

The third quarter was also the first period in which successive Federal Reserve interest rate increases over the course of 2022 fully permeated senior pricing on M&A transactions. Initial senior pricing for the quarter averaged 6.5%, up nearly 200 basis points over the average for the prior period. Junior capital rates showed little comparable increase.

However, what was not yet reflected in the data was movement in debt availability, as distinguished from movement in cost. We share in the general anecdotal sense of retreat in cash flow-based lending since Labor Day.

It’s not surprising that increased borrowing costs did not dampen valuations as of late last year. Let’s imagine a $6 million EBITDA business selling for $48 million. Let’s say the deal is done with 3.5x senior and no sub debt. That’s $21 million. A 200 basis point increase in borrowing cost is $420,000 in year one. Adjusting for interest deductibility, that’s about $250,000. Whatever assumptions one chooses to make about principal repayment, the present value of the added cost is a low seven-figure amount. Not a big mover in our $48 million deal.

The “bumpy night” the market is girding itself for is the combination of an icing over of leveraged finance markets, continued signs of a coming recession, lingering inflation and sundry other macroeconomic worries.

Our year-end 2022 data will be released shortly. We can provide a sneak preview and say that by year-end, these market effects did translate into long-anticipated valuation retrenchment in selected industries.

For now, we can make these observations about the state of the M&A market, perhaps as participants reach for their seat belts:

• While deal volume is down, mid-market

M&A as a market remains extraordinarily competitive. Average purchase-price multiples reached record territory through

ANDY GREENBERG Founder, GF Data BOB DUNN Managing Director, GF Data

Total Enterprise Value (TEV)/EBITDA—Buyout Transactions Only

the third quarter, and deal structures migrated to agreements that allow sellers to take chips off the table but still retain some upside, such as leveraged recapitalizations and deals with significant earnouts.

• Amid a market with more questions than answers, we decided to analyze transactions over the last several years from funded private equity groups (PEGs) versus those led by family offices and fundless sponsors (referred to as just “family offices” going forward). We found that while the old truism of family offices paying less for deals remains true, these groups have been forced to pay more in the last seven quarters than they had previously.

• Multiple increases for transactions sponsored by family offices have been far more muted over the last two years. When looking at buyout transactions only, the average purchase price for deals led by family offices reached 7.0x trailing 12-month (TTM) EBITDA through the third quarter of 2022, an increase in the third quarter, an increase of 0.2x over full-year 2021 and 0.3x over 2020, versus a multiple of 7.4x in the second quarter. This compares to a third quarter average of 8.2x for deals led by PEGs. Private equity deals averaged a half-turn higher for 2022 through the third quarter, coming in at 7.6x versus 7.5x for all of 2021 and a big jump from the 7.1x average of 2020.

• Family offices are putting in less equity on average in their transactions than their peer private equity groups. For the first three quarters of 2022, equity commitments by family offices average 45.8% for all deals and 52.4% when just platform deals are considered. This compares to an average of 51.8% and 58.6%, respectively, for PEG-backed deals.

• Family offices are also less likely to include rollover equity in platform buyouts they sponsor than PEGs. These groups employed seller rollover equity in

46.2% of deals tracked through the third quarter of 2022 on average to just over a turn of EBITDA. Meanwhile, private equity groups employed rollover equity in nearly 65% of transactions, and it amounted to 0.4x EBITDA more on average.

• And finally, family offices on average employed more debt on their transactions in 2022 through Q3 compared to private equity firms investing out of a fund. Total debt on platform transactions sponsored by family offices in the first nine months averaged 3.6x EBITDA compared to an average of 3.4x EBITDA for transactions sponsored by PEGs.

The one area where we see little difference between family offices and private equity groups is a predilection for high-performing companies with above-average financials, which we discussed in some detail in our last commentary for Middle Market Growth. (As a refresher, we make these designations based on trailing 12-month EBITDA margins and revenue growth, with some editorial judgment based on other company characteristics.)

Through the third quarter, above-average companies accounted for a record 75% of buyout transactions completed by private equity groups and displayed a pricing premium of 12% (the narrowest since we began tracking dates, through Q3).

While the totals aren’t quite as extreme with family offices (64% and 19%, respectively), it does indicate that both sets of investors are increasingly pursuing the same exceptional opportunities. //

BOB DUNN is managing director of GF Data. ANDY GREENBERG is the founder of GF Data and CEO of Greenberg Variations Capital. GF Data collects and reports on platform and add-on acquisitions completed by private equity funds and other deal sponsors in the $10 million to $250 million enterprise value range. Over the course of 2022, we extended the range to $500 million.

* Note: The Family Offices grouping also includes deals done by other sponsors not organized as committed funds (e.g., independent sponsors).

Source: GF Data, an ACG company

Teaching Active M&A Dogs New Privacy and Cybersecurity Tricks: Five New Approaches for Serial Acquirers

BY JAMES KOENIG, BRENT T. HOARD AND PETER T. WAKIYAMA, PARTNERS, TROUTMAN PEPPER

Over the last few years, M&A deal flow has hit record highs, ebbed and risen again as strategic technology acquisitions have given way to selective private equity transactions. As traditional technology funding becomes more difficult to find and debt financing comes back in style, serial acquirers are trying new approaches to better assess the value of personal data and understand privacy and cybersecurity diligence, risk and post-close integration efforts. Here are five innovative approaches to save time and money on diligence, quickly rate privacy and cybersecurity risk, and develop road maps and playbooks to provide a more effective platform for sharing data, enabling analytics and maximizing data value across portfolio companies.

1. Key Pre-Term Sheet Data Points to Assess Value.

While many serial acquirers use a playbook for managing diligence, some are extending the scope of the traditional playbook to assess data issues earlier (ideally pre-term sheet or very early in diligence).

Questions to ask include: Are there restrictions on sharing and/or sales of personal information in the context of a merger or acquisition transaction? Will there be any material differences in use cases post-close? May the target use personal information for current and new product improvements and/or analytics?

The pre-term sheet questions are designed to evaluate key privacy policy terms to confirm the existence of rights that create value (e.g., transfer, sharing, secondary uses, de-identification, etc.).

2. Privacy Diligence Framework to Assess Inherent Risk.

Thorough diligence is often conducted before delivering meaningful feedback on privacy and cybersecurity risk. Some serial acquirers are using an inherent risk framework to immediately gauge privacy risk and scope the depth of privacy and cyber diligence (e.g., one version of our framework includes six areas of inherent risk that can be gauged without significant diligence).

Based on this inherent risk framework, the serial

acquirer decides whether to conduct limited, targeted or no privacy/cybersecurity diligence.

3. Using AI to Review DPAs. To reduce costs and accelerate diligence, many serial acquirers use artificial intelligence to review common, recurring structured agreements. One new application of AI is for reviewing data protection agreements (DPAs). By loading numerous DPA templates and indicating preferred templates, models and provisions, AI can provide quick, high-level reviews for problematic provisions, such as data use/rights limitations, limitation of liability and indemnification, and prioritize DPAs for in-depth review.

4. New or Updated M&A Playbook. Many M&A issues are recurring and involve post-close integration. For efficiency, we have worked with clients to develop a playbook that includes over 30 common issues across five key areas (e.g., privacy program compliance) and remediation approaches adopted by the client. The playbook includes template policies and procedures and other solutions that can be deployed as a closing condition or in post-closing integration.

5. Intra-Portfolio Information Sharing. Historically, serial acquirers have purchased a business based on how the target fits into their existing businesses or portfolio. Now, innovative acquirers are increasingly evaluating how a target’s data aligns with analytics, marketing and benchmarking across the businesses/portfolio. Maximized compliant sharing (and use) is accomplished through review of contractual rights, pre- or post-close privacy policy modifications and internal access controls to allow or restrict intra-portfolio sharing. Even in cases where acquisition targets may not have secured extensive data rights, a serial acquirer can still develop a valuable enterprise-wide database over time. //

In their roles as partners at Troutman Pepper, JAMES

KOENIG co-chairs the firm’s Privacy + Cyber Practice Group, representing global clients in multiple industries; BRENT T. HOARD works with clients to protect and maximize the value of their data; and PETER T. WAKIYAMA advises clients in all areas of intellectual property and data privacy/security.

Troutman Pepper

FEATURE

Before this year, everything was equity, equity, equity. Now we’re hearing more about raising debt or debt/equity hybrid options.

SHAWN FLYNN Principal, Global Capital Markets

Private Equity BD Professionals TO WATCH

This year’s Private Equity Business Development Professionals to Watch list was curated by Middle Market DealMaker editors based on more than 270 nominations from the ACG dealmaking community.

We selected 10 private equity honorees who represent the diversity of the profession. In compiling the list, we considered the number of nominations each individual received and their professional achievements in 2022. Those achievements ranged from sourcing notable deals for their firm; launching new business development strategies or other initiatives; expanding their teams; fostering collaboration within the PE business development community; and in some cases, all of the above.

We asked each of our honorees to share their proudest professional accomplishment from 2022 and a goal for the coming year. Those responses follow, along with a memorable piece of career advice from each of them.

HOLLAND REYNOLDS

Senior Associate, HGGC Palo Alto, CA

PROUDEST 2022 PROFESSIONAL

ACCOMPLISHMENT: HGGC’s sourcing strategy was flipped on its head in 2022. After 15 years of sourcing predominantly from intermediaries, we embarked on a huge strategy shift in 2022: thematicdriven investing. Traditionally, our funnel was fed by CIMs (confidential information memoranda) from investment banks. Implementing the strategy shift required a complete overhaul of our sourcing funnel. The biggest hurdle to executing a new sourcing strategy is introducing and managing new inputs to the top of the funnel. The new strategy resulted in new team members, new information systems and new priorities. We doubled the size of our business development team by creating a new analyst program dedicated to cold email campaigns and other direct efforts. We built out internal infrastructure to track relationships from early days, emphasizing metricdriven results. Lastly, we prioritized thematically driven conference attendance and sponsor relationships. I’m incredibly proud of the work we’ve put in to revamp our team and look forward to furthering our thematic strategy.

PROFESSIONAL GOAL FOR 2023: In 2023, I hope to refine my mentor skills within HGGC and externally. Mentorship has always been a priority for me, regardless of whether I’m on the giving or receiving end. Building strong mentor relationships also reminds me of why I love my job. The beauty of the business development role lies in building gratifying relationships—a stark contrast to the transactional private equity world.

RICH GRAJEWSKI

Vice President, Business Development, Huron Capital Detroit, MI

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: I’m most proud of how my direct efforts originated actionable opportunities for our industrial automation investment thesis. My colleagues Mike Zukas and Leah Ierardi, who lead our thesis-based investment strategy called ExecFactor, and I identified key aspects of a long-term sustainable business and what drives value in this space. This research provided the framework to map the market and articulate our thesis with relevant intermediaries and executives, with the goal of expressing our interest and knowledge and garnering their insights and feedback. Through my relationships, we received proprietary introductions to several relevant companies where we have since built strong rapport with the owners. Today, we are in active dialogue and, if successful, they would form the foundation of a platform with meaningful size and scale.

PRIVATE EQUITY PEER

PROFESSIONAL GOAL FOR 2023: In 2023, I hope to be considered a thought leader for private equity business development. While the role is relationship-driven, building meaningful rapport with the vast number of intermediaries, executives, companies and other professionals in the lower middle market is challenging. Innovation must be at the forefront for every BD professional, so sharing even the simplest techniques can make a huge difference. I regularly exchange best practices with a small cohort of peers. Having this network of BD contemporaries provides opportunities to elevate both individual performance and the overall role of BD in private equity.

Holland Reynolds is an exceptional representation of the evolving BD landscape within PE. ... She goes above and beyond and takes a collaborative approach, which is so refreshing and beneficial for the PE business development community.

BRENT WHITE

Vice President, Gauge Capital Dallas, TX

PROUDEST 2022 PROFESSIONAL

ACCOMPLISHMENT: Gauge Capital’s business development team continues to grow, tripling to six professionals, including two analysts and four senior-level business development professionals. In addition, our food and consumer vertical had a breakout year closing two platforms and one add-on investment.

I’ve since worked to spearhead our food and consumer endeavors, which includes planning vertically focused off-sites, segmenting the food and consumer vertical by sub-themes to become more thematically focused, constructing a valuation database to capture relevant transaction multiples, and organizing a schedule for critical consumer conferences.

I’m also proud of Gauge’s overall performance. Our firm has been recognized as one of the top five best-performing private equity firms in the HEC-Paris-Dow Jones Small-Cap Buyout Performance Ranking.

PROFESSIONAL GOAL FOR 2023: I aim to develop a more systematic and consistent approach to tracking and nurturing our core relationship with intermediaries, while expanding our footprint across the food and consumer ecosystem.

STEPHANIE MOONEY

Director of Business Development, Trivest Partners

Toronto, Ontario

2022 PROFESSIONAL ACCOMPLISHMENT:

PROUDEST

I’m most proud of the increased awareness of the Trivest brand in the Canadian market. Individuals and firms in the M&A community know the Trivest name and how we uniquely partner with family, founder-owned businesses. I like to think we immediately come to mind when an entrepreneur or multigenerational business is looking for an equity partner.

My involvement in the community is also something I’m proud of—this ranges from being part of the CVCA Young Professionals Committee, to co-chairing the ACG Toronto Deal Source North Committee to being an active board member for a charity called Gilda’s Club Greater Toronto.

PROFESSIONAL GOAL FOR 2023: My professional goals for 2023 center around Trivest’s newest fund strategy, the Trivest Recognition Fund. We are expanding our investment criteria to be able to work with larger family, founder-owned businesses. I’m excited to share that I will be transitioning roles to focus on Trivest’s relationships with our investment banking partners in Canada and the U.S., with the purpose of generating opportunities for the Recognition Fund. My goal is to ensure this fund is successful by building relationships and originating opportunities.

All that said, I wouldn’t be a true business development professional if I didn’t specifically mention closing deals—as always, that’s the goal!

EMILY OSMAN LAWRIE

Vice President, Business Development and Capital Markets, BayPine New York, NY

PROUDEST 2022 PROFESSIONAL

ACCOMPLISHMENT: Since launching the effort in late 2021, I have worked directly with the founding partners to implement a robust business development function, which included leading senior-level dialogue with key banking, lending, executive and sponsor relationships to articulate the firm’s differentiated strategy and elevate our brand. I was directly responsible for leading efforts related to the creation of a proprietary investment scorecard, a thematic sector and asset identification process, and a founder-owned identification process, with these latter two processes resulting in the identification of high-priority investment opportunities outside of formal sale processes.

PROFESSIONAL GOAL

FOR 2023: I hope to continue to execute on our mission to be the partner of choice for high-quality businesses seeking to effect a comprehensive digital transformation, driving toward my long-term goal of building a first-call business development function.

JASON BURMER Vice President, Edgewater Capital Partners Cleveland, OH

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT:

I am most proud of the intentional and systematic growth, effort and dedication of the business development team, and the results our program has produced. Overall, our organization has demonstrated commitment and passion for business development as the lifeblood of our business. (While four of us have business development in our titles, everyone at the firm makes a considerable contribution.) We added two members to the business development team in 2022, which has further enabled us to scale our relationships with business owners (two closed transactions in 2022 from owner-operator relationships); implement a best-in-class CRM and data reporting; increase funnel metric conversion (including NDA to IOI, and IOI to LOI); scale our marketing efforts (including a more than 30% increase in social media followers, and a doubling of social media impressions); and increase our fund deployment rate.

PROFESSIONAL GOAL FOR 2023:

Fund deployment is our business development team’s compass each year. It drives all action and objectives throughout the year. We have increased and exceeded our internal fund deployment goal in each of the past two years. In 2023, we will continue to scale our team and systems, and build and strengthen our relationships with business owners, intermediaries and large corporations in key thesis areas that we find compelling, in order to exceed our deployment target.

ABE BORDEN

Director, Diversis

Los Angeles, CA

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: In 2022, we leveled up in a few ways. The most impactful has been the addition of new team members to our veteran business development organization. Having more people provided us with the bandwidth to narrow our individual scopes of coverage, dive deeper into pockets of opportunity and execute on our five key strategies with a higher level of proficiency. This new flexibility, paired with an upgraded system for managing deal qualification, resulted in an approximately 5% deal funnel efficiency increase from NDA to a term sheet, compared with our 2021 performance. That doesn’t sound like a lot, but applied to hundreds of opportunities and a record year of M&A for our firm in 2021, that’s a meaningful amount of potential equity deployed and a lot less time wasted on lower quality opportunities.

PROFESSIONAL GOAL FOR 2023: It’s an extension of our goals in 2022, where we hope to achieve higher quality pipelines by becoming more efficient. One example is improving our tactical process or day-to-day workflow so we can enable our team to become more effective engaging with our network. (For example, improving the frequency and quality of our interactions with key individuals in software and recording those for measurement in our CRM.) We should be able to set new records in overall opportunity volume, annual equity deployed and fees generated to our friends in the investment banking community.

RENN IABONI

Director, Monomoy Capital Partners

New York, NY

PROUDEST 2022 PROFESSIONAL

ACCOMPLISHMENT: Having worked on over $30 billion in transactions in my career, I have a unique eye for a deal. Following market intelligence from a colleague, last year I traveled to the Midwest on a whim to have dinner with an executive, which ultimately positioned us to evaluate a sizable carve-out opportunity.

PROFESSIONAL GOAL FOR 2023: I will continue to focus on telling the Monomoy story and deepening relationships with industrial and consumer sector participants. (I’d also Iike to shave a few strokes off my golf game.)

Abe stands out for his personable and thoughtful approach in the business development process. Discussions with Abe are engaging, insightful and productive. He applies a creative lens to deal qualification, truly understanding where Diversis’ partnership model can shine rather than just going through a list and checking boxes. INVESTMENT BANKER

CHRISTOPHER SCHATZMAN

Principal, Business Development, Arcline Investment Management

New York, NY

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT:

I am most proud of Arcline’s capital deployment and closed deals in 2022. Early in the year, we celebrated our 100th transaction since closing our first fund in 2019, and we quickly surpassed that number. Toward the end of 2022, our business development team had originated nearly 1,000 new opportunities, and the firm had closed roughly 25 transactions, including four new platform investments. I am extremely impressed by our firm’s “wolf pack” approach to each deal. We employ resources across several vertical functions internally to get transactions across the finish line. It makes me very proud to be part of such an engaging and collaborative team, and it has been exciting to observe that team expand.

PROFESSIONAL GOAL FOR 2023: Arcline has grown from 15 professionals when I joined the firm in May of 2019 to about 50 today. Each team, including business development, has onboarded additional resources. I hope to serve as an effective and meaningful coach and mentor to all the firm’s junior resources. Business development, in particular, is a fluid role without an off-the-shelf playbook, so mentorship is one of the most effective tools for success. As all my colleagues continue to positively impact me on a daily basis, I too hope to be a catalyst for team members’ success at the firm.

SHANE MCADAM

Vice President, Business Development, Kilmer Group

Toronto, Ontario

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: Not long after I joined Kilmer Group in mid-2021, I recognized that the market could use a refresher in terms of our team’s appetite for deals and key investment criteria.

I was fortunate to have the opportunity to speak at the inaugural ACG Atlantic event held in Halifax this past September. As part of the panel discussion, I described Kilmer Group’s long-term investment horizon, flexible approach, and how our family-office model is different relative to traditional private equity.

On the heels of the ACG Atlantic event, a number of new deal opportunities materialized, and it became clear that the market increasingly was responding to Kilmer’s renewed investment mandate and priorities; the message was out there. That was a proud moment.

PROFESSIONAL GOAL FOR 2023: Working in business development in a deal-focused industry, the conventional goal is to source and close as many transactions as possible. But that’s not what we’re aiming for at Kilmer. We’re looking to make prudent investments in suitable, fundamentally sound businesses with positive long-term growth prospects. In 2023, I expect to build upon the strong momentum the Kilmer Group team has created over the past year and get the right deal(s) across the finish line.

Christopher is unparalleled when it comes to deal match-making in the industry. He is a rising star at Arcline and is instrumental in their deal sourcing efforts.

BANKER

Best Career Advice

ABE BORDEN: Find ways to make those around you better. If you have the skills, you have the responsibility.

JASON BURMER: The most meaningful advice I’ve received professionally, and in life, was an iteration of “If you’re green you’re growing, if you’re ripe you’re rotting.” Don’t get comfortable, plan for the future, and pursue and embrace the challenge.

RICH GRAJEWSKI: Early in my career, a mentor told me that to be successful in any profession, you must give value first before asking for something in return. I make every effort to give value first, like providing a banker names of other potential PE firms when passing on a deal, or helping a business owner with an introduction to a banker or advisor. It’s the sum of all these small valueadded acts that makes a huge difference.

RENN IABONI: There is no such thing as a bad first meeting.

SHANE M C ADAM: Be grateful, humble and appreciative of your opportunities and achievements, but never be satisfied—stay hungry.

STEPHANIE MOONEY: Always look for ways to add value for others, anywhere you can. And expect nothing in return.

EMILY OSMAN LAWRIE: In chaos, there is always opportunity.

HOLLAND REYNOLDS: Follow the flock and you’ll end up a lamb chop!

CHRISTOPHER SCHATZMAN: Don’t get complacent. Relationships are the lifeblood of any effective business development team, and it is important to constantly engage and drive new relationships while effectively maintaining existing networks. It can become easy to lean on key accounts, but the advice I have always received is to continue innovating and driving differentiated relationships with new networks of professionals.

BRENT WHITE: Focus on the results rather than on how long each task will take. By disregarding the time, you can focus on the quality of the job rather than just thinking of finishing it. Another great piece of advice is to never stop learning. One of the most powerful things to advance your career—or in any circumstance—is knowledge.

Investment Bankers TO WATCH

This year’s Investment Banking Professionals to Watch list was curated by Middle Market DealMaker editors based on more than 270 nominations from the ACG dealmaking community.

We selected 10 investment bankers who represent the diversity of the profession and who stood out based on their professional achievements in 2022 and the volume of nominations they received. The investment bankers on this year’s list are notable for the meaningful relationships they’ve built with private equity sponsors and business founders; their success elevating their firms’ brands; and an impressive track record of closing deals.

In the pages that follow, this year’s honorees share their proudest professional accomplishment from 2022, a goal for the coming year and a memorable piece of career advice.

TRICIA SALINERO

Managing Director and Head of Technology Banking, Stout

San Francisco, CA

PROUDEST 2022 PROFESSIONAL

ACCOMPLISHMENT: I joined Stout at an exciting time! We are a founder-led organization that went through its own M&A event. At the end of 2021, we announced a majority deal with Audax. As part of the transaction, Audax has really enabled the leadership team at Stout to step on the gas organically and inorganically, growing through a mix of hiring and acquisitions. I am most proud of growing a diverse technology team in 2022, merging internally with our patents group and “tech-enabling” other industry verticals within the investment bank. We are bringing our valuation and banking clients the expertise and tools to navigate the entire life cycle of financial and tech due diligence for a deal, capital markets assistance and tax structuring advice, and we’re guiding clients to best practices around the industry-specific analytics needed to deliver valuation key performance indicators. Clients need us to bring an entire toolbox—not just an M&A hammer!

MICHAEL PIRIC Managing Director, Lincoln International Los Angeles, CA

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: I am proud to have been promoted to managing director and to join the Lincoln partnership.

PROFESSIONAL GOAL FOR 2023: The jury is still out on the market and M&A expectations for 2023. I am looking forward to the challenges ahead, as it is in times like these that we can get more creative and provide sound advice to our clients.

PROFESSIONAL

GOAL FOR 2023:

With the large-scale repricing of technology and tech-enabled services in the public markets, I am confident that the aperture has opened for non-tech buyers to consider outsourced R&D and strategic technology acquisitions. In 2023, I expect nearly half of my transactions to come from nontraditional tech sponsors and strategics. Each of us has an area of technology that is our major—mine is vertical software and services— and a minor, such as industrial internet of things, construction tech or agtech, where we can pair up with the heads of those areas, bringing industry experts to the table. It’s been transformative to our client discussions to have a resource who understands not just the advisory service but the details that underpin transactions.

Mike is liked by all, takes the time to know new people and firms that may be relevant to Lincoln’s practice in the years to come, and has been committed to building the ACG LA community for years.

PRIVATE EQUITY SPONSOR

TRISTAN TAHMASEB

Senior Associate, ButcherJoseph & Co.

St. Louis, MO

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: Our firm is relatively young, and we experienced a significant amount of growth in personnel and infrastructure over the last couple of years. The pandemic years created a challenging environment to develop our people and foster relationships. In 2022, we strove to come together as a team and doubled down on our firm’s commitment in developing our next set of leaders. Our focus on culture has translated to improvements in client deal experience and outcomes. I am particularly proud of my team’s continued pursuit of excellence in providing the highest quality advisory services for our clients.

PROFESSIONAL GOAL FOR 2023: My focus is on the continued growth of our firm’s brand awareness. We have developed a deep bench of first-class professionals who have a unique perspective on founder-owned businesses and the common challenges those businesses can face, such as succession planning. As I develop my view for 2023 and beyond, there is uncertainty in the economic outlook and ultimate M&A conditions; however, what is certain is the tidal wave of the U.S. population aging into retirement over the next several years. Members of this cohort own and run great businesses across the country that play a vital role in their local communities. I hope to continue to advise a growing number of founder-owners as they navigate uncertainty in the market and develop their succession plan strategy with the goal of strengthening their communities.

PAUL L. NOVAK

Managing Director—Investment Banking, CLA (CliftonLarsonAllen) Wealth Advisors

Minneapolis, MN

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: I’m most proud of my relationship building—not only with different businesses, but within different parts of CLA. Watching our young team members grow professionally has also been rewarding.

PROFESSIONAL GOAL FOR 2023: I plan to complete more transactions, grow professionally and develop a more robust pipeline of merger and activity for 2024.

Paul gets the importance of clientfirst service, empathy and human connection. There is no one better when it comes to developing trust and making clients and management teams feel at ease.

CLIENT

JUSTIN LOEB

Director & Sponsor Coverage Lead, Clearsight Advisors

Washington, D.C.

PROUDEST 2022 PROFESSIONAL

ACCOMPLISHMENT: Over 80% of closed transactions at Clearsight in 2022 involved private equity, either as a client or as a buyer. While not all these PE firms are in my coverage universe, it’s a very exciting time to be leading sponsor coverage at Clearsight, and I’m proud of the growth we’ve experienced on the private equity side of our business.

PROFESSIONAL GOAL FOR 2023: I hope to grow our sponsor coverage team and broaden our coverage universe to meet the immense demand from the middlemarket private equity industry. The interest from middle-market PE in professional services, IT services and tech/techenabled services deals has exploded over the last few years, and we are perfectly positioned to continue to grow with that market, so long as we add to our team and stay focused.

BRYAN D’ALESSANDRO

Managing

Director, Financial and Strategic Investors Group, Goldman Sachs New York, NY

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: Goldman Sachs is still a relatively new relationship for many middle-market PE firms, with our expanded coverage efforts taking place only a few years ago. I’m proud of our unique ability to share the firm’s intellectual capital with a new client base and deliver a broader range of products to help clients navigate a tougher market in the year ahead. Supplementing our traditional M&A dialogue with minority equity/debt capital raises, fund-level advisory/financing solutions (including NAV loans, continuation funds, etc.)—along with IR/ FX hedging—has further strengthened our relationships by offering credible alternatives.

PROFESSIONAL GOAL FOR 2023: For 2023, my goal is to build on the momentum of 2022 by strengthening our relationships with middle-market sponsors. Goldman has made a concerted effort to capture more market share in this space, and we are committed to being a trusted thought partner to these important clients. Leveraging our OneGS initiative, I look forward to delivering the firm to these clients in a way that we have never done before.

ANDREW SUEN

Managing Director, Hexagon Capital Alliance

Corona del Mar, CA

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT:

Hexagon Capital Alliance was formed in 2021 after being known as Moss Adams Capital for over 20 years. We achieved a record performance year in 2022, including our time under the predecessor banner. I am most proud of the team roster we have assembled throughout the entire organization, from analysts through managing directors. A collaborative team environment, aligned workplace culture and shared personal and professional philosophies are invaluable elements to all high-functioning organizations.

PROFESSIONAL GOAL FOR 2023: As is the case for many M&A advisory professionals, the numbers matter! From deal count to deal value, or headcount to headlines, we are very much focused on growing the firm under our core mission of assisting business owners and operators in realizing both their personal and professional liquidity objectives. We form staunch alliances with our clients and guide them through a once-in-a-lifetime process. In short, it’s our goal to take this M&A journey alongside more and more clients as we continue building our firm.

SCOTT AMES

Managing Director, Head of Financial Sponsor Coverage, Cascadia

Minneapolis, MN

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: In March 2022, I joined Cascadia to launch and head up the financial sponsor coverage group. It’s fun, challenging and a real privilege having the opportunity to put my fingerprints on and shape our strategy with private equity alongside a talented group of industry and product bankers. We have such a strong track record and reputation across multiple industry verticals that I’m able to bring to my broad network of leading financial sponsors. I’m hyper focused on delivering our elite investment banking services to our financial sponsor clients.

PROFESSIONAL GOAL FOR 2023: I plan to continue growing Cascadia’s financial sponsor group and our deal flow with private equity. In November, we closed a strategic growth investment from Atlas Merchant Capital, a global investment firm founded by Barclays ex-CEO Bob Diamond. A cornerstone of that investment is driving increased collaboration and deal flow with financial sponsors. We’ve made two new hires on the financial sponsor coverage team, and I’m very focused on growth and finding additional industry and product bankers to join the platform that we can deliver to the private equity community.

Andrew is one of the hardestworking investment bankers I know. ... When he tells a client that he will be there to shepherd the deal from start to finish, he means it.

LEGAL PARTNER

PANOS TSILIKAS

Director, Financial Sponsors Group, Kroll

Los Angeles, CA

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: Last year was a transformative period for our firm as we transitioned from a traditional advisory firm (Duff & Phelps) to a tech-enabled and data-driven financial and risk advisory platform (Kroll). Kroll continues to expand its product offering by enhancing services and tools for our private equity clients that were made possible by the support of our firm’s leadership and the dedication of our global M&A team. I was intimately involved with revamping internal processes and enhancing our company’s broad suite of capabilities to better serve my customers. I am most proud of driving positive change, contributing to my firm’s evolution and offering enhanced value to the private equity community.

PROFESSIONAL GOAL FOR 2023: My goal is to provide support to private equity groups, particularly during a period of volatility and constantly evolving market conditions. Although economic cycles will likely bring various challenges for the middle-market ecosystem, there may also be sound opportunities for clients and organizations to capitalize on. In 2023, private equity groups will compete with fewer assets coming to the market, as financing will likely get tighter and dry powder remains at high levels. I strive to be a continued resource and conduit to private equity investors to help them increase their holdings and execute on their investment plans.

JANE ADAMS

Director, Financial Sponsors Group, Piper Sandler

Los Angeles, CA

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: 2022 was the year of connectivity! I was able to build deeper relationships across a broader range of clients and help cement our presence in the Southwest. I’m proud of the growth of our team and what that has allowed us to do as we continue to grow Piper’s brand in the market.

PROFESSIONAL GOAL FOR 2023: Continue to find ways to help our clients navigate this more challenging market environment.

PRIVATE

Panos has an outstanding understanding of private equity firms’ strategies and deal interests, and he knows how they overlap with the Kroll M&A pipeline.

EQUITY SPONSOR

Best Career Advice

JANE ADAMS: It’s all about the shots on goal. Keep working hard and good things will come!

SCOTT AMES: Focus on your strengths to drive the ball forward. An executive coach I worked with in 2021 taught me a lot about how to prioritize time, harness my strengths and hire for my weaknesses. One strategy I start with every day is putting together an Eisenhower Matrix to dictate where I focus. Items that fall in the “Important, Not Urgent” category are the real needle movers that I try to give the most attention to.

BRYAN D’ALESSANDRO: The simplest piece of advice that has served me the best in the relationship-driven space in which we operate is: “Just be a normal person.” If you can develop a trusted relationship, you can uncover opportunities/issues and deliver appropriate solutions.

JUSTIN LOEB: People don’t buy what you do, they buy why you do it—a quote from author Simon Sinek.

PAUL L. NOVAK: Surround yourself with young talent and give them just enough rope to make them uncomfortable. It’s the best gift you can give these young professionals for their development.

MICHAEL PIRIC: Never lose your intellectual curiosity.

TRICIA SALINERO: When I asked a client recently about a 2024 expenditure, he said to me, “That’s a Future-Me Problem.” It really stuck with me. You can’t be a banker without being a bit of an optimist,

though, so now my glass-half-full rebrand is “Future-Me Opportunity.” It’s easy to imagine all the permutations of a decision and attempt to prepare for every outcome, but it’s vitally important to be present, in the here and now, for my team and my clients.

ANDREW SUEN: Make the lives of those above you easier—although I’ve modified this advice over the years to “make the lives of everyone easier.” This piece of professional advice has served me well over the years and changed the underlying way I think about my entire life. A long-term approach to selflessness and a genuine desire to be helpful are indispensable assets in building not only a successful career but also a quality life.

TRISTAN TAHMASEB: Be curious—which encompasses a number of other traits. Within curiosity is self-motivation, thoughtfulness, sense of humbleness and respect for others. I have found if you set a path based on continuous learning and investigation, it can lead you to some incredible places.

PANOS TSILIKAS: “The analyst’s responsibility is to analyze” is a piece of advice that I still follow today and that was shared by Todd Kaltman, a veteran of Kroll’s Transaction Opinions group. We believe in the importance of precise analytical work, regardless of our roles or the projects we work on. Through rigorous and objective analysis, our work also sparks and encourages intellectual curiosity to ensure we put forward unbiased and fact-based decisions.

Corporate Development Professionals TO WATCH

WATCH

This year’s Corporate Development Professionals to Watch list was curated by Middle Market DealMaker editors based on more than 270 nominations from the ACG dealmaking community.

We selected 10 corporate development honorees who represent the diversity of the profession. These 10 represent strategic acquirers of varying sizes and across industries—including telecommunications, healthcare and publishing, among others. Some have been in their roles for years while others are new to the position. All of them are eager to transact in the coming year, a common theme in the responses they gave when asked about their professional goals for 2023.

Read on to learn more about their plans for the year ahead, their proudest professional accomplishment from 2022 and the piece of career advice that’s helped them get to where they are today.

JELENA GUZENKO

Global Vice President, Strategy and Business Development, Schneider Electric New York, NY

PROUDEST 2022 PROFESSIONAL

ACCOMPLISHMENT: In 2022, I led several highly complex deals spanning multiple geographies for Siemens Energy. In April 2022, after 20 years of a rewarding career with Siemens, I decided to undergo a significant change and joined Schneider Electric to lead global strategy and business development. Since then, I’ve been leading the strategy for critical initiatives with a focus on decarbonization, such as the buildup of a new Process Electrification Consulting business, exciting M&A and strategic partnership deals, and heading up a sophisticated market and business intelligence team.

PROFESSIONAL GOAL FOR 2023: I identify with Schneider Electric’s purpose of empowering the world to make the most of our energy and resources, while bridging progress and sustainability. As the strategy executive, it is my passion to help uncover new opportunities for decarbonization and sustainability, and lead the transformation within and outside our organization. This includes understanding and shaping new technology and market trends, and optimally focusing our resources for organic and inorganic growth, while continuously streamlining our portfolio.

XAVIER CHAILLOT

Chief Corporate Development Officer, Career Certified Denver, CO

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: We have completed two acquisitions and expanded into Career Certified, a multi-vertical online education provider for regulated professions. We also acquired Mbition, which complemented our real estate portfolio with AHIT, the leading provider of home inspection education; Stringham School, the leading real estate school in Utah; and Home Appraisal, which is bound to relaunch in 2023. In addition, we acquired Amber Book, a leading provider of exam prep courses for the Architect Registration Exam. Finally, despite a challenging economic environment, the company continued to generate solid organic growth with exceptional profitability.

PROFESSIONAL GOAL FOR 2023: Our objective in 2023 is to further integrate and grow our core and recently acquired businesses while opening up new verticals through further acquisitions. We are focused on bringing the best and highest quality online education to heavily regulated professions to help people realize their aspiration, one person at a time.

Xavier will have led the acquisition of three companies in 2022 during a challenging macro environment when the company had zero transactions for the 16 years prior.

PATRICK GILLIGAN

VP, New Business Development, Marubeni America

New York City, NY

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: Together with our C-Suite in New York City, we established a program to solicit new platform themes from non-industry people in the organization. Promising themes and ideas were researched, vetted and then presented at a senior level. Why? While our industry people are experts, they’re often blinded by their career biases and programmed to think conventionally within their industry norms. Through the process, we uncovered some interesting themes that otherwise wouldn’t get attention, built target lists and started dialogues. It’s also been a great way to get more staff involved in the future of our organization.

PROFESSIONAL GOAL FOR 2023: My goal in 2023 is to source more deals by being quicker and more decisive. It’s getting more difficult for corporates to see deal flow, and one culprit is the inability to respond and act quickly. When comparing ourselves to very transactional PE funds, sellers and advisors see us as slow and time consuming. Naturally, they’ll prefer to work with the funds. Seeing more deals will require not only doing more outreach, but also being more responsive, so advisors can trust they will get feedback in a timely manner when they share. To this end, maybe in 2023 we track days between events—for example, how many days are there between when we get a teaser to when we either decline or sign an NDA. There are many other events we can measure. We need to have data points on how good or how bad we are.

JAMES TIDWELL

Director, Corporate Development, AMETEK

Berwyn, PA

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: After a record year for AMETEK in 2021, I am proud of the AMETEK team for successfully integrating new businesses and closing two acquisitions in 2022. Both companies are market leaders in their respective niches with advanced technology. This may sound strange coming from a deal guy, but I’m also proud of the deals we walked away from this year. AMETEK has a long, successful track record of acquisitions, and our deal discipline of not overpaying and not taking unacceptable risks is core to that success.

PROFESSIONAL GOAL FOR 2023: To use AMETEK’s free cash flow and strong balance sheet to set new records for our capital deployed on strategic acquisitions.

Matt’s approach to M&A consists of a high level of technical competence grounded in a foundation of emotional intelligence. These two elements allow him to earn the trust of sellers, execute at a high level and help us exceed our growth objectives.

MATT HINSON

Chief Business Development Officer, American Trailer Rental Group Ft. Mitchell, KY

PROUDEST 2022 PROFESSIONAL

ACCOMPLISHMENT: In 2022, I’m most proud of being named chief development officer at American Trailer Rental Group. The team here has a proven history of operational excellence and executing on both an organic growth strategy and M&A. Before joining ATRG, I was SVP of development at Orthopedic Care Partners. In that seat I was able to heavily influence growth. We grew that business from 20 physicians in Florida to over 115 across four states. I was ready to lead a development program of my own, though. After meeting Jonathan Brooks (CEO of ATRG) and the rest of the team, I immediately realized that this team is building something remarkable.

PROFESSIONAL GOAL FOR 2023: ATRG has as a strong track record of acquisitions, led by CEO Jonathan Brooks and Lucas Wright, our CFO. My goal for 2023 is simply to help accelerate the strong work they’ve already been doing. I appreciate the opportunity they have given me here and the resources they’ve dedicated to formalizing an M&A program. If I continue their pace of deals and value of EBITDA acquired, I’ll call it a win.

YVANNA A. LOPEZ (PEREZ MOREL)

Sr. Director of Corporate Development & Innovation Fund, Ulta Beauty Chicago, IL

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: In 2022, I am most proud of the launch of Prisma Ventures, Ulta Beauty’s own digital innovation fund. We are working with some of the most disruptive entrepreneurs in the retail space to revolutionize the future of the industry.

PROFESSIONAL GOAL FOR 2023: I have big goals for 2023! Many things are happening in the background, but the one thing I can share is that I aim to lead Prisma Ventures to become the top technology corporate venture capital fund in the beauty space. We have a great pipeline of potential investments, and we are excited about the quality of the partnerships we will have completed by the end of 2023.

SETH COLLINS

DAVID T. CHEN

Assistant

Vice President, Corporate Development, AT&T Dallas, TX

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: Successfully transitioning into a new role and organizing a team within it. I was previously responsible for overseeing M&A activities for our Latin American operations. Having led and completed the sale of that business unit in Q4 2021, I transitioned to a new role, becoming responsible for all inorganic activity related to wireless spectrum. This involved a new direct team as well as the development of relationships with our network, policy and regulatory peer groups, among others.

PROFESSIONAL GOAL FOR 2023:

Developing more technical expertise and incorporating that knowledge into business cases. At the crux of all our investment opportunities is the underlying financial and business case, which we are consistently fine-tuning. Applying the latest operational insights and learnings into these cases is a critical best practice and one we are constantly evolving. That will be at the forefront of my mind as we optimize the criteria for capital allocation decisions.

VP, Head of Corporate Development, Conduent Fort Lauderdale, FL

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: Conduent’s most significant completed transaction in 2022 was the sale of the Midas suite of healthcare software to Symplr, a Clearlake and Charlesbank portfolio company. This transaction is a textbook example of M&A’s ability to unlock hidden value in a company composed of diverse businesses. Midas’ $72 million of revenue represented less than 2% of Conduent’s total revenue, yet the $340 million consideration paid represented nearly 30% of Conduent’s market cap as of transaction announcement. In addition to monetizing an asset at an attractive valuation, the Midas sale supported Conduent’s portfolio simplification efforts. We eliminated a non-core business that lacked cross-selling or other portfolio benefits, including relative to Conduent’s remaining commercial healthcare offerings.

PROFESSIONAL GOAL FOR 2023:

Conduent intends to continue to drive value through M&A, both through acquisitions and divestitures. Conduent is well-positioned as an acquirer in the current market environment, given our robust business mix, moderate leverage and investor base. Acquisitions will enable acceleration toward our strategic objectives, whether expansion in growth areas or nascent capabilities (e.g., AI, digitalization, automation). At the same time, since we separated from Xerox, divestitures have been an important component in Conduent’s journey as a standalone company, contributing to our business transformation and pivot to growth. Consideration factors include each business’s fit with the remainder of Conduent, contribution toward profitable growth and the ability to succeed as part of Conduent.

Seth is a creative dealmaker who has proven himself through many challenging transactions. His thoughtful approach to diligence and negotiations extends to his coaching and development focus with his team.

TAHA AHMED

Chief Growth Officer, Forbes Jersey City, NJ

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: I created a new division at Forbes with the sole mission of diversifying and accelerating revenue growth. I built a team of more than 20 professionals that will serve as core growth infrastructure for the organization and enable Forbes to drive growth more effectively through M&A, joint ventures, partnerships and new business incubation.

PROFESSIONAL GOAL FOR 2023: Building new businesses and expanding the Forbes brand into new sectors that extend beyond media.

Dan works under extreme pressure and is available 24/7 to make sure transactions close. He has the ability to cover all facets and project manage multiple tasks at any point of time. Most importantly, he is respectful and appreciative of his fellow colleagues, service providers and is overall a nice person—you don’t always find that in the industry. LEGAL

DANIEL NAUHEIM

Chief Growth Officer, Medrina

New York, NY

PROUDEST 2022 PROFESSIONAL ACCOMPLISHMENT: I started in 2019 as the CFO of National Health Rehabilitation, a national sub-acute physiatry (physical medicine and rehabilitation) medical practice. NHR was a founder-owned and -operated practice, which we brought to market in early 2020. We were having management meetings the second week of March 2020, which coincided with the pandemic-related shutdowns. We ultimately put our sale process on hold and reinvested in growing the business. I spearheaded those efforts during this time. Additionally, we invested in our management team and technology infrastructure, which helped drive growth in total enterprise value between our first and second sell-side process. I also spent significant time building an acquisition pipeline and doing diligence on potential targets that we could acquire once we had a balance sheet to transact with.

We brought the company back to market and sold to Integrated Rehab Consultants in the second half of 2021. Post-sale, I became chief growth officer to focus on our deal pipeline and integration efforts. In 2022, I spearheaded our buy-side efforts, including three successful acquisitions, which led us to rebrand as Medrina. These transactions have added 150 practitioners to our organization, resulting in Medrina doubling in size in 12 months.

PROFESSIONAL GOAL FOR 2023: To continue to identify and acquire outcomes-focused healthcare services organizations, which in turn will create a novel healthcare ecosystem yielding optimal patient outcomes while delivering savings to the system as whole.

Best Career Advice

TAHA AHMED: People around you should know you for who you are as an individual, not just because of what your job is or where you work.

XAVIER CHAILLOT: A mentor once told me to “learn to be comfortable with uncertainty.” This advice touches upon so many key principles of professional life, from not allowing your feelings to cloud your judgment, to continuing to learn, to there’s no good news or bad news— there’s just news. It’s really been one of my guiding principles since then.

DAVID T. CHEN: Put yourself out there! Despite advances in dealmaking tools, databases and analytics, M&A will always be a people-first, relationship-driven business. As such, there is no substitute for maximizing direct interactions with potential partners and counterparties.

SETH COLLINS: The best advice I have ever received is to relax and take it easy. The great leaders I have seen in my career have demonstrated calmness and confidence, regardless of the circumstances, that is both infectious and inspiring. It has been these individuals who could always steady the ship, find solutions with other stakeholders and advance a transaction. I have tried to emulate this example to cultivate the best working environment and experience that I can on a given transaction.

PATRICK GILLIGAN: “Call, don’t email.” Simple, but timeless.

JELENA GUZENKO: One of my mentors in the past said, “Just be true to yourself, your values and principles—and the rest will follow.”

MATT HINSON: My mentor Mike Anderson would often say, “Kill the snake!” (borrowed from Ross Perot). If you see a snake, just kill it. Don’t appoint a committee, find consultants or try to gather consensus on snakes. Just kill the snake. The point is that you should always have a bias toward taking action. You should also give your team the ability to act themselves without constantly having to seek your input to do what needs to be done.

YVANNA A. LOPEZ (PEREZ MOREL) : Treat others like you want to be treated. The world is a small place and, in my experience, you should always (always!) treat others with respect and professionalism, even when negotiations get really tough (and sometimes they do!).

DANIEL NAUHEIM: Put patients first.

JAMES TIDWELL: No matter what you think you know about the party across the table, always be prepared for a tough negotiation.

HUNTING IN THE

Enchanted

FOREST:

The Search for VC-Backed Treasures

WRITTEN BY

By Bailey McCann

ILLUSTRATION BY Davide Bonazzi

Late-stage, high-growth companies have been awash in easy money and easy exits for many years. But the market has changed and so have the incentives.

Market headwinds have already hit dealmaking and valuations to an extent, and venture capital is no exception. While conditions are expected to worsen somewhat in the coming year, this could spell opportunity for private equity firms looking for late-stage startups.

The exit environment for VC-backed companies remains challenging, with only one exit for every 15 investments on average, according to data from PitchBook-NVCA Venture Monitor. If companies were taking on venture capital financing with an eye toward an initial public offering, that window is closed. Exits to strategics or startup-tostartup M&A deals, which had been on the rise in late 2021, have also slowed significantly.

Against this backdrop, many late-stage startups are pausing to evaluate their options, but that could change over the next year and a half.

Shawn Flynn, a San Francisco-based principal at financial intermediary Global Capital Markets, notes that many of the companies that made strategic pivots last year—or put capital raising activities on hold while they reinforced their balance sheets—will likely come to market over the next 12-18 months. If these companies can tell a positive story, they’ll find eager sponsors with money to put to work—and there’s plenty of capital out there.

“I spoke to a private equity firm recently that wanted us to bring them companies that couldn’t raise their next VC round or were holding off because they were anticipating a down round as a result of the market,” Flynn says. “I think some of these firms recognize that there’s an opportunity to invest in companies that are doing well but are getting caught up in broader macro headwinds.”

Private equity funds that have been big players in the tech space, including Thoma Bravo and Francisco Partners, have recently raised new funds to pursue targets, suggesting that demand might come back over 2023 and beyond if market conditions normalize and late-stage companies can show resilience through tighter liquidity conditions.

In July, Francisco Partners raised $17 billion across two funds. In December, Thoma Bravo raised $32.4 billion split across three buyout

funds. Vista Equity Partners, another big player in the space, is in the market, too, targeting $20 billion for its latest flagship growth fund. The Carlyle Group also recently closed a tech investing fund on $3.12 billion. Meanwhile, growth equity firm JMI Equity closed its 11th flagship fund at $2 billion last year, shortly after raising $1.7 billion for its 10th fund focused on growth equity investing.

Each of these funds is on the hunt for mature and maturing high-growth companies with strong balance sheets.

AN ECOSYSTEM REALIGNS

Last year was characterized by market volatility, but it also clarified which types of sponsors have staying power in the pipeline of late-stage VC backing to growth equity support to private equity investment. In recent years, a large ecosystem of capital has formed around later stage companies, as sky-high valuations drew unicorn hunters from all corners of the investing universe.

Larger traditional private equity firms established growth equity teams to get in on the action. With the amount of capital that private equity has raised over the past several years, deal teams were looking for targets anywhere they could find them. Nontraditional sponsors—including hedge funds, family offices and some mutual funds—tried to capitalize on late-stage, venture-backed companies that were near their initial public offering in an effort to catch the pre-IPO premium. But in 2022, that fell apart.

Many of these newly listed companies took significant hits to their share prices as equities markets dropped in value. On top of that, the window for new listings is fully closed, effectively ending the pre-IPO premium pipeline—at least for the time being. As a result, late-stage companies must determine if they want to wait or try to position themselves as a target for the veteran growth equity and private equity firms that are still doing deals.

Gene Yoon, a New York-based managing partner at private equity firm Bregal Sagemount, says that the late-stage market is in a holding pattern. “Companies that have positive cash flow with a durable business model are obviously the types of companies we try to pursue, and they are the

companies that are going to get the most interest from private equity in general,” he explains. “There’s a very specific subset of companies where valuations have remained high precisely because they are so well positioned.”

Data from PitchBook and conversations with sources point to sectors like healthcare, clean tech, software and business services as ones where valuations and private equity interest are holding up the most. Sponsors want to see strong companies in general in this environment, but they are also looking for businesses in sectors that will be resilient in a recession. Companies that tick both boxes are likely to have the most power in negotiations with growth equity or traditional private equity firms.

last year, according to PitchBook’s report. Looking more closely at the data, valuations of companies that have positive cash flow or that have been able to bootstrap are proving to be more durable. But late- stage companies that are primarily reliant on venture capital are having a harder time if their path to profitability or breakeven is less clear.

Bregal’s Yoon says that deal teams, private capital lenders and even nontraditional sponsors are taking a much closer look at company quality than they have in the past.

“Where you’re seeing the most pain is companies that aren’t cash flowing yet,” he explains. “Those might not be bad companies, but there’s a lot of focus on how to clean them up and get them to at

Yet those businesses might not be interested in selling, especially if their founders don’t feel like they can attract the highest possible price. In those instances, eager investors will need to wait a little longer to seal the deal.

“We have to stay engaged,” Yoon says. “We try to understand where they want to go in the future, but it could be a few years before you see some of those companies pull the trigger.”

SIFTING FOR QUALITY

When looking for venture- backed companies, private equity firms are likely to drill into the details and search for growth potential. Valuations for late- stage companies were down

least a break-even point pretty quickly. If a company is reliant on VC funding, for example, they might be spending the next handful of months figuring out how to get to a more stable position. If they can’t do that, it’s probably going to be tough for them to continue.”

However, there might be some leeway for companies that have fallen victim to a challenging environment.

According to Flynn, these VC-backed companies are looking at a variety of scenarios as they decide what to do next. In many cases, private equity sponsors are willing to be flexible if both sides can come to an agreement.

“We’re seeing more companies where the board is advising them that they should look at

Companies that have positive cash flow with a durable business model are obviously the types of companies we try to pursue, and they are the companies that are going to get the most interest from private equity in general.

GENE YOON Managing Partner, Bregal Sagemount

how they are going to get through the next 12-18 months,” he says. “Before this year, everything was equity, equity, equity. Now we’re hearing more about raising debt or debt/equity hybrid options. Alongside that is a conversation about whether it makes sense to try to bring in private equity sponsors to help take a company to the next level. A lot of what we’re seeing right now is different groups building up their pipelines for the next year or two.”

MINORITY STAKES AND OTHER OPTIONS

In some cases where late-stage startups are holding off on selling a control position until market conditions improve, private equity firms are pursuing growth stakes as a way of positioning themselves to take advantage of opportunities down the line. For example, in October, Francisco Partners invested in Acoustic, a brand experience provider for business-to-consumer brands alongside existing private equity investor Centerbridge Partners. The company says it plans to use the investment to continue growing its technology and brand experience platform.

Larry Contrella, a Baltimore-based general partner at JMI Equity, says his firm has had success with taking minority positions and building relationships with companies over time.

“We want to be strategic partners, so if there’s an opportunity to take a 20% stake, we’ll do that. If there’s an opportunity to take an 80% stake, we’ll do that,” he says. “Companies are really thinking through what they need most right now.” For some, that might mean a smaller liquidity event initially, while other companies recognize they need a partner that’s experienced in scaling businesses. “We have taken the position of being willing to offer a variety of ways to help them get where they want to go,” Contrella says.

Many of the traditional buyout firms that have added growth equity teams in recent years continue to pursue buyout-for-control deals, but Contrella notes that the dynamics of those transactions are different than growth equity. And they may be a tougher sell in this environment. “I’d almost call them lower mid-market buyout deals,” he says.

While many of the strategies these teams

bring to the table could look like growth equity, in the end it’s still a control deal. If firms are pursuing companies where the founder doesn’t intend to exit, they may have to lean heavily on highlighting their ability to help companies scale, for example. Typically, entrepreneurs aren’t willing to become employees as they often do in traditional buyouts—even if there is a large liquidity event available to them after a few years.

GREEN SHOOTS

Contrella says despite some of the hits venture capital has taken, there is still likely to be significant competition for deals going forward. “There is a lot of money raised to invest in high-growth companies, and that’s going to keep demand high,” he says.

Despite questions around valuations, the cost of capital or the best time to sell, Contrella expects the attractiveness of fast-growing companies will outweigh those factors. “This is an area where a lot of sponsors want to be because there are a lot of good, defensible businesses with a lot of upside potential,” he says.

There will also likely be a new crop of startups that emerge from the layoffs and resignations roiling large technology businesses, which could one day become investment targets in their own right, adds Global Capital Markets’ Flynn.

“A lot of people had jobs in big tech and were also working on their own projects on the side,” he says. “Then the pandemic hit, and those side projects got more attention. Now these big companies are saying, ‘Come back to the office,’ and you’ve got a lot of very talented people whose stock options aren’t worth what they once were, who don’t want to be back in the office.”

Some of those individuals are leaving their companies and focusing on their own ventures, according to Flynn. Those businesses could one day enter the private capital pipeline and become interesting candidates for private equity. “There’s going to be a lot of fresh talent out there bringing new ideas to the table,” he says. //

BAILEY M C CANN is a business writer and author based in New York.

The Wrap-Up

74

78 84

ACG EVENTS

Summaries of recent live events and a look at what’s to come across ACG.

BACKSTAGE

A roundtable discussion on recruiting and retaining talent in a post-COVID world.

KEY TAKEAWAYS

Highlights from some of the biggest stories in this edition.

Employees are leaving long-term jobs in search of a better workplace culture, more flexibility, more happiness. People are staying at companies for six months or a year. In the past, they were staying at the same job for much longer.

Ilan Weiser Partner, Ellenoff, Grossman & Schole

A RECAP OF RECENT ACG EVENTS AND KEY INSIGHTS FROM THIS EDITION

WRAP-UP ACG Events

2022 FLORIDA CAPITAL CONNECTION

The 2022 Florida ACG Capital Connection at RitzCarlton, Amelia Island in Fernandina Beach drew 704 registered attendees from more than 32 states.

The three-day event started Nov. 1 with the Emerging Professionals Roundtable and Networking session. The following day, attendees stopped by the Shotgun Golf Tournament, which drew 130 golfers.

Linda H. Sherrer, founder and chairman of Berkshire Hathaway HomeServices Florida Network Realty, gave a talk titled “Mistakes Made and Lessons Learned.”

The last day started with a 5K run followed by a break-out session, “Why Is Your People Strategy Imperative for Post-Acquisition?” before a luncheon with keynote speaker Jim VandeHei, founder and CEO of Axios.

MIDDLE MARKET WEEK IN NYC

ACG New York Middle Market Week drew 750 global middle-market dealmaking professionals to a fiveday Middle Market Week that kicked off Nov. 7 in New York.

The event began with an opening night reception at the Stanley H. Kaplan Penthouse in Lincoln Center. The next night, dealmakers attended the LP, GP and Family Office dinner at the Harmonie Club. Other events included Lenders Casino Night at the University Club on Wednesday, Nov. 9. The next day, about 500 attendees headed to a wine-tasting gala at Tavern on the Green.

ACG SOUTH FLORIDA—ANNUAL WINE TASTING AND HOLIDAY PARTY

ACG South Florida held the 8th Annual Private Equity Wine Tasting and Holiday Party at the Tower Club in Ft. Lauderdale. This year, more than 250 people attended the event that had more than 15 wine tables.

Sponsors included Holland & Knight, BNY Mellon Wealth Management, Chief Outsiders, Trivest Partners, LSQ, Wells Fargo, Katz Barron law firm, HIG Capital, JPMorgan Chase, Lewis, Brisbois, Greenberg Traurig, Sodhani, Paylocity, Kaufman Rosin, J Street Imports, Dickson Wright, Crowe, Wiggin and Dana.

ACG

TENTH ANNUAL PRIVATE EQUITY TWO-STEP

Nearly 100 people attended the 10th Annual Private Equity Two-Step on Nov. 3 at Estancia Del Norte Hotel in San Antonio, Texas. This year, the schedule was condensed to a half day, with the event starting at 11:30 a.m. Attendance was up by about 17% compared to last year.

After opening remarks, Jeffrey C. Gifford, member/attorney at Dykema, presented the firm’s Market Survey Report, followed by keynote speakers Jim Guy Egbert, president and CEO of Bill Miller Bar-B-Q.

Panel topics included “Using Their Crystal Balls—View of the Market Today and Tomorrow,” “Lessons Learned–Middle Market Companies Sharing their Capital Raising Experiences” and “Local Organizational Infrastructure-Building Tomorrow’s MM Companies.”

Our 8th annual wine tasting was not only a success by the numbers —over 250 attendees! But we also have increased new sponsorship and had a special guest winery from the venture capital/private equity world: Arvind Sodhani, the founder of Intel Capital and owner, with his wife Beverly, of Sodhani Vineyards, a boutique winery.

ARI ROLOFF

South Florida Event Chairman and Director of Business Development, Crowe

OPERATING PARTNER EVENT IN NYC

The Operating Partner Event kicked off Dec. 15 at Studio Gather at Rockefeller Plaza in New York. The intimate event hosted 30 attendees who connected with fellow operating partners and shared best practices and strategies in value creation.

Roundtable discussions included:

• “Strategic Pricing Strategies for Portcos Amid Rising Inflation and Economic Uncertainty” with Lane McDonald, managing director of strategy and operations at the Ontario Municipal Employees Retirement System, and Mark Steenhoek, operating partner at Stephens Group.

• “Managing Portco Budgets in a Downturn” with Gabe Mesanza, a partner at Huron Capital.

• “Outsourcing Strategies for Operating Partners: When to Outsource and How to Select and Manage Service Providers” with John Broderick, operating partner at Argosy Capital, and Geoffrey Baird, operating partner at Palladium Equity Partners.

NINTH ANNUAL DEAL CRAWL CONFERENCE

ACG Charlotte hosted 270 dealmakers at its 9th Annual Deal Crawl Conference on November 9-10. New this year was the Deal Crawl Run, where a group gathered for a 6 a.m. run before the conference activities on Nov. 10.

The keynote featured Jim Hance, operating executive of The Carlyle Group, in conversation with Luther Lockwood, managing principal at MBL Advisors. The seminar sessions were Trends in the Capital Stack and Middle Market Outlook & Insights: Risk, Recession & Resilience and featured panels of industry experts.

Other conference highlights included the evening reception hosted at Charlotte’s Mint Museum Uptown on Nov. 9 a networking breakfast to kick off conference activities on Nov. 10 and the Dealmakers’ Lounge filled with conference attendees and representatives from 19 sponsor firms.

LA BUSINESS CONFERENCE 2022

About 750 middle-market professionals attended the 2022 LA Business Conference at the Beverly Hilton Nov. 8-9 in Beverly Hills.

Keynote speakers included Anthony Scaramucci, founder and managing partner of SkyBridge; Jeff Korzenik, chief investment strategist at Fifth Third Bank and author of “Untapped Talent;” Howard Behar, the former president of Starbucks and author of “Beyond the Coffee Cup—Servant Leadership” and Marc Randolph, co-founder and CEO of Netflix and author of “That Will Never Work: The Untold Story of Netflix.”

DEALSOURCE NORTH CONFERENCE

On Nov. 14, ACG Toronto kicked off the DealSource North Conference, Canada’s largest program for middle-market dealmakers, in conjunction with the 2022 Capital Connection Conference.

With a record number of 80+ companies in attendance, private equity, capital providers and family offices connected with investment banks and M&A advisory firms in 900+ pre-scheduled meetings at Arcadian Loft in downtown Toronto.

Also, ACG Toronto celebrated its 50th anniversary during a dinner that marked the 20th Capital Connection Conference and 6th fall DealSource North Conference.

Upcoming ACG Events

• MARCH 7-8: Texas Capital Connection –ACG Houston

• MARCH 8: NextGen Lunch – ACG OC

• MARCH 8: 3rd Annual Private Equity Wine Tasting – ACG Orlando

• MARCH 9: 2023 March Women’s Program –ACG

• MARCH 20-21: Rocky Mountain Corporate Growth Conference – ACG Denver

• APRIL 4: PE Roundtable Dinner Series – ACG NY

• APRIL 6: Night at the Masters –ACG Maryland

• APRIL 19: 10th Annual Women of Leadership Summit – ACG NY

• APRIL 20: Lunch Panel – Recruiting & Retention – ACG Cleveland

• MAY 1: 2023 Golf Outing: ACG Pittsburgh

Recruiting and Retaining Talent in

a Post-COVID World

The experts weigh in on the pros and cons of managing talent in today’s ever-changing post-COVID environment

Sponsored by Panel hosted by

Backstage

In today’s new, post-pandemic world, remote work options have become the norm, which can be appealing to both employees and employers. The shift allows employers to increase their talent pool and potentially lower labor costs, while allowing employees to live where they please without having to be located close to a company’s physical office. However, these new arrangements don’t come without challenges. Employers must be certain they are compliant with local laws where they hire talent, which is easier said than done. For these reasons, Middle Market Growth convened a special roundtable in September to discuss best practices for private equity firms hiring employees remotely in today’s ever-changing environment and to explore the pros and cons of a remote workforce.

DANIELLE

FUGAZY (moderator):

How would you characterize the hiring environment today?

JULIA KAROL, WATERMILL

GROUP: I’m going to use the word brutal. Hiring C-suite executives who can execute in an uncertain environment, like a COVID pandemic environment, or now going into a recessionary environment, is very difficult. And finding actual labor for plant floors has become increasingly challenging as well. There is a lack of available talent at every level. There is also the fact that we have all reassessed our values and what we want from our careers, and there is a resulting reprioritization of where people want to spend their time and energy, and it’s presenting challenges in the workforce.

ILAN WEISER, ELLENOFF

GROSSMAN & SCHOLE: The labor shortages are significant right now, especially in hospitality. There was the allure of working out of a van or

working from your summer home that’s kind of faded off. People are getting back to work, but there’s still a general feeling among employees that maybe they should be looking around to see what else is out there. We’re also seeing more lateral movement. Employees are leaving long-term jobs in search of a better workplace culture, more flexibility, more happiness. People are staying at companies for six months or a year. In the past, they were staying at the same job for much longer.

NICOLE FORBES, G-P: We’re seeing that talent, particularly younger talent, is demanding more from an employer. They’re focusing on work/ life balance, flexibility in the job and demanding more from the work relationship. Talent nowadays is thinking about work in a different way than we’ve seen in the past. In terms of the company side of things, a lot of our clients are expanding their search by looking for talent in locations where

they wouldn’t have looked before. Especially now that some companies are moving away from having a headquartered location, finding talent in a particular location isn’t as important.

MICHELLE NOON, CLEARHAVEN PARTNERS:

Variable is the word that comes to my mind. I agree that there are aspects that are absolutely brutal relative to historical norms, but there are also benefits. We are hiring at our software portfolio companies. The pandemic and the move to more work from home opened up geographic aperture and flexibility for our companies’ hires but also for companies that might have a higher wage standard, such as Silicon Valley-based businesses, which have the potential to encroach on second-tier tier cities that have great talent and drive wages up there. On the other hand, our companies are no longer constrained to hire in a radius around their headquarters location.

FUGAZY: How is the ability to hire talent anywhere helping and/ or presenting challenges?

NOON: It is a double-edged sword. On the one hand, it’s allowed us to think more globally, or at least nationally, about talent and not be restricted to a certain geography. On the other hand, our businesses are relatively small businesses. They tend to have 100 to 300 employees and a few dozen additional contractors. As a result, there is a lot of benefit to maintaining some degree of nucleus. A 100-person company spread all over makes it very difficult to establish a culture, create uniform processes and make decisions quickly and with conviction. Despite the fact that there is potential to work from anywhere, we have still prioritized having the ability to get people together on a regular basis at our portfolio companies.

About the Participants

NICOLE FORBES is deputy general counsel at G-P, a global employer of record company that helps customers engage talent all over the world without needing to set up their own international branch offices or subsidiaries. G-P works with clients of all sizes, industries and geographies.

JULIA KAROL is president and COO of the Watermill Group, a middle-market private equity firm that invests in manufacturing and industrial businesses. For more than four decades, the familyowned and -managed firm has been acquiring, operating and improving companies.

MICHELLE NOON is a co-founder and managing partner at Clearhaven Partners, a Bostonbased, lower middle-market software and technology buyout firm. Clearhaven invests thematically in growth-oriented companies with revenues below $100 million and where Clearhaven can partner with management and add value through operational improvements.

ILAN WEISER is a partner in the labor and employment practice group of Ellenoff Grossman & Schole, a New York-based law firm. He provides advice and counsel to businesses all over the country on how to comply with workplace laws concerning their employees. The firm was founded in 1992 and employs more than 120 lawyers.

A related issue that is important to address is that many companies had become complacent with respect to employee retention and career pathing. We’ve got to be better at recruiting, hiring and onboarding in order to be good at retaining. We have a saying inside our portfolio, which is, “Always be recruiting.” You’re not necessarily always hiring, but you’re always recruiting. To Nicole’s point, on the younger generation demanding more, it’s not just about more compensation. It’s about feeling valued, feeling that they’re a part of something that they believe in and that type of corporate investment in younger folks is a show of commitment. It’s harder to do that remotely.

WEISER: The employee empowerment concept is only becoming stronger. We’re seeing unionization efforts at Trader Joe’s and Amazon and even at much smaller companies. Gym memberships and free food aren’t as attractive as they may have been in the past, and I don’t even think working from home permanently is

that important to certain employees. Employees want to be part of something bigger and be valued. They want their concerns and suggestions to be heard and acted upon. That said, I think flexibility and transparency are probably going to continue to be the most important things going forward.

FUGAZY: Is flexibility—not necessarily work from home—what employees are after?

KAROL: Yes. There are a few things that are important to employees today. First is flexibility. The dynamics around having families and balancing it with work have shifted dramatically. Today, you have more flexibility to be present in your family life if you’re at the executive or professional level. I think companies that support family lives are going to be the ones to attract and retain talent much more readily.

On the other hand, we know that the large burden of pandemic childrearing fell to certain people who had to exit the workforce, predominantly women, which is one of the

NICOLE FORBES Deputy General Counsel, G-P

reasons we’re having a talent shortage. Corporations can recruit or retain by paying attention to families, because we’ve lost real talent to this pandemic.

Secondary things are the perks like working from home and gym memberships.

It’s also about knowing that you’re aligned with corporate values.

NOON: That last point is important. When we make an investment in any portfolio company, we have an exercise to align on strategy, which includes reviewing the company’s mission, vision and values. What we often find is those aspects are not consistently articulated by the team. Employees want to know what kind of company you are. It’s almost more important for us to talk about the culture and the company’s beliefs and ethics before getting into job responsibilities, because people want to feel like they’re doing meaningful work in a place that matches their values.

FORBES: That really resonates. We often focus on and talk about the mission of our company, which is to break down barriers to global business and enable opportunities for everyone, everywhere. Our company provides employment opportunities to individuals who they otherwise wouldn’t have access to because the company doesn’t have an international subsidiary. And on the other hand, we provide customers access to a talent pool they otherwise wouldn’t have considered. A lot of employees feel energized by the mission of the company and want to know what their career path could be and how they can contribute to the mission, rather than being interested in some of the tangibles like a gym membership, free meals and ping-pong tables.

WEISER: Flexibility can mean different things. It can be about letting employees carve out how they want to

do their work or where they are performing that work. If I’m going to let you be flexible and work from home, or work from wherever you want, does it mean I can just work from my weekend home versus the city office? Does it mean I get up at 5 o’clock in the morning and finish my work, so I can do other things during the day? Do I have to be on a 9 a.m. call every week even if I haven’t contributed to that meeting in any meaningful way in the past five years at the company? Employers seem to be more open to changing their practices and not sticking to what was previously done.

NOON: There are some benefits of what you are describing and then there is the potential downside of losing some of what makes a business more efficient, more cohesive and more effective. There is a need for some synchronous interaction. A lot of companies are faced with how to allow for flexibility while at the same time not losing the entirety of that cohesion.

The sooner we can get the right blend of flexibility and together time, the better off the company will be.

KAROL: In lean manufacturing, one best practice, which isn’t always universally applied, is the team huddle. At the beginning of a shift, everyone gets together on the floor for the huddle. When you apply tiny actions to bring teams together like that, you see dramatic improvement in the environment and performance.

However, the other side of it, is that these days nobody wants to attend the “stupid” meeting every Tuesday at 9 a.m., so there is something to striking the right balance.

FORBES: Because then your days become eight-plus hours of meetings on Zoom. You don’t have the time to think or the time to have personal interaction and problem-solve in person. I think that’s a huge struggle that a lot of companies are facing, but the key is finding a balance.

ILAN WEISER Partner, Ellenoff Grossman & Schole

FUGAZY: What is the disadvantage to people being remote?

KAROL: I was having a conversation with somebody recently who said,“I can’t believe I spent my entire professional career showing up in an office in a suit every day, that was so asinine. I wish I had joined the workforce a little bit later.” My reaction was, yes, I get it, but we're trained so that our best practices, our self-awareness of how we are most efficient and effective personally were already patterned by the time the pandemic hit so that you can be your best self. If you’re a junior person coming in for the first time and you’re not shadowing and you’re not being taught how to work, how do you learn?

FORBES: You can lose out on that mentoring, seeing different people in the workforce and how they interact with other people, how they problemsolve or deal with conflict, how they show up to work.

FUGAZY: There are clearly challenges the business community is still working through, but everyone has some degree of remote work now. What does it mean to hire outside of your jurisdiction from a legal perspective?

FORBES: Supporting a global workforce and allowing individuals to work in different locations comes with compliance challenges. You can’t just put someone on the ground in a different country and give them a U.S. employment contract and wire them money from the company’s U.S. bank account.

Generally, you need a legal entity in every country in which you have an employee, and the employment laws in that jurisdiction apply to the employment relationship. If a company wants to hire and expand internationally, you need to think about setting up a corporate entity, getting local tax advisors, lawyers, a local payroll company, insurance providers and making sure you have compliant employment documentation. It can be complicated.

There is no one-size-fits-all approach when hiring internationally. That said, you can use a company like G-P as an employer of record, so you don’t have to set up your own legal entity, run payroll, do taxes and deal with all of the employment and HR compliance issues.

WEISER: It’s difficult to hire employees on an international level without first doing proper due diligence to ensure you are complying with that country’s own local laws. And don’t forget that you also have different laws from state to state in the U.S. to worry about. Companies have to decide if they want to take on the burden of spreading out so far and wide. It’s a challenge with risks, and costs.

FUGAZY: What are best practices if you are going to hire remotely?

FORBES: Work with trusted advisors. Don’t feel like you have to go it alone. There are people and companies that advise on these issues and can make

We’re seeing that talent, particularly younger talent, is demanding more from an employer. They’re focusing on work/life balance, flexibility in the job and demanding more from the work relationship.

NICOLE FORBES,

MICHELLE NOON

Managing Partner & Co-Founder, Clearhaven Partners

Deputy

General Counsel, G-P

the process of hiring internationally much easier. And don’t assume what you’re doing at headquarters can apply everywhere.

WEISER: Do not let employees fly under the radar. You have to know where your employees are and where they are working from. The Department of Labor doesn’t know your private equity world and they’re looking at compliance in a black and white way. You don’t want to be caught off guard and be in legal hot water because you didn’t know where your employees were living and working, and which specific laws you were required to comply with.

NOON: We do labor and employment due diligence, we do tax and other legal due diligence. These are some of the issues that we’re looking at: Where are your employees based? Are these employees or contractors? Then it’s a risk-based assessment of how you remedy it, because you can’t snap your fingers and change your compliance overnight for every issue.

FUGAZY: There is a good and bad to the new world of remote work Where do we go from here?

NOON: Corporate leaders are still struggling to find that new normalcy because when it became obvious that people could work from anywhere during a pandemic, which was clearly at the time a temporary situation, we figured there would be a reversion to some level post-pandemic. You could withstand the notion that you’re in multiple time zones and people are taking Zooms from the beach. But now, some companies can maintain better than others, depending on the nature of their work and their employee base. And there is a reality that suggests maybe it’s not ideal that one member of the team is constantly taking calls at 5 a.m. Each company needs to decide what works for it. We

are far from establishing a steady state as a business community.

KAROL: We have assumed that people who thrive in an in-person environment are the ones that will thrive by going into the office and will not like remote working, and those people who put their head down and work can be happier working remotely. I think it’s the opposite.

Those people who like an in-person environment will more naturally gravitate to pick up the phone and say,“Here’s what I’m working on. Can I get your advice?” The person who is a lone wolf, likes to put their head down and just chug along is the person who needs to be in an office where you can pop your head in and say, “What are you working on right now? How are things going?” Otherwise, they become pretty isolated.

FORBES: There’s going to be a different balance for every company. As a company, we have had to figure out, how do we gather? What does that look like?

If you have a global workforce, you

have to be attentive and make sure you are working to create intentional interactions. We have gatherings and meetings across multiple time zones. For example, we have a company-wide all-hands meetings, but we have two sessions. One in the morning East Coast time to include Europe, LATAM, and East Coast U.S., and one in the evening to include employees in APAC, West Coast U.S., and those who might prefer an evening meeting. We want everyone to have a chance to participate.

WEISER: That’s smart because it makes employees feel part of a group, gives them flexibility and speaks to retention as well.

FORBES: Balancing remote work will continue to evolve and be refined, but it’s not going away. //

DANIELLE FUGAZY is a freelancer writer covering private equity for more than 20 years. She is based in Glen Cove, New York.

JULIA KAROL President and COO, Watermill Group

CATCH UP QUICK: From a promising segment in the pet industry to the impact of remote work on the tech sector, here are some of the highlights from this edition of DealMaker.

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CALIFORNIA SCHEMING

The widespread shift to working from home has come with pros and cons for software companies based in second-tier cities. On the one hand, they have a broader pool of talent to hire from; on the other, they’re now competing with employers in high-wage markets like Silicon Valley, which can lure away talent living in less lucrative locales. “Recruiting and Retaining Talent in a PostCOVID World,” p. 78.

FAMILY VALUES

GF Data, an ACG company, analyzed the characteristics of transactions funded by private equity groups compared with those led by family offices. Its findings revealed that, while family offices pay less for deals on average, they’ve been forced to pay more in the last seven quarters than they had previously. They’re also putting in less equity and more debt on average, compared with their PE counterparts, the data showed. “Investors Brace for a Bumpy Ride,” p. 34.

KITS FOR CATS

Long wait times for veterinary appointments and demand for high-quality care prompted the startup

MySimplePetLab to launch a line of at-home health test kits for pet owners to supplement their animals’ care between vet visits. The wellness segment in which the company operates is among the pet industry categories that is expected to prove recession-resistant, given the high priority that owners place on their animals’ well-being. “Putting the Pet Category’s Recession-Proof Reputation to the Test,” p. 28.

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TO BE CONTINUED

Continuation funds appear to be here to stay. If market conditions worsen and LPs have less capital to deploy, these vehicles offer a way to balance the needs of investors seeking liquidity, without having to rush to sell in a low valuation environment. Moreover, they offer an alternative to selling to a competing sponsor when a business still has room for additional growth. “In It for the Long Haul,” p. 16.

DOWN BUT NOT OUT

Some private equity firms are seeking late-stage startups unable to raise their next venture capital round, along with those waiting on the sidelines to avoid a potentially lower fundraising round, according to one investment banker. These PE firms, many of which are fresh off of recent fundraises, are eager to snap up strong companies that are hurting from market forces outside of their control. “Hunting in the Enchanted Forest: The Search for VC-Backed Treasures,” p. 68.

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