Middle Market Executive // Fall 2023

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Picking Your Spots

Arecurring theme that came up in conversations for this issue was “doing more with less.” When companies are operating with tighter budgets or smaller staffs, they can’t be all things to all people. Many are prioritizing senior roles in the organization, sifting through revenue streams to eliminate underperforming areas and choosing where to focus their time.

Whether companies are laying off workers or letting attrition naturally cut costs, many are still prioritizing C-suite positions. The chief talent officer, especially, has been a frequent new position at private equity organizations in recent years. We talked to a few of them in this issue for their outlook on the job market, hiring and workplace trends. Executives in these positions at GTCR and HGGC say they are focused on diversity, equity and inclusion efforts. Some are scouting for female talent through women’s groups in a male-dominated industry, while others have been working on recruiting efforts at colleges and with early-career professionals.

The post-COVID trend of hybrid or remote work has also opened up the talent pool considerably, given that companies can now find qualified candidates outside of their headquarters or other urban areas.

Remote work has allowed some companies to cut costs on real estate. Technology-focused executives in our Value-Add feature on p. 48 talk about how CFOs are tapping into data and analysis tools to get granular info on their office locations, size and use to help them figure out where they can end leases or find subletters.

At the same time, remote work isn’t prevalent everywhere. The Human Capital feature on p. 22 looks at how manufacturing companies are continuously dealing with labor shortages, which were common pre-pandemic and became exacerbated after COVID and lockdowns. Manufacturing-sector employees usually have to work on-site, but businesses that are struggling to find talent are starting to offer better hours and schedules to workers, as well as some hybrid or remote options where possible.

We’ll be watching these trends and more as M&A picks up and the market starts to recover. Feel free to share more news, tips and trends with us at tips@acg.org. //

32

A profile of GTCR Managing Director Melissa Mounce Mithal looks at her transition to private equity and how she’s cultivated a talent pipeline of diverse executives.

40

Despite challenging market conditions, recruiters see increased demand for operating partners and other specialized roles at private equity firms.

CEO Brent Baxter bbaxter@acg.org

SENIOR VICE PRESIDENT, ACG MEDIA Jackie D’Antonio jdantonio@acg.org

CONTENT DIRECTOR Kathryn Maloney kmaloney@acg.org

SENIOR EDITOR Anastasia Donde adonde@acg.org

DIGITAL EDITOR Carolyn Vallejo cvallejo@acg.org

ART DIRECTOR, ACG MEDIA Michelle Bruno mbruno@acg.org

VICE PRESIDENT, SALES Kaitlyn Gregorio kgregorio@acg.org

Association for Corporate Growth membership@acg.org www.acg.org

Copyright 2023 Middle Market Growth® and Association for Corporate Growth, Inc.® All rights reserved.

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PERFORMANCE REVIEW

48 Value-Add: Cutting Corners— How Today’s CFOs Are Using Tech and Data

52 Best Practice: Unraveling the Hidden Savings in Procurement

THE WRAP-UP

58 Backstage: How to Make Your Portfolio Company Shine

64 Key Takeaways

The Stand-Up

TOPICAL ISSUES AFFECTING MIDDLE-MARKET EMPLOYERS

8 16

ON TREND: STRUGGLING COMPANIES AND LENDERS HIT THE NEGOTIATION TABLE

Even as businesses cave to pressure from tough economic conditions, lenders are showing a willingness to work with them to avoid bankruptcy court.

THE WORKPLACE: UNDERSTANDING PROPOSED CHANGES TO NONCOMPETE AGREEMENTS

A common legal agreement is under scrutiny by national regulators and the state of New York. Here’s what buyers, sellers and operating companies need to know.

WATCH LIST: THRIVING IN THE EVOLVING HEALTHCARE PRIVATE EQUITY MARKET

The high cost of labor in healthcare platforms requires investors to evaluate staffing models and technology tools to foster productivity and support fast-paced growth.

THE STAND-UP // On Trend

Struggling Companies and Lenders Hit the Negotiation Table

BY BAILEY MCCANN

Rising interest rates and tough economic conditions are putting more pressure on companies. It’s no surprise then that default rates are also rising. Industry observers say that both companies and lenders are trying to avoid going to bankruptcy court, since that process is often expensive and time-consuming. As a result, restructuring, refinancing and the use of emergency financing—where available—are all on the rise.

According to data from PitchBook, corporate bankruptcy filings in June lifted the default rate of the Morningstar LSTA US Leveraged Loan Index to 1.71%, up from 1.58% in May. That marks an increase of 143 basis points from where the index stood a year ago. Broadly speaking, the number of bankruptcies that end up in court is still relatively low, thanks to a bigger focus on workouts and refinancings. Still, there have been a few high-profile cases in the headlines, including Bed Bath & Beyond, Serta Simmons Bedding and Cyxtera Technologies.

Sources say that bankruptcies and restructurings are impacting a wide range of industries, although there are some with more activity than others. Retail, aerospace and healthcare have all been hotspots recently. Because of secular trends, retail and healthcare tend to run nominally higher in terms of the number of filings, regardless of economic conditions.

Amend and Extend

When it comes to process, Ann Pille, a partner at law firm Reed Smith who focuses on restructuring, says that

companies and lenders are trying to exhaust other options before going to court. “It depends on the appetite of the lender, but a forced sale can be very expensive,” she explains. “If you’re going to court over a bankruptcy— unless there is a clear plan going in—it can be very expensive and there are a lot of things that are out of everyone’s control at that point. You’re leaving a lot of business decisions up to third parties and a bankruptcy judge.”

If a company has a pathway through trouble, Michael Krakovsky, managing director in investment banking at Stout, says amending and extending loan agreements is still possible. In this situation, borrowers may be able to extend the maturity of a credit agreement by several months. All or part of the loan may also be repriced to current market rates. These transactions are offered in lieu of refinancing and may give borrowers some breathing room.

“Lenders are willing to go along if there’s a story right now,” Krakovsky says. Apart from the cost of a forced sale, he adds that “there’s not much of a market to sell into right now if you want to maximize the value of that sale.”

Pille notes there is also a public relations aspect to lenders’ math. “If you look at recent cases, judges have been siding with borrowers if it’s not a substantial default,” she says. “Lenders also don’t want to look like they are the ones shuttering businesses. That’s been true since COVID; there is much more willingness to try and be flexible where they can.”

Some issues may not always warrant harsh legal remedies, Pille adds. She is seeing more covenant defaults,

Weighed down by rising rates and economic uncertainty, businesses are getting some help from lenders—if they agree to tighter terms

THE STAND-UP // On Trend

for example, in which a borrower defaults on loan terms but not on loan payments. When a company defaults on covenants, that can often be a precursor to a default on payments and may prompt lenders to ask for additional disclosures or a second look through financials to understand whether the covenant default might lead to something bigger. However, in many cases, companies can fix a covenant default without going into bigger financial trouble. Lenders, in turn, must balance how aggressive they want to be about pursuing remedies.

In Bed Bath & Beyond’s case, for example, the company announced in regulatory filings that its failure to meet its financial covenants with JP Morgan triggered a default.

In another example from June, a group of creditors reportedly sent a notice of potential default to Swedish property group SBB, saying it failed to meet one of its covenants requiring the company to cover interest payments, which could trigger a default if not resolved. The company issued a statement shortly after, saying it had met its consolidated coverage requirements.

The ability of a company to make payments often indicates its ability to repay the entirety of the loan. Typically when a covenant is breached, a lender will issue a notice of the breach. At that point, the company is required to resolve the issue, come up with a plan to resolve it, or notify the lender that the default indicates a bigger problem.

“We’re seeing lenders make new calculations in the face of covenant defaults,” Pille says. “They’re looking at what options are available, and it may be difficult for a company to extend loan maturity if they have defaulted on a covenant or if there are messy financials. It’s still happening, but companies may not always like the terms that lenders ask for.”

Robert Del Genio, senior managing director in restructuring for FTI Consulting, agrees. He notes that rising rates are putting extra pressure on companies. “The total cost of capital is higher, obviously,” he says. “But if you were to look back at loans several years ago, lenders would’ve wanted borrowers to hedge that debt. A lot of the debt right now is unhedged, so the rise in rates is having a bigger impact.”

Del Genio adds that many companies have less runway than they did before rates increased. “We’re seeing companies come to us for restructuring advice that have a couple of months of liquidity—sometimes it’s just a few weeks. That really limits a company’s options when they go into a restructuring negotiation,” he says.

Indeed, this is one of the issues emerging in trucking company Yellow Corp.’s bankruptcy filing. As of August, the company is considering bankruptcy loans from a number of lenders, a move that came as a surprise because there was a loan offer on the table from Apollo Global Management. Apollo had already loaned Yellow $501 million before it filed for bankruptcy. However, according to reports, Apollo’s proposal gives Yellow 90 days to wrap up its asset sales and move forward—a timeline the company says isn’t long enough. Apollo is also seeking veto rights on those sales, which could make it harder to comply with the 90-day time limit.

Yellow says it hopes that by entering into a competitive financing process, it can come away with better terms, according to a report from Reuters.

Other Lifelines

For privately held companies, the pathways to restructuring or bankruptcy look similar to those of public companies, although general partners may have additional options for a company that’s under pressure but not distressed just yet.

Brian Forman, partner and chair of the investment funds and advisors practice at law firm Morrison Cohen, notes that there has been a rise in single-asset vehicles housing performing assets that sponsors may not want to sell into a challenging market. He is also seeing a rise in net asset value lines, which GPs can use to distribute cash back to investors if they haven’t exited assets or paid distributions. These lines may also be used to cover other expenses.

“We’re seeing sponsors consider all of the options before them right now,” says Forman. “Some investors are still dealing with the denominator effect and would like to see some cash back. That can be difficult when exits begin to slow.”

Steven Cooperman, chair and co-managing partner in Morrison Cohen’s corporate department, notes that he’s heard from one sponsor asking about ways to extend the life cycle of a fund without resorting to either of these options. “That pathway is less clear,” he says. “When the manager finds out that they might not get a management fee during that period or there will be a lot of negotiations with investors to approve the extension, they may not want to go that route.” //

BAILEY MCCANN is a business writer and author based in New York.

Understanding Proposed Changes to Noncompete Agreements

BY STEVEN J. PEARLMAN, CHRISTOPHER D. AHN AND DARYL G. LEON, PROSKAUER

Noncompete agreements are under siege, facing attacks on the state and federal fronts. This is vividly illustrated by what’s happening within the Federal Trade Commission and the New York State Legislature. In the transactional context, employers should educate themselves about the proposed changes and plan accordingly.

The FTC is leading the movement to implement sweeping bans against the use of noncompetes by all employers vis-à-vis all employees—regardless of an employee’s position or compensation—with only narrow exceptions. At the same time, the New York Senate and Assembly passed a near-total ban on noncompete agreements in June, giving short shrift to the reality that the engine of New York is powered by the financial services and other professional sectors that often rely on noncompetes. The New York

ban is more restrictive than what we’ve seen in any other state. Even California is more liberal than New York in this regard, as it allows the use of noncompetes in the sale of a business context. But as of this writing, the ban has not been signed by (or sent to) New York Governor Kathy Hochul.

In the meantime, these proposals should be prompting buyers, sellers and operating companies to understand the viability and permissible scope of noncompetes and adapt their practices. Whether this results in sellers being subject to a progressively limited scope and duration of restrictions on competition, or whether buyers will attempt to bulk up other restrictive covenants that protect against raiding a target company’s employee and customer base, businesses should not expect to simply rely on historical practices.

Businesses will need to adapt their practices as federal and state bodies look to curb the use of noncompetes

The Workplace

FTC’s Proposed Rule

On January 5, the FTC published its proposed rule to ban nearly all noncompetes. The proposed rule was promulgated in response to President Biden’s July 9, 2021, executive order to promote competition. Three critical things the proposed rule would prevent employers from doing include:

1. Entering into or attempting to enter into new noncompete clauses;

2. Maintaining preexisting noncompete clauses; and

3. Representing to workers, under certain circumstances, that the worker is subject to a noncompete.

One of the only carve-outs is for the use of noncompetes entered into by a person who is selling a business entity (or their ownership interest in the entity), or selling all or substantially all of an entity’s operating assets. But this exception only applies if the seller holds at least a 25% ownership interest in the business. That is an extremely narrow exception and would, in many instances, exclude almost all principals of a business. It’s even more restrictive than the law in California, a state that’s no friend to noncompetes but which broadly permits noncompetes in connection with the sale of a business.

Employers are rightly concerned: The comment period for the proposed rule generated over 26,000 comments.

New York’s Legislation

Legislation introduced in New York would severely limit the use of noncompetes within the state. The bill passed both state houses, which means it just needs to be signed by Governor Hochul to become law. The bill has not been sent to the governor yet, and whether she actually signs it, and in what form, is the subject of debate and speculation.

In its current form, the bill includes a total ban on the use of noncompetes. It lacks exceptions for highly compensated employees or even for individuals who sell their business. These are fairly standard exceptions in other states (e.g., California) that impose some degree of restriction on the use of noncompetes.

If the bill is enacted, perhaps the only saving grace for New York employers and buyers may be that it is prospective, meaning it would only apply to “contracts entered into or modified on or after” the effective date.

Key Considerations for Employers and M&A Professionals

It is still unknown whether or when the FTC or New York will adopt their proposed noncompete restrictions. However, even without adoption, we are already beginning to see their impact manifest in employment negotiations and M&A transactions.

For traditional employment-related noncompetes, employers are increasingly seeking our counsel to draft bespoke restrictive covenants tailored to nuances of their business. Employers are also looking for other retention mechanisms, such as stay bonuses or forfeiture-forcompetition provisions, to mitigate against the possibility that noncompetes will be unenforceable. Similarly, we see more key executives pushing back against post-termination noncompete restrictions in employment and partnership agreements, with many citing the proposed FTC rule as justification for rejecting historical market practices.

In the M&A context, a number of recent deals, particularly those with broad employee equity ownership, have seen sellers becoming emboldened to push back against long-lasting and broad noncompete obligations, often citing the proposed rules as part of the justification. For example, in one recent sale transaction, the buyer proposed applying a five-year noncompete to all equity holders, including some who owned less than 1% of the business. Representing the seller, we successfully negotiated for: (1) a complete exception for the sponsor equity holders (as is market standard); and (2) a tiered noncompete for the employee equity holders, whereby sellers receiving less than $X were not subject to any noncompete; sellers receiving equal to or greater than $X and less than $Y were subject to a one-year noncompete; and only sellers receiving at least $Z were subject to a longer noncompete.

Even as we await new rules and legislation, employers and parties to M&A transactions must be mindful of the changing landscape, react to changing demands from sellers and employees, and anticipate how market expectations may evolve. //

STEVEN J. PEARLMAN is a partner in Proskauer’s Labor & Employment Law Department, CHRISTOPHER D. AHN is a partner in the firm’s Mergers & Acquisitions and Private Equity Group, and DARYL G. LEON is an associate in the Labor & Employment Law Department.

Thriving in the Evolving Healthcare Private Equity Market

While healthcare utilization outside of COVID-19-related care significantly declined in 2020 and 2021, such volumes have returned for non-COVID-related care. Most private equity healthcare platforms serve the latter, resulting in substantial topline growth year over year. With such growth in revenues also comes growth in cost, the largest source being labor.

For the 12-month period ending in June, the Bureau of Labor Statistics noted a 4.7% increase in wages and salaries and 5.2% in benefits cost. Although the government funded businesses that retained their employees through the pandemic with the Paycheck Protection Program and Employee Retention Credits in 2020 through 2022, such funding is not expected to be widely available going forward. The impacts of wage growth and inflation are new challenges for platforms to manage.

According to a new report from credit ratings agency Fitch, early 2023 data shows that healthcare labor costs are subsiding compared to 2021 and 2022. While this is good news, the healthcare sector still faces headwinds for labor costs in the coming years. According to a McKinsey report, clinical labor costs are expected to grow by 6% to 10% over the next two years, which is 3 to 7 percentage points higher than the prevailing inflation rate. Considering this, healthcare investors are challenged to recover the margins lost to increased costs of labor. They’ll need to identify innovative ways to build and create margin in a post-pandemic world, while also growing the top line to set up a successful exit in the future.

As people are the most impactful and costliest resource to healthcare platforms, investors must ask: Do we have the tools and resources in place to ensure patient-facing employees can be adequately utilized? Is the administrative team ripe for growth in a highly acquisitive platform that enables

How investors can foster productivity and build a back office that’s ripe for growth

KAYLA MARSH Director, FORVIS

investors to focus on the future, rather than question the past?

Productivity

With people at the core of the business, when and how services are provided is key. As labor costs have risen and impacted the overall cost of delivery of care, providers are questioning if improvements to margin can be made through reevaluating compensation and staffing models or whether such focus should shift to technology and innovation. Let’s consider these options.

One consideration made by platforms is to reevaluate staffing and compensation models. Is a productivity model the appropriate method to compensate providers based on collections received? Or is there a way to provide a salary-based model, consistent with many hospitals, with bonuses driven by margins that align the goals of providers with investors? Further, many platforms are considering the use of advanced practice providers and nurse practitioners in place of physicians in instances where practices struggle to attract physicians.

If the platform has identified its appropriate staffing and compensation model, other factors to consider for improving productivity are scheduling and technological solutions. Schedule management tools can serve as a map for productivity by providing information to identify available capacity. These tools can also provide information to assist in identifying no-show patients for further follow-up and offer the ability to further reduce the administrative burden for the back office. Considering these factors, investors must ask: Does this platform have the proper tools in place with its practice management systems? Or is there a need to develop and tailor something more specific to the platform’s needs?

Lastly, investors must ensure they can monitor such productivity and labor costs with the use of appropriate key performance indicators. While EBITDA is the king of the value castle, investors must monitor KPIs that provide a clear understanding of the cost of labor in the practice’s EBITDA, including but not limited to patient and provider-to-staff ratios, direct labor and support staff cost-to-revenue ratios, and patient visits to direct labor costs, etc. Such KPIs will reveal where the platform’s potential improvements lie to verify that efforts are appropriately targeted.

Ripe for Growth

Not only is the productivity of patient-facing employees important to the value creation of a platform, but the administrative staff supporting such operations must be ripe for rapid growth.

While interest rates and competition pose challenges for investors, many will focus on building scale in existing assets using add-ons with known cash flow potential, according to Bain & Co.’s Global Healthcare Private Equity and M&A Report 2023. Further, given the market and margin pressures, many independent practices may be more interested in selling to private equity to help navigate the effects of such contraction in their business, resulting in an ample supply of add-on opportunities. As a result, this will apply increased pressure to the back office of platforms that have to rapidly integrate add-on acquisitions into existing operations.

It is pivotal for investors to make certain the right administrative and nonclinical personnel are in place to support the expected growth many healthcare platforms will experience over the coming years. Many physician practices prior to a private equity acquisition run lean back offices where multiple tasks are covered by one individual, with the goal of maintaining operations. If a platform is expected to close and integrate multiple practices within a short period of time, platforms must assess whether additional resources are needed to separately focus on the integration of new practices outside of the day-to-day operations. Once integrated into the practice’s systems, investors should ask: Is back office staffing adequate to support the increased volumes? Or could technological improvements or outsourcing be employed to ensure operations do not fall behind?

With market and labor cost trends facing the healthcare industry, the key to a successful investment and margin growth is a forward vision that is both informed and innovative. That vision should ensure the platform’s most prized resource—its employees—are aligned and supported throughout such growth to create value over its life cycle and result in a successful exit. //

KAYLA MARSH is a director in FORVIS’ National Healthcare Group. She has more than 11 years of accounting and audit experience and currently serves on the board of directors for the Dallas/Fort Worth chapter of ACG.

It is pivotal for investors to make certain the right administrative and nonclinical personnel are in place to support the expected growth many healthcare platforms will experience over the coming years.

February

April

People First

INSIGHTS INTO FOSTERING EFFECTIVE WORK CULTURES AND CAREER ADVANCEMENT

20 22

HUMAN CAPITAL: A Q&A WITH HGGC’S CHIEF TALENT OFFICER

Louise Husin discusses how businesses are approaching hiring and retention, doing more with less and designing diversity, equity and inclusion initiatives.

HUMAN CAPITAL: MANUFACTURERS FORGE NEW WORKFORCE SOLUTIONS

U.S. industrial businesses are finding creative ways to attract and retain workers, from offering rare benefits to tapping into unconventional talent pools.

26

ON THE MOVE

Recent hires and promotions, including PE operating partners, advisors and C-suite executives.

HGGC’s Chief Talent Officer Talks Workforce Trends

From the start of the COVID-19 pandemic through the economic uncertainty in recent months, various workplace trends have been top of mind for middle-market portfolio companies and their sponsors. Louise Husin, chief talent officer at HGGC, talks to Middle Market Executive about how businesses are approaching hiring and retention, doing more with less, and creating diversity, equity and inclusion initiatives.

Middle Market Executive: Hiring is down this year, and many companies are battening down the hatches and powering through a challenging environment. What are you seeing in terms of supply and demand drivers for talent right now?

LOUISE HUSIN: We back many growth-driven businesses that continue to invest in people, process and technology to help drive growth as part of the value creation plan. Return on investment remains our focus when we’re making any type of investment. Whether it’s talent, process or technology, we need to think about those three things. Doing more with less always helps in that regard, especially in these times.

We’re positive in terms of net head count on a year-overyear comparison. Based on our latest quarterly reporting, the one tactic that we have seen portfolio companies use to manage these tighter hiring plans is to let natural attrition provide relief when appropriate. Some attrition is welcome in an organization and certainly at times like these. It’s also about how you can strategically and opportunistically manage attrition to continue to create value in the portfolio while at the same time staying very focused on key hires.

MME: Which key positions are companies prioritizing?

HUSIN: Hiring definitely continues at the executive level across the portfolio—certainly in talent-related roles and CFO-related roles. Demand is there, and I don’t see that changing. Those are critical key roles on the management team to drive growth in the portfolio.

MME: What are employers looking for in senior executives right now? Are certain qualities necessary to navigate through this challenging market?

HUSIN : Companies continue to focus on finding individuals who have the vision to lead. That is something that can be

hard to test for, so you have to stay very focused on that. What I think is really interesting is that the challenges of the past few years—the pandemic, inflation, interest rate movements and the broader macro instability—have really created a perfect storm of conditions that have shined a spotlight on players who have exceeded expectations. There’s been a gift that’s come from that.

If you just step back and think about the skills that leaders have had to demonstrate to navigate turbulent times, it has made those individuals even more marketable than they were before. The types of candidates who you want to find are those who’ve been able to navigate during the pandemic, develop those strengths, and come out on the other side even stronger and more resilient than they were before.

MME: Where are we now with some of the pandemicera trends like the “great resignation” or remote work?

HUSIN: I think of “the future of work” as one large ongoing global experiment. The resignation rate has steadily declined since the spring of 2022 and is getting closer to pre-pandemic levels. The data would suggest that the “great resignation” is in the rearview mirror. With that said, although employees are less likely to leave their jobs now, there is and will continue to be an expectation of flexibility. Things have changed and the work-from-home trends enabled by technology that we saw emerging in the late teens were accelerated by the pandemic. The traditional five-days-a-week-in-office schedule that we all remember seems outrageous now.

Norms changed during the pandemic, and it’s no surprise that hybrid work is growing as a result. Data shows that fully remote work is beginning to decline. Hybrid work is growing because it’s a bit of a meet-in-the-middle strategy that benefits both workers and employers. I think there’ll be more and more hybrid work, and it’ll become very structured in organizations. The focus will be on fine-tuning and optimizing that hybrid work experience to optimize benefits on all sides.

MME: What about retention strategies aside from hybrid work? There might be limited capacity to increase bonuses or compensation structures right now. What else are companies doing to keep employees?

HUSIN: Within HGGC and across the portfolio, we have been leveraging the increased flexibility of the hybrid model to attract and retain top talent. This manifests itself in finding remote hires with specialized talent who were not available in the local hiring market. I think that’s been an interesting opening up of the talent portal.

In terms of retaining talent, culture has never been more important. Like they say, “Culture eats strategy for breakfast.” Workers—especially younger workers and early-career

professionals—are becoming more and more focused on the culture of the organization. They’re asking questions like: Do I see this as an organization that aligns with my own value system? Is this a place where I believe I can thrive? Am I going to be working with people where I feel supported?

While competitive compensation remains a big part of it, that’s table stakes now. People are looking for those additional aspects of the value proposition like career growth and a culture that resonates. Mentorship is also important: How do I get access to an individual who cares about my career and career growth, and who will give me that advice? Those are some of the strategies that can help retain talent.

There is also diversity, equity and inclusion, which we believe helps drive stronger investment returns. It’s also something that is very important to organizations today and will continue to bring the very best diverse talent to the table. Workers want to be part of an environment where DEI is a priority and where there are clear strategies to achieve that.

MME: How are you advising companies on where to find diverse talent and how to recruit those professionals?

HUSIN: We believe DEI often leads to better investment outcomes, and we are working hard to encourage greater diversity within HGGC and across the portfolio. There are various programs we’ve put in place, such as internship programs where we’re trying to access talent very early on. There are efforts where we’re working with external organizations to be part of mentorship programs across the industry. We also use community programs. We’ve done a lot of work internally through foundations, and we had our first HGGC Scholars Program this year, which was designed to bring in 15 students from colleges across the California network to spend a day at our firm and learn about careers in private markets.

From entry to board level, we’re trying to build a strong pipeline of talent. A lot of that comes through relationships and playing the long game. I have a view that diversity is never done. There is no destination. It’s about the journey and it’s about constantly staying present, staying focused on goals, and being flexible and willing to consider candidates who may not have the traditional background that has been typically prioritized for certain positions. When we can open our minds to think about candidates who have had a different path to success, that opens the talent pool considerably. //

LOUISE HUSIN is the chief talent officer at HGGC, where she focuses on talent acquisition, management and development at the private equity firm and across portfolio companies. She also oversees HGGC’s diversity, equity and inclusion initiatives.

Manufacturers Forge New Workforce Solutions

Against long odds, U.S. industrial businesses are finding creative ways to attract and retain much-needed workers

BY KATIE MALONEY

Even before COVID-19, the U.S. manufacturing sector faced challenges with hiring and retention, which became more acute during the pandemic. Today, industrial business leaders and their investors are finding creative ways to fill jobs and retain workers to keep up with demand.

The industrial sector has long been plagued by worker shortages as baby boomers retire and younger workers lack either the interest or the skills to fill open jobs. The pandemic exacerbated the problem by creating widespread labor shortages that continue today. The U.S. Chamber of Commerce estimated in March that there were 693,000 open manufacturing jobs in the country.

Laura Fischer, managing director on the human capital management and payroll consulting team at professional services firm Sikich, notes that machinists, operators and technicians are among the most difficult roles to fill, due to a shortage of required skills.

Jobs perceived as dirty or dangerous, such as those in foundries or otherwise involving heat, are especially difficult to staff, adds Shannon Gabriel, vice president in the leadership solutions practice at TBM, a manufacturing operations and supply chain consulting firm.

Geographic migration poses yet another challenge to recruiting, says Russell Greenberg, founder and managing partner at Altus Capital Partners, a private equity firm with offices in Connecticut and Illinois. Census data shows that the Northeast and Midwest regions lost residents between 2021 and 2022, while the South and West experienced positive net migration. A declining local population means an even smaller talent pool, regardless of whether the company operates a foundry or a pharmaceutical plant. “Geography is an obstacle more so than any one niche of manufacturing,” Greenberg says.

In many ways, the deck is stacked against manufacturers, yet they show no intention of downsizing. Responding to the latest Sikich Industry Pulse in March, 92% of manufacturing and distribution executives said they plan to maintain or expand their workforce over the next 12 months.

Being Flexible

The labor dynamics within manufacturing have prompted businesses to adjust compensation. More than half of manufacturers (53%) in Sikich’s March survey said they increased wages by 5% to 8% over the prior 12 months,

while 22% of respondents said they’ve increased wages by at least 9%.

Yet there are signs that the focus is shifting away from pay in lieu of other perks.

TBM’s Gabriel has seen growing interest in vacation benefits among workers. “They don’t want to work six days a week. They don’t want to work 80 hours a week, if they’re salaried,” she says. “They want to have paid time off.”

Interest in such benefits is especially high among younger employees, Gabriel adds. “That definitely shows with newer generations that are coming into the workforce. Work-life balance is the most important thing to them.”

Remote or hybrid work arrangements have become a larger part of the conversation since the start of the pandemic, too, particularly as manufacturers compete for talent with industries that offer this benefit.

Manufacturing work often requires employees to be physically present. But after receiving requests for hybrid work from support staff at its industrial portfolio companies, Blackford Capital found a workaround. The Grand Rapids, Michigan-based private equity firm implemented what it calls a “4-10” concept at many of its plants, wherein most factory workers and support staff work 10-hour shifts Monday through Thursday. Any overtime labor is then done on Friday.

“In the best-case scenario, folks get a three-day weekend; worst case, they at minimum get their full weekend, Saturday and Sunday,” says Carmen Evola, managing director at Blackford.

Manufacturers are increasingly attuned to the needs of current or prospective employees, with an eye toward providing benefits they can’t get elsewhere.

One of Fischer’s manufacturing clients began offering a 9 a.m.- 3 p.m. schedule to accommodate employees with children. “Parents can still be with their kids before and after school, and it’s worked really well to attract and retain employees,” she says. Another client, which employs Hispanic workers, offers free English classes.

The worker shortage and skills gap have led manufacturing businesses to look beyond their typical pools of job candidates, such as retirees interested in returning to the workforce part-time or refugees, according to Fischer.

For its part, Washington, D.C.-based private equity firm HCI Equity Partners hopes to tap into military veterans transitioning into the private sector. In July, HCI

It's all about looking in new places, being more inclusive and finding talent wherever you can.

Doug McCormick, Co-founder and Managing Partner, HCI Equity Partners

Human Capital

announced a partnership with Headlamp, an organization that helps military veterans find civilian jobs, and Sutton Growth Group, a professional services firm focused on training. The collaboration will identify veterans for positions at HCI’s portfolio companies and provide training for their new roles, says Doug McCormick, co-founder and managing partner at HCI.

A U.S. Army veteran himself, McCormick notes that veterans tend to have a difficult time finding jobs after leaving the service. “I would argue it’s not because of a lack of will; it’s not because of a lack of skill set,” he says. “It’s a lack of a broader understanding within the business community around how those skill sets can translate to a new environment.”

As part of the program, 10 veterans will work within an HCI portfolio company for a five-month internship, during which the Department of Defense covers relocation costs, salaries and benefits. When an intern is hired full-time at an HCI portfolio company, the private equity firm will fill the internship slot with another veteran, so that 10 participants are always in its program.

A month after the new initiative was announced, McCormick says several veterans are already participating.

Tapping into the veteran talent pool is just one example of the creativity U.S. manufacturers will need to employ to fill jobs. “It’s all about looking in new places, being more inclusive and finding talent wherever you can,” McCormick says.

Engaging Talent

Business leaders and investors acknowledge that finding workers is only half the battle. Keeping them around can be equally challenging.

TBM’s Gabriel emphasizes the importance of thoroughly vetting candidates during the hiring process, providing them with onboarding and training, and integrating them into the company. “You have unskilled workers who are coming in, working the line, who have no idea how to do their jobs,” she says. “They’re working side by side with highly skilled, tenured operators, who are frustrated with the new employees’ lack of speed and accuracy.”

That’s led to a high rate of so-called “quick quits,” where new workers resign within 30 days. Gabriel estimates that about 50% of new hires quit in that timeframe.

The manufacturing industry also struggles with the

related problem of absenteeism. Employees who don’t feel connected to their work or employer are less inclined to show up every day.

Two years ago, Blackford Capital embarked on a series of small group meetings to understand what Evola describes as “the good, the bad and the ugly” at its portfolio companies, including high rates of absenteeism at some.

Burgaflex, a maker of tube and modular hose assemblies for the heavy-duty truck market, was among the companies whose leadership and manufacturing teams met with Blackford to discuss improvements. Before this endeavor, Burgaflex had an absentee rate of about 12.5%.

At the time, contract laborers made up about a quarter of the workforce at the Fenton, Michigan-headquartered company—a common practice within the industry, Evola notes. The company has since stopped using temporary employees entirely, with the goal of creating a more stable workplace with less churn.

Over the same two-year period, Burgaflex improved the employee experience through repairs to the parking lot and upgrades to its facilities, plant renovations and new office construction, Evola says. Burgaflex also implemented a new program that pays hourly workers a bonus if they meet safety, quality, productivity and attendance goals. He notes that Burgaflex’s absenteeism rate has since dropped to below 3%. “It’s been an incredible transformation,” he says.

There may be no silver bullet for solving manufacturing’s talent woes, so prioritizing the needs of each business and its local workforce will likely remain a focus for investors and management teams. Efforts to change manufacturing’s reputation as an unsafe or dead-end profession can come from a private equity partner’s investments and upgrades, particularly for safety practices.

By effecting changes that protect and educate workers and make work more enjoyable, manufacturing may yet become an appealing career path for a new generation.

“People think manufacturing can be dangerous,” says Altus’ Greenberg. “If you do the right things to impact safety programs and education, it’s a very clean and safe environment where [workers] add a lot of value and you can get good wages.” //

KATIE MALONEY is Middle Market Growth’s content director.

Preparing Businesses for Rapid AI Progression

Data integrity is foundational

informed decision making and performance improvement.

ChatGPT continues to be a powerful demonstration of AI’s growing capability and has most of us thinking “what’s next?” Whatever it is, experience tells us that it is going to come swiftly.

If an AI-enabled ERP were introduced tomorrow, the speed at which a company could implement and reap the associated benefits would be heavily influenced by how effectively it manages data today. The output from AI is only as good as the data it is fed, and as the adage states: “garbage in” yields “garbage out.” There has never been a better time for businesses to make the necessary preparations to adopt AI-powered software. In other words, it is time to take out the proverbial trash.

About Beckway

Beckway partners exclusively with financial sponsors and portfolio companies to achieve operational and financial goals. Clients value Beckway’s decades of direct in-house and private equity experience in risk mitigation, cost savings strategies, operational improvements, and EBITDA growth.

More than consultants providing recommendations, Beckway team members deliver measurable results. Working side-by-side with our clients to identify and drive strategic initiatives, our engagements utilize proven methodologies, and through effective change management and training regimens, ensure those results are sustainable.

On the Move

HUGO DOETSCH

Hugo Doetsch was recently appointed chief financial officer of symplr, an enterprise healthcare operations software company.

He joins symplr from NetDocuments, a cloudbased content management platform for legal professionals, where he served as CFO and was honored as CFO of the Year by Utah Business Magazine in 2022.

Prior to his role at NetDocuments, Doetsch was a strategic lead in various capacities, having held positions at Citigroup and Citadel Securities. He served as head of finance, investor relations, and strategy and corporate development at Ping Identity, where he led the company to its IPO in 2019.

At symplr, Doetsch will oversee financial operations and contribute to the company’s growth strategies.

TOM NARATIL

Tom Naratil was appointed operating partner to Lightyear Fund V by Lightyear Capital, a New York-based private equity firm that focuses on strategic investment in financial services, technology, healthcare and business services.

Naratil most recently served as co-president of UBS Global Wealth Management, president of UBS Americas and a member of the UBS Group AG’s executive board.

He has also held other positions at UBS, including group chief financial officer, group chief operating officer and president of Wealth Management Americas.

Apart from his executive positions at UBS, he is a finance senior fellow in the Department of Social Sciences at the U.S. Military Academy at West Point, where he’s working on the development of the Lab for Economic Security.

BYRNE MULROONEY

New York-based Tandym Group, a national consulting, recruitment and workforce solutions company, appointed Byrne Mulrooney as CEO.

Mulrooney also joins the board of directors at Tandym, which is part of the portfolio of Mill Rock Capital and Intermediate Capital Group.  Mulrooney previously worked at Korn Ferry as CEO of Korn Ferry Digital and CEO of the Recruitment Process Outsourcing segments.

Prior to Korn Ferry, Mulrooney was president and COO at Flynn Transportation Services, president of staffing and workforce solutions at Spherion and president of operations solutions in the Midwest region at EDS.

JENNIFER PEREIRA

Fengate Asset Management, an alternative investment manager with infrastructure, private equity and real estate strategies, announced Jennifer Pereira has joined the firm as managing director of private equity.

Pereira’s role includes investment decisionmaking, management of Fengate’s private equity funds, strategy, operations and investor relations. Fengate has offices in Ontario and Texas, with team members across North America.

Prior to joining Fengate, Pereira spent 12 years at CPP Investments, most recently as managing director of private equity, leading coverage in the consumer sector. Before joining CPP, she worked as a management consultant at the Boston Consulting Group, where she advised a broad range of clients with a focus on financial institutions and consumer companies.

PAUL ZUBER

London-based Hg, an investor in European and transatlantic software and services businesses, appointed Paul Zuber as operating partner, North American lead.

He will be working closely with Hg’s senior leadership team to help solidify the firm's transatlantic software investment capabilities.

Previously, Zuber was an operating partner and head of the technology group at Thoma Bravo. He has served as CEO at Dilithium Networks, president of Solectron Australia, co-founder and CEO at Bluegum Group, and vice president of operations and CFO at Ready Systems. He received the World Economic Forum’s Technology Pioneer Award in Davos in 2010.

GEORGE MICHEL

Pennsylvania-based NewSpring Capital, a diversified family of private equity firms, appointed George Michel to its value creation team.

Michel will use his experience in executivelevel positions at franchise businesses to help NewSpring portfolio companies achieve operational excellence as they open in new locations.

Michel’s previous executive roles include CEO positions at Friendly’s Restaurants, Johnny Rockets, Boston Market, Timothy’s Coffee and A&W Restaurants.

He has also held many other high-level operational positions at companies like Burger King, Brinker International and A&W Canada.

On the Move

MARK DORN

Alvarez & Marsal, a global professional services firm, appointed Mark Dorn as a senior director in its private equity performance improvement practice.

Before joining A&M, Dorn held leadership and management positions at Digital Equipment Corp., XcelleNet, The Concours Group, Answerthink/ Hackett Group, PwC and The Association for Supply Chain Management.

Dorn also founded The Impact Sales Group, a contract sales consulting firm.

VINCENT BRADLEY

Maryland-based Anne Arundel Dermatology, a provider of medical, surgical and cosmetic dermatological services, appointed Vincent Bradley as chief executive officer.

Before joining Anne Arundel Dermatology, he was CEO at Advantia Health, co-founder and CEO of Heart + Paw, operating executive at Waud Capital Partners, president and CEO and senior vice president of operations at Banfield Pet Hospital, divisional vice president at Take Care Health Systems and executive director at YMCA of Greater Cleveland.

Anne Arundel is backed by Ridgemont Equity Partners, a Charlotte, North Carolina-based private equity firm.

MICHELE FRIEDMAN

JSI, a national provider of regulatory, compliance and management consulting services to telecommunications providers, hired Michele Friedman as chief operating officer. JSI is a portfolio company of lower middle-market private equity firm Stone-Goff Partners.

Prior to joining JSI, Friedman served as COO of Tribalco, an IT and telecommunications systems integrator, where she led the sales, engineering technical services and operations teams. She previously held senior positions at Discovery Communications as vice president of portfolio and program management, and at Accenture as a partner within the communications and high-tech consulting practice.

JOHN KAHAN

John Kahan recently joined New York-based MidOcean Partners as an operating partner. He has served on several boards, including Stagwell Marketing Cloud, U.S. Venture, the Novartis Foundation and the Aaron Matthew SIDS Research Foundation.

He was previously a strategic data science advisor and director at the Institute of Health Metrics and Evaluation at the University of Washington.

He also worked at Microsoft in various positions, including vice president, chief analytics officer and several general manager-level roles. He was also vice president of integrated marketing communications at IBM.

DOUG READER

Dallas-based Kainos Capital, a private equity firm focused on food and consumer-related sectors, has appointed Doug Reader as senior managing director.

In his new role, Reader will lead the Kainos operations team and serve as a strategic partner to the firm’s portfolio companies by advising on their financial operations, information technology and overall operations.

Reader has spent over 40 years in the consumer goods industry, specifically food, wellness, nutrition and supplements. He has a proven track record for supporting multiple private equity portfolio companies with business optimization, turnarounds and alignment of business goals with investment strategies.

Most recently, Reader was CEO at Arizona

Nutritional Supplements, a full-service contract manufacturer specializing in nutritional and dietary supplements.

Reader’s relationship with Kainos is not new, as he previously served as CFO, COO and president of portfolio company SlimFast/HNS before its sale to Glanbia in 2018.

He has also been CFO of South Beach Diet, COO and CFO of Fruit Patch, CFO of Dickinson Frozen Foods, director of property and revenue accounting at Albertsons Supermarkets, and director of finance and controller at Coca-Cola Enterprises.

He is currently a board member at Titan 100 and Women in Nutraceuticals and an advisory board member at Miracle Noodle.

Special Report: Healthcare

Middle Market Growth’s healthcare report draws on expert analysis and data to go in-depth on the forces shaping the sector, recent M&A activity, promising investment niches and the future of the industry.

Look out for this digital report in November, available exclusively at middlemarketgrowth.org

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Features

BUILDING A DIVERSE TALENT NETWORK IN PRIVATE EQUITY

A profile of GTCR Managing Director Melissa Mounce Mithal looks at her transition to private equity and how she’s cultivated a talent pipeline of diverse executives.

SHIFTING PRIORITIES

Despite challenging market conditions, recruiters see increased demand for operating partners and other specialized roles at private equity firms.

There have been a lot of shifts within the market in the past few years—finding up-and-coming executive talent is key right now as we see many executives retiring or opting out for lifestyle reasons.

MELISSA MOUNCE MITHAL Managing Director, Leadership Talent and Diversity, GTCR

GTCR’s Melissa Mounce Mithal bolsters executive talent for investment success

Features

Talent Network BUILDING A DIVERSE IN PRIVATE EQUITY

PHOTOGRAPHY BY John Boehm WRITTEN BY Meghan Daniels

Melissa Mounce Mithal was recruited into private equity at 30,000 feet.

A decade ago, on a flight from Chicago to San Diego, she happened to sit next to a private equity partner looking to add a human capital leader to his firm’s team. Although Mounce Mithal, who at the time was leading global talent acquisition at healthcare company Abbott, was intrigued by the opportunity, she didn’t know if anything would come from their in-flight conversation.

But it did. After nearly two decades in professional services, Mounce Mithal took a role at private equity firm Baird Capital as its first human capital operating partner, a position she held for five years. “At the time, the human capital role was a very new one in private equity,” says Mounce Mithal. “Focusing on talent to bring about investment success was an emerging strategy, and it was an exciting opportunity to shape a new position.”

Today, Mounce Mithal is the managing director of leadership talent and diversity at Chicagobased private equity firm GTCR, which she joined in 2019.

“Private equity is my third career incarnation,” says Mounce Mithal. She started out in corporate strategy at Motorola before moving on to professional services, where she was a business transformation consultant and people operations leader at EY and then a client services manager at Aon, leading global operations for the recruitment process outsourcing business. The role at GTCR was appealing not only because of the firm’s marquee brand but also because the average size of its portfolio companies was larger, making it more analogous to the work she’d done as a consultant and with clients in her corporate roles.

EMBODYING THE “LEADERS STRATEGY”

GTCR was also an appealing next step for Mounce Mithal due to the firm’s strongly held belief in the importance of talent. GTCR’s Leaders Strategy, which focuses on sourcing and

VP of Finance Transformation and DEI, Gogo Business Aviation

creating partnerships with management leaders, has been a differentiator for the firm for over 40 years. “Talent is core to GTCR. I knew if I took this role, I wouldn’t have to work to establish why talent was important—it is and has always been a foundational philosophy for the firm, and that was extremely attractive to me,” says Mounce Mithal.

While Mounce Mithal oversees GTCR’s network of executive relationships, “maintaining these relationships is very much a shared responsibility at the firm,” she says. This is one way in which the firm builds a deep bench of qualified candidates for board directors, advisors, operators and other executives. Everyone at GTCR is expected to know who the experts in their investment sectors are, integrate themselves with those executives and research those areas regularly.

Cultivating trust between GTCR and its

She’s a very humble leader and an excellent facilitator. She makes sure no one voice dominates the conversation and that everyone has the opportunity to speak.

JAY BOYKIN

portfolio companies is key to the Leaders Strategy’s success, and from all accounts, Mounce Mithal excels in this regard. “Melissa and the rest of the GTCR team are excellent at supporting portfolio companies without dictating,” says Jim Henderson, the chairman and CEO of insurance agency AssuredPartners, a GTCR portfolio company. Henderson has worked with Mounce Mithal’s team on numerous initiatives, including identifying a new HR executive for AssuredPartners; crafting a succession plan; and incorporating diversity, equity and inclusion (DEI) practices into the company’s hiring process. “Melissa and her team advise us, but there’s a lot of autonomy involved—they would never tell us who to hire or even how to hire them. Instead, they help provide us with a blueprint of different candidates’ strengths and weaknesses and

make sure we have a team around us to fill in any gaps or address any potential issues.”

Mounce Mithal makes use of her background in HR and talent acquisition to foster communication and collaboration among the HR leaders at GTCR’s 37 portfolio companies. The firm’s annual Human Capital Summit, hosted at its Chicago office, is a daylong event and dinner featuring trending topics, workshops, guest speakers and networking. “We continue the collaboration and momentum throughout the year with quarterly virtual sessions,” says Mounce Mithal, and all the HR executives are also connected on an online collaboration platform.

“Exposure to other companies’ strategies is so incredibly valuable and provides an opportunity to learn from others’ successes and mistakes to guide

our own experience,” says Henderson. “Melissa drives these symposiums with excellent leadership skills and good energy, and makes everyone feel comfortable.”

Mounce Mithal’s humility and facilitation skills stand out. “We’ve all been at an event where it’s clear the organizer is just trying to shine the light on themselves. Melissa does not do this at all,” says Jay Boykin, the vice president of finance transformation and diversity, equity and inclusion at GTCR portfolio company Gogo Business Aviation. “She’s a very humble leader and an excellent facilitator. She makes sure no one voice dominates the conversation and that everyone has the opportunity to speak.”

DOUBLING DOWN ON DIVERSITY

The pandemic hit a year into Mounce Mithal’s tenure at GTCR. In a time of uncertainty, when no one was traveling and many deals were stalled, Mounce Mithal decided to focus on cultivating diversity in GTCR’s executive network. “Executive accessibility was at an all-time high. As a firm, we saw this as an opportunity to double down on ensuring that we were building diverse talent pools in our executive network,” says Mounce Mithal. GTCR used Zoom and online networking tools to build relationships with diverse candidates. “It was highly proactive work and has really paid off in terms of being able to place executives whom we first connected with over Zoom,” says Mounce Mithal.

To help expand GTCR’s network of female executives, as well as support those currently in its network, Mounce Mithal developed a partnership between her firm and Extraordinary Women on Boards (EWOB), an organization that aims to raise the presence and influence of women in the boardroom. “From the moment we met Melissa, we were inspired by her versatility and agility—she comes from a background that goes well beyond HR and includes operations and lots of other experiences that make her a very strategic thinker,” says Lisa Shalett, a former Goldman Sachs partner who co-founded EWOB with former financial services executive Lisa DeCarlo.

GTCR looks to EWOB’s more than 700 members as potential candidates for portfolio companies’ boards. The firm also sponsors memberships to EWOB for its portfolio companies’ female board members. This year, there are 29 female directors benefiting. Overall, GTCR has prioritized creating a community for its women directors. In partnership with EWOB, the firm held an inaugural in-person summit for female directors in May and plans to host several virtual events and in-person dinners throughout the year. GTCR also provides a collaboration platform to allow everyone to interact virtually on a regular basis.

“We’ve worked with Melissa and GTCR’s CFO, Anna May Trala, to create a community within a community, enabling Melissa as well as the GTCR directors to get a lot of feedback, strengthen relationships and create a real sense of mutual respect and connectivity. It’s an initiative that really sets GTCR apart,” says Shalett.

“It’s so helpful to meet people having similar experiences as you are, and compare and share skill sets,” says Vicki Dudley, a board member at GTCR portfolio company Cisive. In addition to the in-person events, EWOB’s content, which features relevant news articles and opportunities to

9 YEARS IN PRIVATE EQUITY

Managing Director, Leadership Talent & Diversity at GTCR

Principal, Global Portfolio Operations at Baird Capital

14 YEARS IN PROFESSIONAL SERVICES

Director, North America Talent Operations at Capgemini

Senior Manager, Business Process Transformation at EY

Global Recruiting Operations Leader, Talent Acquisition Solutions at Aon Hewitt

11 YEARS AS A CORPORATE OPERATOR

Global Talent Acquisition Leader at Abbott

Senior VP, Enterprise Talent Acquisition Leader at PNC

Manager, Global Strategy at Motorola

connect with other female board members, is also very valuable, says Dudley. “There are not a lot of women in private equity, and Melissa’s efforts certainly go a long way toward helping the women who are there feel more comfortable, while making space for more to enter the industry,” she notes.

Mounce Mithal’s team has also created a DEI learning series to empower and encourage diversity within the executive ranks of GTCR’s portfolio companies. The series brings together human resources leaders and executives focused on DEI efforts at GTCR portfolio companies, both virtually and in person.

“We talk about best practices, what’s working and what’s not, and ideas for things we can do to promote DEI in our various companies. It’s a good opportunity for us to share ideas in a very collaborative environment,” says Gogo Business Aviation’s Boykin. Gogo Business Aviation’s CEO is a signatory of the CEO Action Pledge for Diversity and Inclusion, as is GTCR itself and 84% of its portfolio companies. The learning series centers around the four pillars of the CEO Action Pledge, which include cultivating environments that support open dialogue on complex conversations around DEI, implementing and expanding unconscious bias education and training, sharing successful and unsuccessful DEI programs and engaging boards of directors when developing and evaluating DEI strategies.

The private equity industry is often criticized for its lack of diversity, and Mounce Mithal and her team recognize that it’s important to turn their gaze inward as well as outward toward their portfolio companies. Mounce Mithal and Trala lead GTCR’s own DEI council, which consists of a cross-section of 20 firm employees. “The counsel was the first to go through a DEI upskilling program, which we then rolled out to the broader leadership and the rest of the firm,” says Mounce Mithal. “We’re focused on our own DEI journey and on creating an inclusive culture within our firm, as well as our portfolio companies.” Currently, 84% of GTCR portfolio companies have at least one diverse board member, and 42% have at least two.

THE CHALLENGES OF CHANGEMAKING IN PE

One of the biggest challenges of transitioning from working in corporate and professional services environments to private equity was adapting to the industry’s long-term outlook, says Mounce Mithal. “The timeline is just different. In professional services, you’re very project- and deliverable-focused. That carries into private equity, but the cadence is different.” Being able to balance the long-term vision for multiple portfolio companies, as well as for GTCR itself, over the long term requires a keen sense of prioritization and balance.

Mounce Mithal’s past few years at GTCR have been volatile ones for the industry. “It’s still a highly competitive talent environment. There have been a lot of shifts within the market in the past few years—finding up-and-coming executive talent is key right now as we see many executives retiring or opting out for lifestyle reasons,” Mounce Mithal says. “Executives are really smart about the opportunities out there and who they want to partner with. There’s a lot of scrutiny all around.”

GTCR looks for investments in financial services and technology; healthcare; technology, media and telecommunications; and business and consumer services. One way in which the firm has expanded its executive talent pool is by seeking individuals, particularly in technology, who might be able to work in a different industry from the one they’re currently in. “It’s not true in all cases, but often if we find great tech talent, it may not matter if they come from a slightly different industry,” says Mounce Mithal.

On a broader level, there’s also an inherent tension that comes from being the changemaker in a private equity environment. “I can tell you from having been in an innovation role in a private equity firm in the past, it’s hard to drive change when things are going well,” says EWOB’s Shalett. “Every organization has its own culture which has to be respected. Melissa is exceptional in this regard. She has a knack for putting together a very thoughtful plan, making it relevant and persuasive, and driving it through.” //

MEGHAN DANIELS is a freelance writer and editor based in Dutchess County, New York.

Unlocking Success and Protecting Value with Abacode Cybersecurity and Compliance

For private equity firms, safeguarding investments and ensuring regulatory compliance are paramount to creating, protecting, and preserving value. That's where a trusted cybersecurity and compliance firm with diverse sector experience becomes your strategic partner.

Asset Protection: In private equity, safeguarding assets is now critical due to rising cyber threats. Our cybersecurity experts provide tailored top-tier protection, proactively identifying risks and ensuring compliance to build stakeholder trust. Entrusting us ensures resilience against cyber threats through advanced technology and vigilant monitoring. Asset protection is a necessity for long-term success.

Expertise: Abacode’s diverse team brings extensive experience across various sectors, including manufacturing, finance, healthcare, and technology. We customize our solutions to align with your industry's specific compliance needs. Our experts possess a deep understanding of the latest cyber threats, continuously staying updated on emerging attack vectors, vulnerabilities, and tactics employed by cybercriminals. This expertise enables us to proactively identify and address risks unique to the private equity industry, tailoring our defenses accordingly.

Innovative Solutions: Abacode leads the way in cybersecurity by embracing cutting-edge tech and strategies, recognizing the ever-evolving threat landscape. Our mission is to equip your organization with adaptable tools and knowledge, ensuring your ability to thrive in this dynamic environment. Through ongoing threat monitoring, tech exploration, and strategy refinement, we prepare you not only for current challenges but also for future cybersecurity needs. Your security and resilience are our utmost priorities, and we are committed to delivering advanced solutions to safeguard your assets and data.

Seamless Integration: Abacode seamlessly integrates into your operations, delivering customized solutions that align with your unique requirements, timelines, and objectives. Recognizing the distinct challenges and operational nuances of each organization, we conduct thorough assessments to ensure our services seamlessly fit into your workflows, enhancing efficiency without disruptions. We're not just managed service providers; we're strategic partners dedicated to adapting

to your specific context, collaborating closely to achieve your goals with unwavering quality and effectiveness.

Maximize ROI: Investing in cybersecurity and compliance with a trusted partner like Abacode isn't just a necessity; it represents a strategic opportunity to significantly enhance ROI by safeguarding assets, reputation, and regulatory trust while unlocking innovation and growth potential. Assessing and improving cybersecurity maturity is vital for long-term success in a dynamic threat landscape. Beyond risk mitigation, a strong cybersecurity posture can unlock the full potential of your investments, as it paves the way for innovation, growth, and competitive advantage. Don't leave cybersecurity and compliance to chance. Partner with Abacode, and together, we'll fortify your private equity firm's internal cybersecurity and compliance posture and empower your portfolio companies to thrive under the watchful eye of our experts.

Mark Harless Partner Alliance Executive Abacode Cybersecurity & Compliance mark.harless@abacode.com

Beyond risk mitigation, a strong cybersecurity posture can unlock the full potential of your investments, as it paves the way for innovation, growth, and competitive advantage.

Shifting

PRIORITIES

WRITTEN BY Britt Erica Tunick

BY Neil Webb & Rob Dobi

Despite challenging market conditions, recruiters see continued demand for operating partners, human capital executives and other specialized roles at middle-market private equity firms

ILLUSTRATIONS

Spring is a season of new beginnings. For Ben Laufer, it was the perfect time to explore a career move. Having spent a year as a director at PeakEquity Partners, a private equity firm that invests in enterprise software and solutions companies, Laufer realized that he didn’t see himself at the firm long-term. Yet, given the challenging private equity fundraising environment of the past year or so, he was uncertain his job search would bear fruit. What he found, over the course of more than 100 interviews and conversations with middle-market funds earlier this year, is that hiring within the PE industry is a mixed bag.

“The current market is complicated and bifurcated in a lot of respects, in terms of what people are looking for, what their needs are and how they are proactive or reactive to talent conversations,” says Laufer, who joined growth equity firm Edison Partners as a principal at the end of July. “Hiring is motivated by fundraising, capital deployment and exits, and there’s a correlation between how firms think about the next handful of years and what their HR needs are across the value chain— whether at the fund or portfolio company level.”

Despite the difficult fundraising environment, Laufer found that many middle-market PE firms are still actively looking to fill roles for everything from business development to operations.

“I’ve been in the recruiting space for 30-plus years, and I’ve never seen a four-year period like what we’re going through right now,” says Peter Tannenbaum, CEO of executive search firm Ramax Search. First, the onset of the COVID-19 pandemic in 2020 brought hiring to a screeching halt. A flurry of hiring followed in 2021, as firms made up for lost time. Then last year, the “great resignation” sparked fierce competition for talent. Over the past six to eight months, there was yet another pullback in hiring.

“It’s uncharted waters right now,” says Tannenbaum. “But there’s always a demand for people. As the market shrinks, some of the smaller midsize guys are waiting for the big guys to lay people off so they can grab experienced candidates.”

PE HIRING GOES FOR A RIDE

Despite a difficult fundraising environment and a drastic decrease in the number of deals closed by PE firms across the board, recruiters insist that headlines touting major layoffs are misleading and primarily represent large-cap firms. While there has been a slowdown in hiring within certain areas of middle-market private equity, and even some minor layoffs, hiring professionals describe any paring back as akin to culling the herd.

Unlike investment banks, which tend to overhire during boom periods and over-fire during downturns, PE firms operate with fixed budgets. As such, they maintain consistent staffing levels and do not typically reduce headcount during recessions. “Private equity groups are lean organizations to begin with and rely heavily

Firms are building out fairly strategic groups of professionals with consulting and operating experience that work closely with portfolio companies.

BILL MATTHEWS Partner, BraddockMatthews

on outside advisors to support their deal activity,” says John Kurkowski, a managing partner in the private equity services division of advisory firm Crowe. “Significant capital has been raised over the past three to four years that needs to be invested. … While deal activity has been slower, more time has been focused on existing portfolios.”

Though slower activity in sectors such as software and technology has translated into less hiring activity within some portfolio companies in recent months, recruiters say there is no shortage of roles to fill, as sectors like energy transition and portions of consumer flourish. Hiring is specific to individual roles and areas. One such area where demand for qualified candidates is strong is portfolio operations.

THE OPERATING PARTNER DEMAND

“Firms are building out fairly strategic groups of professionals with consulting and operating experience that work closely with portfolio companies. And with some portfolio companies facing potentially more distressed situations than in the past, this role has been even more in demand,” says Bill Matthews, a partner at executive search firm BraddockMatthews. In fact, hiring professionals say that PE firms have been aggressively building up their operations teams for the past couple of years.

“With more and more PE firms chasing the same supply of deals, it’s Economics 101, and we continue to see hiring in the operations teams,” says Sean Mooney, founder and CEO of BluWave, a business network serving the private equity industry.

His sentiment is shared by Jonathan Graham, a partner with executive search firm Heidrick & Struggles, who notes that PE firms have come to view the role of operating partner as far more important over the past two years. “When there are not as many deals happening, they turn their eyes toward the portfolio company operating partners since those are the roles that make a big difference

in portfolio company performance,” says Graham. “We’ve seen a huge increase in the hiring of operating partners, where they’re looking for retired CEOs, retired CFOs and really seasoned ‘been there, done that’ executives to work with portfolio companies on how they can do things better and more efficiently.” Mooney has also seen an uptick in human capital roles at private equity firms, a category he describes as the fastest growing in the middle market. “You’re seeing fund after fund hire a human capital head whose job it is to help with portfolio companies, as well as the internal firm operations,” he says.

MID-LEVEL PROFESSIONALS’ CAREER PATH STALLS

Still, there are challenges at the senior level within middle-market PE firms—the one area where hiring professionals say there was significant over-hiring during the pandemic. Faced with a glut of professionals at the vice president level, promotions among senior executives have all but halted. Such overcrowding, coupled with the realization that career advancement could be much further off than initially expected, is spurring some people in this group to look for opportunities outside their current organizations. For PE firms in the market for talent, this has created an attractive talent pool for opportunistic hiring.

Kelly Ford Buckley, a general partner and chief operating officer at Edison Partners, notes that her firm has intentionally shifted what it looks for in job candidates. Rather than prioritizing traditional investment banking or management consulting pedigrees, Edison seeks professionals with well-rounded backgrounds who can relate to the needs and challenges of CEOs and management teams at portfolio companies and acquisition targets. “From the partner level down, we’ve been hiring folks with more of a balance of operating experience and investing exposure. And in recent years—possibly because of the current macro environment—I’ve definitely seen a lot more interest from former board members or

operating executives who want to make the transition into growth equity or private equity,” says Ford Buckley.

COMPENSATION DYNAMICS

Compensation for new hires is one area where fundraising challenges are expected to have an impact. Data from Preqin shows that global private equity firms raised $106.7 billion in the third quarter, a 35% decline from the same time period last year. According to Heidrick & Struggles, between 2020 and 2022 the median base cash compensation rose by 26% for associates and 15% for managing partners. While any significant compensation changes within the industry will not be visible until bonus season, hiring professionals expect that this year’s bonuses are likely to be more subdued than last year’s.

When it comes to new hires—depending on the role being filled—the impact of market challenges on compensation is already visible. “Compensation packages are not as crazy as they would have been

18 months ago, particularly among mid-level positions like VPs, where there was a lot of hiring going on,” says Kate Romanowicz, a senior client partner at Korn Ferry and a member of the firm’s global private markets practice. She adds that it wasn’t uncommon to see firms “buying out” bonuses—paying recruits the value of the bonus they expected from their prior firm to entice them to leave sooner. “Now, funds are much more likely to sit and wait a few months for professionals to get their bonus from their existing employers and then bring them on,” she says. Still, exceptions remain.

Strong candidates for leadership roles within portfolio companies are in such demand that firms are paying a premium. “It’s more competitive and harder to find the true impact-makers and game-changers—they’re in more demand than ever, and their compensation is going up,” says Bo Pennell, managing director of Townsend Search Group. “Private equity firms are now even offering equity for people at the manager level of their organizations, where historically it was only the C-suite level, VP level and above that realized equity participation.” Similarly, Pennell says there has been a major change in the value that PE firms ascribe to strategic human resources leadership within portfolio companies. Previously viewed as little more than an overhead expense, organizations are beginning to see strategic HR as a way to add value and create more attractive places to work.

Most hiring executives expect that deal activity will finally resume by year-end. If that comes to fruition, recruiters anticipate an uptick in demand for experienced fundraisers and investor relations professionals. “We envisage a lot of hiring on the fundraising front,” says Korn Ferry’s Romanowicz. “Firms need people with the Rolodexes and with track records of selling funds.”

In the meantime, firms are hiring in preparation. “I wasn’t sure what the degree of receptiveness to my cold outreach was going to be, but it turned out much better than I had hoped going in,” says Laufer. “I also didn’t want to wait for the sake of waiting for a ‘better’ hiring environment, because who knows what the next 12 to 24 months will look like.”

BRITT ERICA TUNICK is an award-winning journalist with extensive experience writing about

It’s more competitive and harder to find the true impact-makers and game-changers— they’re in more demand than ever, and their compensation is going up.

BO PENNELL

Managing Director, Townsend Search Group

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48 52

Performance Review

VALUE-ADD: CUTTING CORNERS—HOW TODAY’S CFOS ARE USING TECH AND DATA

Chief financial officers are turning to well-established and burgeoning technology and data tools alike to trim costs and operate with tighter budgets.

BEST PRACTICE: UNRAVELING THE HIDDEN SAVINGS IN PROCUREMENT

Concertiv’s CEO shares how companies can regain control over spending and uncover significant savings by improving their procurement oversight.

If you don’t understand your data, you could be making a shortsighted decision to remove spend in an area that is detrimental to the long-term success of your business.

JOSH SCHAUER Vice President, Finance, insightsoftware

PERFORMANCE REVIEW // Value-Add

Cutting Corners

BY ANASTASIA DONDE

How established and burgeoning tech and data tools can help CFOs trim costs and operate with tighter budgets

Economic headwinds have forced finance departments at companies of all sizes to make tough cost-cutting decisions, operate with tighter budgets and think creatively about their office use or workforce size. The pressures are even more pronounced for middle-market companies with fewer resources than their larger peers.

“Every company is focused on cutting costs and getting lean. They’re worried about a recession,” says Vikas Agarwal, leader of the Financial Services Risk & Regulatory group at PwC.

Against that backdrop, chief financial officers are employing technology and data mining tools to accomplish their goals more efficiently. Whether they’re using older programs like Microsoft Excel or enterprise resource planning (ERP) systems, newer data analysis and visualization tools, or even artificial intelligence (AI), CFOs have a variety of options at their disposal.

The CFO’s Dilemma

“Starting with COVID, rising interest rates and all the economic challenges of late, the asks have never been greater for what needs to come out of a CFO’s office, so it’s about how you can do more with the same or potentially do more with less,” says Josh Schauer, vice president of finance at insightsoftware, a private equity-backed provider of reporting, analytics and performance management solutions.

CFOs working at middle-market companies are grappling with a set of unique challenges. “I see three primary issues that CFOs are facing today: resources, prioritization and data management,” says Richard Jenkins, a Denverbased managing director at Alvarez & Marsal’s Private Equity Performance Improvement practice and leader of the firm’s CFO Services segment.

Concurrent with budget constraints, middle-market companies are particularly hamstrung in terms of resources. “Increasingly, middle-market company CFOs are facing issues that are as complex as some of their Fortune 500 brethren, and yet they don’t have the ability to resource them in the same way,” says Jenkins.

Prioritization comes into play in terms of deciding which strategies and customers to pursue at a time of limited resources. How companies manage and analyze data is also important, especially for roll-up businesses that are

common under private equity ownership. Often, companies are juggling multiple ERP systems while tacking on add-on acquisitions.

From Excel to Data Mining

Private equity operating partners, advisors and consultants are looking at ways CFOs can use ERPs to their advantage, tap into data mining and analysis tools, and get comfortable with AI applications.

“There are a ton of different tools available, between ERPs and EPMs (enterprise performance management), and treasury management systems, which are becoming more popular as folks are thinking about liquidity management,” says Chris Duggan, managing director at Alvarez & Marsal’s Private Equity Performance Improvement practice.

Finance professionals have historically relied on Microsoft Excel, which is becoming antiquated. “We’ve been using Excel for 25 years, and it hasn’t changed. It’s very cumbersome. It’s not repeatable. It’s prone to mistakes when you’re uploading a large amount of information,” says Jenkins.

Newer software that can harness data more effectively is becoming increasingly popular. Sources pointed to companies like Alteryx, a data science and analytics company; Workday Adaptive Planning, which provides EPM software; mindzie, an AI-driven process mining and automation provider; and Tableau, an interactive data visualization software provider, as examples of new data software that CFOs are using.

CFOs Alvarez & Marsal executives work with follow a four-step process: data management, data analytics, data visualization and data mining. These must work well together from step to step and between departments, notes Jenkins. “Whatever you’re using, you have to have buy-in from the entire organization and really understand the requirements and needs across the business, not just in the finance and accounting group,” he adds.

Jenkins says his firm recently worked with a food company on data analytics and visualization. The company had a wide and complex array of products. “The recipes were not resident in the ERP, so the company had a difficult time understanding what its contribution margin was and how rising costs impacted that contribution margin,” says

There are a lot of layers of risk that you need to look at with AI, including privacy risks, cybersecurity risks and regulatory risks.

Vikas Agarwal, Financial Services Risk & Regulatory Leader, PwC

PERFORMANCE REVIEW // Value-Add

Jenkins. His firm used a data analytics tool to create workflows that helped the company understand its profitability by product and input changes and see how profitability would be affected. “Through that process, we were able to jettison about 10% of the product and stop losing money on those products,” says Jenkins.

“Whenever you do these exercises, I encourage management teams to have the courage to walk away from bad revenue, and it’s hard to do sometimes,” Jenkins continues. “The idea of turning off a revenue stream is not comfortable, but if you’ve got data to say, ‘Look I’m losing money on this revenue,’ there’s no reason to continue doing it.”

Insightsoftware’s Schauer says his company works with businesses on harnessing data to find areas to trim costs. “All cost-cutting decisions should be made with a great deal of thought, and they should be made only after you’ve established the facts of your business,” he says. “Everything goes back to understanding data. If you don’t understand your data, you could be making a shortsighted decision to remove spend in an area that is detrimental to the long-term success of your business.”

For example, his firm has looked at office space for clients that have shifted primarily to remote work. The software collected data on where all the offices are, how much they cost and how companies can find subletters or eventually end those leases.

For companies that use multiple software applications, insightsoftware helps them cut down on tech spend or move between programs seamlessly. “You need to have a tool that can extract the data from each one and say, ‘Here are the 72 different software programs you have’ and ask, ‘Can we consolidate these? Would it be cheaper to get more licenses for one of these than pay for separate offerings?’” Schauer adds.

Insightsoftware has multiple products that offer financial reporting, budgeting and planning, tax and transfer pricing, and consolidation and analytics services, among others. The company will often extract data from another source—such as Excel, an ERP system, an accounting system or NetSuite—and then use the data to create reports on different functionalities.

“We’re building a platform that will take these different products, and the user interface will look and feel the same, so that you feel like you’re using just one company’s

products. But it will allow them to link to the original data source,” says Schauer.

The products allow the company to analyze data and run different scenarios in real time. “Every day, we’re putting in changes and understanding how they affect the short- or the long-term trajectory of the business,” Schauer says.

The New Frontier

Experts are also looking at how AI can assist finance departments.

In a report, PwC said the CFO function offers the most fertile ground for adoption of AI and automation. CFOs can tap into AI to set targets for outcomes and benefits, involve frontline employees to show them how automation can help them in their jobs rather than replace them, select automation opportunities, and implement a governance structure by formalizing an AI strategy and training, testing and monitoring data inputs. CFOs can also prepare the rest of the workforce by engaging them in data and analytics tools across sales, marketing and other departments.

PwC’s Agarwal says various large institutions have started to work with AI in recent months. Some are setting up their own engines in-house, while others are tapping into an external application programming interface (API). A third option is open-source software that can be added to computers and allow businesses to get some of “the same functionality without as much computing power,” Agarwal adds.

Most companies tapping into AI are still learning how it works rather than using it to make decisions. Agarwal notes that whatever path AI takes, humans still need to be in the loop on decision-making. “A machine can make a recommendation, but it’s very important to have effective challenges, and there are still a lot of problems with algorithms and how they work,” he says.

Going forward, companies will need to add new regulatory and compliance procedures. “You need to develop your framework for responsible AI. There are a lot of layers of risk that you need to look at with AI, including privacy risks, cybersecurity risks and regulatory risks,” says Agarwal. “All of these things are important as you try to figure out how your AI model is operating.” //

ANASTASIA DONDE is Middle Market Growth’s senior editor.

Why US mid-market deal activity could be on the road to recovery

Demand for buyout and secondary transactions points to Q3–Q4 pick-up even as number of mid-market deals fall

Top of mind for investors watching the US mid-market deals scene is whether or not the outlook is improving. The number of US mid-market deals dropped sharply in Q2 2023 as continuing inflationary pressure and interest rate rises made deals harder to finance. Set alongside a general sense of economic uncertainty, a wait-and-see culture has dominated boardrooms.

At the halfway point of 2023, there has been just $19.9bn aggregate deal value across 73 deals amongst US mid-market businesses with revenues under $1bn. The year 2022 finished with $103.1bn aggregate mid-market deal activity across 185 deals. If that deal cadence extends across the final two quarters of the year, 2023 will close as the worst year in a decade for US mid-market activity.

For 2023 to close anywhere near deal levels for 2021–2022, it would require an explosion of activity across Q3 and Q4. The question is, how much dry powder is available? For North America-focused funds (including mid-market funds) total dry powder currently stands at $1.37tn, having risen from $998bn at the end of 2020. That’s a huge war chest waiting to be spent, and it continues to swell.

Dry powder in private debt focused on North America has risen to $255bn, with direct lending both the fastest riser and leading strategy at the end of Q2, playing into one of the mid-market's key strengths. And as conversations progress, and more liquidity arrives, the pricing gap between buyers and sellers will narrow as lumpy valuations settle.

In March this year, Preqin data showed that there were more North America-based buyout funds, targeting more capital than ever. In January 2023, there were 713 funds in the North America-based buyout funds in market, with an aggregate capital targeted of $430bn, a significant uptick from the $281bn we reported in 2022. While for LPs surveyed in June this year, buyout – small to mid-market remained firmly number one when asked “which fund types presented the best opportunity” (Preqin’s Investor Outlook report for H2 2023).

One area of obvious emerging deal activity is in secondaries, where fund managers have added $20bn in dry powder over the year to date, according to data from Preqin Pro. This is good news for the mid-market. Broadly speaking, an increase in secondary transaction volume will send more money to flow back to new deals, freeing up funds to take advantage of the quality deals available.

The recently published Preqin Insights+ report, Strategy in Focus: Private Equity Secondaries, looked at the role of secondaries during the aftermath of the Global Financial Crisis (GFC), and found that the 2009 vintage returned an average net IRR of 18.7%, compared with 14.1% for private equity overall. This supports the argument that supplying secondary market liquidity during times of financial market stress has the potential to generate outsized returns.

Source: Preqin Pro

The Cost of Not Knowing: Unraveling the Hidden Savings in Procurement

By

improving procurement oversight, companies can regain control over spending and uncover significant savings

PRIYA IYER CEO, Concertiv

Acasual conversation among four investment bankers at a conference revealed a startling discrepancy. They were all staying at the same hotel yet paying wildly different rates for the same service.

A few years later, this observation led to the formation of Concertiv, a New York City-based outsourced procurement firm.

Leveraging group purchasing, market intelligence and procurement best practices across key spend categories including market data, technology, travel and insurance, Concertiv has helped mid-market clients punch above their weight and save substantial sums—sometimes multiple million dollars a year, says Concertiv CEO Priya Iyer.

“The problem is that CFOs and COOs of mid-market PE firms are wearing too many hats,” Iyer says. “Procurement is nobody’s full-time job—often they don’t know what programs they are eligible for or even that such outsourced group procurement programs exist.”

Centralizing Procurement Management

Many organizations don’t monitor their vendors and contracts as well as they could, Iyer says. Most of Concertiv’s clients operated without a centralized procurement management system before contacting the firm for help.

She says that many private equity firms, investment banks and hedge funds were uncertain about the full scope of their portfolio and the license and renewal terms.

In some cases, employees who had long since left the company were still paid for under these contracts.    Centralized procurement management, with proper

oversight, can identify gaps and duplicative spend. As part of its Procurement-as-a-Service offering, Concertiv manages contracts, invoices, entitlements and negotiations, so their clients realize savings that had previously gone unnoticed.

Navigating Spend Management

When managing spend with vendors, many organizations don’t secure the best possible prices due to a lack of market knowledge.

Concertiv conducts a portfolio analysis for clients, identifying redundancies, gaps, market trends and opportunities to improve pricing and contract terms. Based on this data and market intelligence, Concertiv begins the renewal process 90 to 120 days in advance.

With a vendor network of over 1,000 and a deep understanding of the market, Concertiv is able to get the best products at the best terms for its clients.

“It’s about getting the best products at the best prices to meet the firms’ needs,” Iyer says.

Optimizing Procurement and Processes

In an ever-changing market landscape, the need for market intelligence has never been more important. Organizations must ensure they are providing their teams with the best tools and programs but are also being fiscally responsible.

In addition to its portfolio analysis and ongoing procurement services, Concertiv gives clients peer benchmarks, so they can compare programs and spend against their peer set. This provides the transparency organizations need to make better spend decisions but previously didn’t have access to.

For instance, recent changes in air and hotel programs, and how people travel post-COVID, have left travel policies outdated at most firms. Concertiv provides peer benchmarking and advisory services to help firms update and roll out updated policies.

“All of this is part of optimizing procurement and ensuring you have the best tools and programs at the best price,” Iyer says. “If they investigate, companies can find a lot of savings and areas where they can avoid unnecessary costs.” //

From deal sourcing to capital deployment

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ACG Members represent the most active and engaged professionals within the middle market.

They embody ACG’s mission of driving middle-market growth by carrying out their own missions: to source and close deals, to grow their own organizations, to win business, and to continue developing their own careers.

And we help make it happen. When you join ACG as a member, you gain access to the exclusive network and benefit from the connections that ACG actively facilitates.

Does this sound like you? Are you among the middle-market’s foremost, deal-making, business-growing, investment-finding, ladder-climbing, acquisition-targeting, talent-sourcing, hand-shaking, professionals? Do you aspire to be?

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75% of ACG Members do deals with other members

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58

The Wrap-Up

64

BACKSTAGE: HOW TO MAKE YOUR PORTFOLIO COMPANY SHINE

Operating partners at ACG’s virtual Operators’ Summit discuss ways to make businesses stand out from the crowd.

KEY TAKEAWAYS

Insights from the stories in this issue.

We often say: Good companies are bought, not sold. I think having a reputation as a leader in your market brings buyers to you.

KAMAL ADVANI Operating Partner, NewSpring Capital

How to Make Your Portfolio Company Shine

Operating partners at ACG’s virtual Operators’ Summit discuss strategies to make businesses stand out from the crowd

It’s tough to make companies stand out in an increasingly competitive market, panelists noted during ACG’s virtual Operators’ Summit on Aug. 16. Operating partners on the “Cutting Through the Noise” panel discussed effective strategies for getting companies in shape on the way to an exit. Below are more details on hiring an effective chief revenue officer (CRO), driving go-to-market strategy, improving growth and selling your story.

The Operators' Summit was sponsored by Craig Group and epg. This transcript has been lightly edited and condensed for clarity.

Panelists

KAMAL ADVANI Operating Partner, NewSpring Capital

LIBBY COVINGTON: Zorian, what defines a chief revenue officer and leading a revenue engine, in your view?

ZORIAN ROTENBERG: Being a CRO is very different than just being a head of sales. The purpose of having a CRO in place is to drive performance across the entire revenue life cycle, lead the entire revenue team and create alignment across all of the revenue teams, from marketing and lead generation, to pre-sales engineering, new customer acquisition, expansion sales, post-sale customer support, sales ops, revenue ops, etc. It’s a very popular role because you’re basically the chief executive officer of all revenue.

COVINGTON : Prabhu, how have you seen sales and marketing aligned toward profitable revenue growth and value creation?

PRABHU SOUNDARRAJAN: The common thread is that the sales and marketing machines have to work together for growth, and it’s especially important in private equity-operated companies. When we invest in a company, we’re looking for above-market growth. Most family-owned businesses don’t have a well-fleshedout sales and marketing engine because they’ve grown through relationships or references.

It’s about blending the best of both worlds: taking what the family or the portfolio company is good at and supercharging it with a process-driven yet disciplined CRM-driven sales engine supported by marketing leadership. One thing I learned over the years in one of the best-run businesses I worked for: Marketing really owns the P&L and sets the direction, strategy and pricing—all these levers that you need to run that machine and sales execution. It could be a controversial topic depending on who you ask. But this is a proven methodology where strategy first drives the discipline around pricing that creates value and EBITDA growth and then runs that machine over and over again. It’s about integrating sales

ELLEN KIM Operating Partner, Rotunda Capital

ZORIAN ROTENBERG Operating Partner, GTM and Revenue Growth, Charlesbank Capital Partners

PRABHU SOUNDARRAJAN Operating Partner, Sound Equity Partners

LIBBY COVINGTON Moderator; Partner, Craig Group

and marketing into commercial success that drives value post-investment. It really starts on Day 1. There’s no honeymoon period after investment because, as operating partners, we’re there with the plan ready to go. And then making that engine work drives that growth, which is a win-win for all stakeholders.

COVINGTON : We talked about how you have to have your plan on Day 1. What are some of the things that you look for in diligence to evaluate the quality of a company’s go-to-market activities?

KAMAL ADVANI: We would try to size the market opportunity to understand what this company could scale to. How big is the addressable market? Are the macro trends favorable? We try to get third-party research on market size, look at the research the company conducted itself and then get data from industry conferences.

We’re going to look at how well the value proposition is articulated. This often starts at the website. It’s interesting to me how many company websites describe what they do from their perspective. It’s literally written from the standpoint of a person who’s building or selling the product in their terminology, as opposed to expressing it in a way that target customers would easily understand.

How well does the company understand its competitors? And how have they incorporated that understanding into their positioning? The first question is: Do they even have a formal process to evaluate and analyze the competition? How much do they really interact with competitors? Does the CEO have a relationship with the leadership of competing companies? In some industries that’s just not done, but in many industries, it’s not uncommon to have close relationships. They can be a good way of learning what others are doing in this space.

We obviously want to understand the pricing strategy. What was the methodology? How does it compare to competitors? Have they tested their pricing strategies? Have they been able to raise prices over time? Do they build that into their recurring contracts, etc.?

We look at the effectiveness of marketing activities and lead generation. Is there good data to measure the effectiveness of marketing? What’s the cost per lead? What’s the conversion rate? And do they look at the marketing cost per acquired customer?

And then of course we look at the effectiveness of the sales organization. How is it organized and managed? What’s the cost of customer acquisition at the sales level? What happened to customer acquisition when the business was scaled?

For a field sales organization, we spend a lot of time understanding how they report and manage the pipeline. Is the sales force deployed by geography, by customer segment or by product set? What’s the cadence of internal meetings? Are they disciplined in pipeline management—about defining stages and bucketing opportunities?

ROTENBERG: I start out by assessing the company’s go-to-market engine and the maturity of that engine. A lot of times, in many of the companies that I see—and I’m talking about profitable lower middle-market technology companies—the go-to-market engine maturity is probably at best a 4 out of 10.

The No. 1 thing in go-to-market and sales and revenue is people; it’s talent. And the No. 1 job of a great CRO, or even a head of sales, is always to build an A-plus team. Because if you do everything else at a B-minus level, as long as you have A-plus people they’ll figure out how to do everything.

You have to have a very defined, systematized, operationalized way of discerning whether you have the right people in the right seats and

on the right bus. When it comes to go-to-market, especially sales, there are very specific characteristics. Whether it’s prospecting, a closer role, a hunter role or a farmer role, you have different characteristics. So that’s No. 1: making sure you have the right players in the field.

The other thing that’s critical is pipeline and understanding pipeline creation. Do they have effective processes and execution around creating that pipeline? That’s much harder than meets the eye. Beyond creating the pipeline, how is the pipeline managed? Pipeline hygiene, pipeline integrity, pipeline mix: All these things have to have the correct sales management and execution behind them.

COVINGTON : How does all this work enhance the salability of the company to drive a successful exit?

ADVANI: The first and most important thing is to build a good company with enduring value, with good go-to-market activities and a compelling product. But there’s a whole side to marketing and selling a company over and above what you’ve done to build the company. Some of that is: Don’t underestimate the importance of articulating the strength and potential of the business. Some of this can be achieved by putting together a strong package of operating and market data. Some of it is by articulating your vision and not counting on buyers to necessarily see it. It’s well worth spending the time to articulate the vision and the path forward because ultimately, the company itself is being sold as a product. You have to paint a pretty picture for buyers.

Some companies do a better job at creating a persona around the company that makes it attractive. They do a good job of being thought about as a company that’s dominant in its market, a strategic thought leader or a company that has very good talent. A lot of

this comes from investing in a PR strategy. It comes from being marketing forward, announcing your client wins, publishing white papers and so on.

I think paying attention to your online reputation is becoming increasingly important. What are your Glassdoor ratings? What are your online customer reviews? Other than that, it’s just getting out there and being very active in your channels. We often say: Good companies are bought, not sold. I think having a reputation as a leader in your market brings buyers to you.

SOUNDARRAJAN: Here’s a personal experience. We sold a company for 15x forward-looking EBITDA when everybody else was trading at 12x-13x. But that two-point difference came by timing the market, by understanding what’s in it for the acquirer, by positioning the company as an industry leader. It was about fixing the business and getting it “integratable” into the acquirer’s business process, so they can start driving value on Day 1 once the asset is transferred.

COVINGTON : One challenge when talking about talent is how to teach old dogs new tricks—for example, teaching sales reps better ways to communicate value. It’s too easy for them to fall back on old behaviors. If you’ve seen this, what have you done to address the issue?

ELLEN KIM: I can give you an example from one of our portfolio companies. This [home services] company is very proud of its values. One of those values is around integrity, and there’s no argument from me on that. But they believe, when they go in and sell a service, it’s the best service for you. We’re not going to oversell you, we’re not going to tell you to buy the Cadillac when all you need is the lower cost vehicle. The sales group is very proud of that.

But we felt like competitors were taking some business away from us, and we were potentially leaving some money on the table. One of the things that came out of a recent board conversation was: You don’t have to whole-hog change what you’re doing, but what if you put the power back in the customer’s hands and offered them a good, better and best option? You may just need to fix this problem, but perhaps we could fix this and that, and it would prevent you from having an issue three to five years from now. We have found a remarkable uplift on that, and adoption and buy-in from the sales force, because it wasn’t completely asking them to change behavior or move away from what they perceived as abiding by their values. But it also got them to acknowledge that we could upsell and we didn’t have to give that up to the competitors.

COVINGTON : What is considered a target and acceptable EBITDA growth percentage that you’re trying to get on an annual basis to get [a company] ready for acquisition?

SOUNDARRAJAN: The PE mentality is that you’re expected to drive

above-market growth, so you have to look at where your peers are growing. And you want to drive to three points above that. That’s your base target. If the industry is growing at 10%, assume your base target is 2%-3% above that. Of course, it depends on the industry sector, cycles, the pandemic, etc. You can keep adding to the list, but it doesn’t matter. The outcome is only good at the end. If you’re saying, “We’re ready to put the company up for sale,” you’re going to be valued based on 12-months trailing EBITDA. If you have two or three points above market growth or more, that’s a higher multiple for all your stakeholders: employees, investors and yourself.

COVINGTON : If you had one piece of advice for an operating partner, what advice would you give?

ADVANI: Pick something where you can make a difference—something that [the company doesn’t] necessarily have the talent in-house to do—and help them get there.

KIM: Pay attention to your leading indicators. Keep paying attention to what’s happening at the top of the funnel, because by the time you’re getting to a sales conversion, you’re already too late.

SOUNDARRAJAN: As the name suggests, you are an operating “partner.” Don’t go in there on the first day saying, “Hey listen, I want to change things around,” because you really cannot. Have empathy, drive with passion and leadership, and focus more on the “do” rather than the “tell.”

ROTENBERG: Build really highquality partnerships—collaborative relationships with the would-be executives you’re serving. Be that servant operating partner supporting them through personal relationships, and the rest should come easy. //

There’s no honeymoon period after investment because, as operating partners, we’re there with the plan ready to go.

PRABHU SOUNDARRAJAN Operating Partner, Sound Equity Partners

JOIN THE NETWORK

Middle Market Growth is the official publication of the Association for Corporate Growth (ACG). ACG offers a wealth of resources to members and the broader middle-market M&A community through national and local networking events, digital and print media outlets (including this one), a robust middle-market valuation database, industr y education and more. Here are some of the best resources ACG provides that can help you do your job better.

What’s in it for YOU?

As a member of ACG, you gain access to the exclusive network of 15,000 middlemarket M&A professionals that we serve and benefit from the connections that ACG actively facilitates. According to our members, 75% of ACG members do deals with other members, and 86% of members are either very or extremely likely to recommend ACG to a friend or colleague.

Member Benefits

Member-Exclusive Events and Programming: Collaborate with other members and benefit from expert panels and industry insights.

ACG Member Directory Access: Search for and connect with fellow members within ACG’s exclusive directory of middle-market professionals.

ACG JobSource®: Post or search for a job on ACG’s job board for middlemarket professionals.

Member-Only Offers: Claim discounts and deals courtesy of ACG’s partners such as Grata, EPG and others. Check out acg.org/membership-tools/ offers-acg-partners for current offers.

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WHAT ELSE CAN YOU DO WITH ACG?

Attend an Event

DealMAX is ACG’s flagship dealmaking conference with more than 3,000 attendees, including 800 private equity investors, 675 investment banks, and more than 200 operating partners and strategic acquirers. More than 13,000 one-on-one meetings were scheduled in three days at DealMAX 2023. Check out Dealmax.org for event and registration information.

ACG hosts hundreds of local chapter events annually for middle-market professionals. Whether you prefer a round of golf, wine tasting or an educational lunch, you’ll find it here. Visit acg.org/events to find out what’s happening near you.

Stay in the Know

The Middle Market Growth editorial team produces a weekly email that features thought leadership and news from around the middle market, including our PE Weekly deal roundup. Learn more and sign up to receive the newsletters at middlemarketgrowth.org/subscribe

ACG Media keeps middle-market dealmaking and operating professionals up to date on news, trends and best practices through video, with its GrowthTV channel, and audio, with the Middle Market Growth Conversations podcast. Learn more at middlemarketgrowth.org/category/news-trends.

Power Your Deals

Did you know that GF Data, a powerful middle-market private equity valuation database, is an ACG company? GF Data publishes quarterly reports on M&A, leverage and key deal terms and provides an online valuation database with continuously available valuation comps organized by NAICS industry code. Visit gfdata.com, email info@gfdata.com or call 610-6164607 for more information.

Connect

ACG operates in more than 60 local markets. Visit acg.org/ membership-tools/find-chapter to find your local chapter. You can also email us at membership@acg.org.

THE WRAP- UP // Key Takeaways

PREEMPTIVE PIVOTS

Proposals from the Federal Trade Commission and the state of New York to curb the use of noncompete agreements are already impacting employment negotiations, even before any changes are finalized. Employers increasingly are drafting bespoke restrictive covenants tailored to their businesses and looking at other retention mechanisms, such as stay bonuses. “Understanding Proposed Changes to Noncompete Agreements,” p. 12.

PHOENIX RISING

The pandemic, inflation and rising interest rates have posed extreme challenges for business leaders over the past few years. Those who proved effective while weathering adversity are now highly marketable job candidates and sought-after by private equity investors as future portfolio company executives. “HGGC’s Chief Talent Officer Talks Workforce Trends,” p. 20.

TRANSFERABLE TALENT

GTCR has expanded its leadership talent pool in part by looking beyond an executive’s current field. For example, the Chicago-based PE firm has at times hired tech talent to lead a business in a different industry than the one in which the individual currently works. “Building a Diverse Talent Network in Private Equity,” p. 32.

HIRING HOPES

Even as manufacturing businesses face fierce competition for workers and contend with an ongoing skills gap, they don’t intend to reduce headcount. Responding to a Sikich Industry Pulse in March, 92% of manufacturing and distribution executives said they plan on maintaining or increasing their workforce over the subsequent 12 months.

“Manufacturers Forge New Workforce Solutions,” p. 22.

CATCH UP QUICK: From novel hiring approaches to AI’s impact on finance jobs, here are a few highlights from this talentthemed edition of Middle Market Executive

EARLY DAYS FOR AI IN FINANCE

A recent PwC report notes that finance departments offer the most fertile ground for adoption of artificial intelligence and automation. In reality, though, it remains early days for the technology. Most companies tapping into this technology are figuring out how it works, rather than using AI to make decisions. “Cutting Corners,” p. 48.

LENDING AN OLIVE BRANCH

Although corporate bankruptcy filings are on the rise, a relatively small number are ending up in court, thanks to workouts and refinancing agreements. Lenders are showing a willingness to be flexible, including in the face of covenant defaults. Whether companies like the terms that lenders are asking for is another matter. “Struggling Companies and Lenders Hit the Negotiation Table,” p. 8.

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