Middle Market Executive Fall 2024

From the Editor

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

Great Expectations

As we set out to explore LP sentiment in this issue, several articles focus on what limited partners want from their private equity managers and how to best approach the still-slow exit environment. There were hopeful prognostications that this year would be more fruitful in terms of dealmaking, but so far M&A has continued to be slow—although slightly up from last year.

A summarized survey from law firm Barnes & Thornburg (“The LP Wish List,” p. 18) says that “fundraising, dealmaking and exit values all saw steep declines in 2023 as high interest rates and economic volatility continued to quash exit opportunities—leaving both limited partners (LPs) and general partners (GPs) on the hunt for liquidity.”

While secondaries, continuation funds and NAV lending have become solutions for the liquidity problem, investors aren’t wild about them. They cite concerns with high leverage and lack of transparency, as well as getting money back at a discount.

While many firms are holding on to assets longer than usual, operating partners are the ones working on improving performance at portfolio companies and getting them ready for exit. Our cover story on p. 34 describes how Ben Humphreys, a senior operating executive at Monomoy Capital Partners, uses a hands-on approach to boost performance at portfolio companies, especially during times of trouble. “All too often you get large-scale problems and big project teams, and nothing ever comes of it. But Ben takes complexity and breaks it into components that people can really focus on,” says Patrick Olson, CEO of ACA Group, who managed Humphreys in an earlier role at BlackRock.

It might seem like operating partners and LPs have different goals: LPs want their money back, and operating executives are doing the work that keeps companies longer. In reality, they’re on different ends of the same team. Operating partners are trying to get the best performance from the company before selling it—to deliver good returns to the LPs.

It’s obvious that operating partners already have a full dance card— Humphreys travels much of the year to work with companies in person. At the same time, it might be best to make operating partners more accessible to LPs to talk candidly about their value-creation plans, timeline and liquidity strategies. In fact, in The Workplace article on p. 12, Zorian Rotenberg, an operating partner at Charlesbank Capital Partners, talks about how LPs are particularly interested in dedicated on-staff operating partners at GPs, not just “curated lists of advisors.” This could present an opportunity for operating partners to get closer to LPs, make sure everyone’s goals are aligned and be as transparent as possible. //

Monomoy Capital’s Ben Humphreys is known to hop on a plane when a portfolio company needs help, part of his hands-on operating style that colleagues say has changed the trajectory of multiple businesses.

Amid a slowdown in private equity distributions, limited partners are adapting to alternative paths to liquidity while cautiously considering where to invest next.

CEO Brent Baxter bbaxter@acg.org

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Printed in the United States of America. ISSN 2475-921X (print) ISSN 2475-9228 (online)

Cover photo by Adam Lerner

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The Stand-Up

A

The CEO of Turning Rock Partners outlines the

Operating expertise and organic growth are top priorities for today’s investment firms, many of which are hiring operating partners full time even as compensation structures vary.

VALUE-ADD: THE LP WISH LIST

A survey of limited partners from law firm Barnes & Thornburg reveals LPs’ top priorities—and where they’re out of sync with private equity fund managers.

THE STAND-UP // On Trend

All Eyes on the Presidential Race

M&A experts weigh in on how election outcomes might impact dealmaking in the months ahead

BY ANNEMARIE MANNION

The 2024 election year has brought several surprises— most notably President Joe Biden’s exit from the presidential race. However, this cycle is not unlike other presidential election years in that M&A activity tends to accelerate ahead of a transition of power.

“We’ve definitely seen a pickup in M&A activity over the last two months,” Brad Haller, senior partner in Mergers & Acquisitions at Chicago-based West Monroe, told Middle Market Executive in August. “From mega-cap funds down to smaller funds, we’ve heard they are trying to do a deal prior to the election with the expectation that, regardless of which party wins, there is going to be some type of contested period.”

No one wants a contested election, which “would bring uncertainty to M&A and an overall slowdown in business activity as the uncertainty is worked through,” Haller says.

For that reason, M&A professionals are watching the election closely. And although they don’t anticipate sweeping change, they’re keeping an eye on an array of issues ranging from tax policy to tariffs and antitrust enforcement.

Tax Policy

Any changes to tax policy will hinge on who wins the White House, and which parties prevail in the House of Representatives and Senate. However, Lyle Wallace, M&A partner at law firm Sherman & Howard, doesn’t expect the November elections to deliver major changes to the makeup of Congress.

“I think the presumption is, no matter who gets into office, whether it is Donald Trump or Kamala Harris, that the Senate and Congress are going to be relatively unchanged or pretty close either way,” Wallace says. “And it’s not likely that there is going to be a significant change in tax legislation.”

Divided government has its benefits, he adds. “I think the macro economy tends to do best when there is one

party in the White House and the other party is in control of Congress so, from a macroeconomic standpoint, the biggest issue would be who wins the White House and who takes control of Congress—one or both houses—and what that means for implementation of tax policy.”

One policy whose fate the election will determine is the 2017 Tax Cuts and Jobs Act, which brought major changes to the tax code, including lowering the corporate tax rate to 21%. Many of the changes are scheduled to sunset in 2025.

A tax plan Harris rolled out in August would result in $5 trillion in tax increases over a decade and raise the corporate tax to 28%, although Wallace doesn’t expect that to be applied across all sectors.

“I think the expectation is that if Donald Trump wins, there would be an extension of the tax credits,” Wallace says. “But a lot of business leaders that we speak to wouldn’t expect Kamala Harris to completely let them sunset. She’s shown some pro-business and certainly prounion tendencies, and I think those unions would push her to extend those within certain sectors.”

Wallace points to the service, automotive and residential homebuilding industries as among those likely to advocate for exclusion.

Political rhetoric around the capital gains tax is another area M&A practitioners are watching. Biden’s March budget proposal, which Harris has endorsed, would raise the capital gains tax rate on long-term investments from 20% to nearly 39.6%. In addition, she supports the idea of taxing unrealized capital gains for individuals with a net worth exceeding $100 million.

“Increases to capital gains taxes could have unfavorable impacts to the private equity community, including smaller fund sizes, longer hold periods, lower valuations and possible geographic shifts,” says West Monroe’s Haller.

Tariffs and Trade

Another area of interest is trade policy.

“Tariffs are an issue that companies, particularly those in manufacturing and distribution, are focused on,” Haller says. “A majority of companies have global operations at this point, even within the middle market—especially PE-backed companies that have grown through add-ons.”

Harry G. Broadman, a senior economist with think tank Rand and principal with WestExec Advisors, points to Trump’s fondness for tariffs and messaging that belies their true cost. “Trade is a big issue, particularly for Trump, who has never seen a tariff he doesn’t like,” Broadman says. “He’s been myopic, if not ill-informed, about how tariffs are paid. He thinks that, in the case of China or any other foreign country, that their firms and consumers pay tariffs that the U.S. imposes on their goods imported to the U.S. That’s not what one learns in Economics 101 or how real-world markets work.”

Trump in June floated the idea of imposing a 10% acrossthe-board tariff on all imports to generate revenue to offset a potential extension of the 2017 tax cuts.

“A lot of people in the U.S. political space don’t comprehend who in our economy ultimately would bear the cost of such a policy,” Broadman continues. “It’s paid by firms that are procuring the imports which, in turn, will raise their costs and reduce their profits.” Consumers ultimately pay for the tariffs via price increases.

Industries that use steel or machinery or anything made in China are particularly affected by tariffs, Broadman notes.

Antitrust and Regulatory Enforcement

The Biden administration has focused on competition in the markets, but whether that attention continues if Harris wins the presidency remains to be seen.

“The Federal Trade Commission and the Department of Justice have increased scrutiny, particularly of larger deals, which may be outside the middle market, but also in the middle market,” Wallace says. “I am making an assumption that Kamala Harris is getting a lot of pressure from donors, particularly corporate donors, to fire the current head of the Federal Trade Commission and replace her to decrease the level of scrutiny on transactions, because it has created a significant challenge in the regulatory environment to get middle-market and larger deals done. She could bow to that pressure and replace [the FTC chairman], but it’s an unknown.”

Haller agrees that the antitrust issue is a hot topic, particularly in the technology sector. “There seems to be momentum from Silicon Valley leadership moving from traditional left-leaning toward right-leaning, because they feel it’s hard for founders to exit [their companies] if they can’t sell to a Google or an Amazon,” he says.

Interest Rates and Looking Ahead

The extent to which the election is driving deal activity is up for debate. “Overall deal volume and deal values are up a bit primarily due to pent-up demand and private equity seeking deals, not due to the election,” says Sherman & Howard’s Wallace.

Experts agree, however, that falling interest rates through the rest of 2024 will greatly impact dealmaking, regardless of the election results. “The Fed policy on interest rates is very closely watched and really important because it can have an instantaneous effect on business decisions,” Wallace notes.

At its September meeting, the Federal Reserve lowered interest rates by 50 basis points, to a range between 4.75% and 5%. The Fed will meet two more times this year, and Chair Jerome Powell has hinted it will lower rates further at those meetings, albeit via smaller cuts.

As for the impact of elected officials, Broadman cautions middle-market executives against planning their business strategies on who occupies the White House, because those leaders come and go. Rather, they should consider the stability of the U.S. economy, the rate of growth and their organization’s exposure to international competition. “If firms believe they will move ahead or stall simply based on what they think the election outcome might be, then I think something is wrong with their business model,” Broadman says.

Fortunately, business leaders are unlikely to have much change to contend with stemming from the November election. For his part, Haller expects continued gridlock, which he argues can be a good thing. “With gridlock, while it creates some level of uncertainty, it also doesn’t bring about sweeping changes,” he says. //

ANNEMARIE MANNION is a former reporter for the Chicago Tribune and a freelance writer who covers business topics.

Optimizing Private Credit Partnerships

PMAGGIE ARVEDLUND CEO and Managing Partner, Turning Rock Partners

rivate credit has caught the attention of many privately held companies seeking to raise capital without meaningfully diluting their ownership. For business owners, selecting the right private capital partner is essential for growth, alignment of interests and longterm success.

The growth in the private credit market can be traced back to the decline in bank lending. The dramatic rise in interest rates in 2022 caused significant deterioration in banking conditions. Elevated borrowing costs put pressure on regional banks that were already credit constrained, resulting in a pullback in lending. The reduction in bank lending increased the demand for alternative or “non-bank” lenders. The private credit market stepped in to fill the lending gap and is now estimated at $1.7 trillion and growing.

Traditionally, private credit was dominated by sponsorbacked lending, focusing on dividend recapitalizations or traditional leveraged buyouts. The non-sponsor lending market has now emerged as a dynamic and attractive alternative. Non-sponsor lenders provide capital directly to businesses seeking loans. Founder-led companies often prefer private credit investment, as it can be less dilutive by keeping equity in the hands of the business owner and his or her key executive teams.

Working with Private Credit Partners

With so many new entrants into the private credit market, finding the right financing partner is essential. What do private credit investors look for in underlying companies?

FOUNDER COMPETENCY: Private credit investors are looking for sophisticated founders and executives who understand all facets of their core business. If we get the sense this is more of a passion project or a side hustle, then we are moving on. We also want to see the depth of the team. The founder should have aligned incentives, roles and responsibilities for key players on the bench.

SKIN IN THE GAME: Founders who have substantial dollars on the line, reinvest dividends and invest most of their own capital into the company are far more attractive to potential private credit partners. We also review management incentive plans, employee compensation and benefits.

USE OF PROCEEDS: What is the use of our capital?

We prefer to see founders and ownership teams utilize the funds to recap the company, expand their footprint, invest in critical equipment, make strategic acquisitions or expand into new business lines.

TRACK RECORD: An essential element is management that has achieved definable and repeatable success in scaling operations. While not a guarantee, our experience has been that those businesses with asset-heavy balance sheets, definable cash flow, diversified revenue streams and expert management tend to have better outcomes. Companies with executive boards of directors that are diverse, inclusive and made up of industry experts and independent thinkers are preferred.

STRATEGIC EXITS: Before we invest, we are already planning our path to exit. It is critical that the founders we partner with are on board with our outcome goals. Founders should be receptive to exploring a range of exits such as M&A, refinancing, asset sale proceeds or even tapping the public markets. Our networks can play a vital role in pursuing the next chapter.

Strong Partners in Challenging Times

Private credit firms are choosing their investments carefully in today’s challenging market. The upside is that owner-led companies typically perform well in uncertain times. Now more than ever, business owners can benefit from strong investment relationships with private capital partners who can help them weather shifting macroeconomic and regulatory environments.  //

Upgrading Operating Partners to First-Class Citizens

The competitive environment of private equity M&A requires dedicated full-time operating partners, prompting firms to move away from the advisor model

BY ANASTASIA DONDE

The private equity industry has grown exponentially in the past several decades, and competition is fierce.

Coupled with high interest rates and a slow M&A environment, the days of “easy money” and financial engineering are gone, experts say. It’s no longer enough to just “buy low and sell high” with cheap and easily sourced debt capital.

For these reasons and others, operating expertise and organic growth are more important than ever. “The private equity industry has doubled or tripled in the past decade, which puts pressure on valuations, and there is more competition,” says Francois Auzerais, head of North America for Korn Ferry’s Private Markets Practice.

Market forces have put pressure on private equity firms to grow their businesses significantly to achieve target returns. “Private equity firms have to create real value, not just bet on interest rates being low,” says Zorian Rotenberg, an operating partner at Charlesbank Capital Partners. “Top-performing PE firms know how to create real value to generate superior risk-adjusted returns.”

Private equity firms used to have external advisors who

helped them run the companies they acquire. Most experts say that model is outdated and dedicated operating partners are necessary.

Some firms now employ full-time operating partners, while others hire contract workers who report income on a 1099 tax form. Some large firms have separate subsidiaries where they house their operating partners. Across these arrangements, a multitude of models and compensation structures has emerged. Headhunters say there is no “one size fits all” approach. Instead, private equity firms employ different methods based on what they need and can afford.

“We’re seeing less of the consulting approach,” says Laurie Canepa, managing director at executive search firm StevenDouglas, who adds that operating partners tend to fill a variety of roles depending on the firm. Some help find portfolio companies to buy, while others occupy a temporary C-suite role to help “stand the company up” in the first few months post-acquisition. Still others are deployed as functional experts across portfolio companies.

// The Workplace

The Evolution of the Operating Partner Role

Headhunters say the operating partner role has gone through several iterations since the beginning years of the private equity industry in the 1980s. At that time, most firms had senior advisors who were typically retired C-suite executives from major corporations, says John Rubinetti, partner at Heidrick & Struggles. Eventually, some of the larger firms began bringing advisors on staff who typically had consulting backgrounds and were often younger than the retired advisors.

Now, in the second, third or fourth iteration of the operating partner role, most firms have dedicated on-staff operating partners who are involved in the latter stage of diligence and come in with a value-creation and execution plan for the portfolio company. Many are also functional experts in areas like finance, IT, human capital, go-tomarket/sales and supply chain/procurement, Rubinetti says. He estimates that the trend of hiring dedicated operating partners began about 10-12 years ago and ramped up in the past five.

“The old model was that a handful of former CEOs or CFOs who were semiretired would help out on a part-time project basis as needed,” says Bill Matthews, partner at executive search firm BraddockMatthewsBarrett. “Over time it has evolved into a recognized function as the need for specialization grew.”

Charlesbank’s Rotenberg recalls talking to LPs at a recent private equity conference who said limited partners today are looking for full-time operating partners, not just “curated lists of advisors.” Investors want to see operating partners who are fully committed to the PE firm and have unique expertise to tangibly impact portfolio companies, where they lose sleep over the same issues and are focused on the same priorities. The LPs at that conference mentioned that they want operating partners to pass the so-called “shower test,” meaning that they think about their job and priorities at all hours.

Experts credit some large firms like Bain Capital, KKR and Vista Equity Partners with being ahead of the curve in building dedicated operating partner benches.

Olivia Howard, a partner in the Portfolio Group at Bain Capital, says her firm has been focused on partnering with management teams with an eye toward organic growth since its launch in 1984, when the firm spun out of

The old model was that a handful of former CEOs or CFOs who were semiretired would help out on a parttime project basis as needed. Over time it has evolved into a recognized function as the need for specialization grew.

BILL MATTHEWS Partner, BraddockMatthewsBarrett

consulting firm Bain & Co. “Our approach has always been about improving companies through operating performance, not financial engineering,” Howard says.

Since the firm’s founding, Bain Capital has dedicated resources to working closely with management teams in driving strategic and operational performance. The firm’s Portfolio Group, which split operating responsibilities from deal teams in the 1990s, has evolved to include functional specialists. Bain Capital also leverages management consulting firms and other third-party resources for advice and to help diagnose problems at portfolio companies and come up with solutions, Howard says. “We want to always be learning about what works and what doesn’t from a wide variety of sources.”

Employment Structures

Korn Ferry’s Auzerais says that the “independent contractor” model for operating partners has been popular among private equity firms and still is in some places. These types of advisors are often hired on a project basis and report income using a 1099 form. Usually they aren’t exclusive with the private equity firm or portfolio company.

In the last five years, Auzerais says he’s seen that model recede in favor of full-time staff positions, where operating partners are paid a base salary and bonus with some type

of equity participation in the PE management company, at the portfolio companies they work with or both.

“From a candidate’s perspective, most prefer to be an employee rather than a contract worker. There is symbolic value in that,” says Matthews. “But there are a lot of good firms that make the 1099 thing work.”

Some larger firms have affiliates where they house operating partners or other consultants. For example, Lone Star Funds, Vista Equity Partners and KKR have affiliates called Hudson Advisors, Vista Consulting Group and Capstone, respectively.

The slow exit environment and market headwinds make it costlier to hire more operating partners, and some firms juggle the cost-benefit analysis by cutting corners. Operating partners who are hired as contract workers on a 1099, for example, tend not to have benefits or paid time off. StevenDouglas’ Canepa says the lack of exclusivity in these arrangements raises issues with confidentiality, especially since private equity firms like to keep their strategies close to the vest.

Compensation structures can vary widely. In two recent operating partner searches for similarly sized firms, Canepa saw very different offers. One had a $200,000 base salary, a $100,000 bonus and a small equity component. The other offer included a $325,000 base salary, a $150,000 bonus and equity participation in multiple portfolio companies.

Heidrick & Struggles’ Rubinetti says some compensation structures are heavier on equity stakes and profit sharing on exit, while others have larger base salaries and bonuses. His firm’s Operating Professional Compensation Survey this year shows that most respondents are seeing base salaries increase while bonuses decrease. The sources of cash compensation for operating partners are primarily fund management fees, portfolio company oversight fees and time billed directly to portfolio companies. The breakdown of where compensation comes from has remained relatively unchanged compared to prior years, according to the survey, with 49% of respondents getting paid solely from fund management fees, 14% solely from time billed to portfolio companies, and another 14% from portfolio company oversight fees and time billed directly to companies.

Canepa points out that some firms are very intentional and specific about how they structure equity plans for their employees, so as not to overly dilute the value of that equity. The affiliate structure sometimes allows firms to avoid paying equity shares to operating partners housed within the subsidiary, experts say. In some cases, firms will give operating partners equity but don’t put it in the offer letter up front.

Private equity 3.0 involves very specialized operations. You have to adapt to survive.

JOHN RUBINETTI Partner, Heidrick & Struggles

Operating Partner Hiring Trends

Headhunters say they’re seeing more functional specialization in the operating partner benches at private equity firms. Some are experienced in human capital, for example, while others might specialize in finance, transformation, commercial excellence or supply chain. “The big trend today is operating partners in AI and technology applications, where they can streamline data and analytics,” Auzerais says.

“Firms have become more specialized, where they compartmentalize their approach. They have dedicated business development teams, deal teams, operations teams,” Rubinetti adds. “Private equity 3.0 involves very specialized operations. You have to adapt to survive.”

“More firms are moving toward functional expertise and going narrow on specialization, whether it’s AI, talent, go-to-market or something else,” says Erin Carroll, partner at BraddockMatthewsBarrett. She notes that her firm’s clients have been hiring more people at junior- or midlevel experience levels, some of whom have a few years of consulting under their belt, in addition to seasoned former executives.

Private credit and special situations firms are also starting to add to their operations teams as restructuring and turnarounds become more prevalent, according to Rubinetti and Auzerais. Private equity firms that are more “deep value in nature” are actively seeking out operating partners, where they might be dealing with broken capital structures and need to transform businesses, Auzerais says.

The popularity of operating partners in recent years stems in part from the slow pace of exits and longer holding times. Those, in turn, require operating improvements over a lengthier period. Asked whether the trend would reverse once interest rates go down and financial engineering becomes easier, Howard says she expects operating expertise to be a lasting need: “Our experience over the long term is that you have to grow businesses in a sustainable way to achieve top-decile returns.” //

ANASTASIA DONDE is Middle Market Growth’s senior editor.

Prioritize Cybersecurity for Deal Certainty and Value Creation

Private Equity firms prioritize cybersecurity to secure investments and enhance long-term value. Beyond regulations, it’s a strategic imperative that impacts deal certainty and investment risk. In today’s cyber landscape, resource-limited portfolio companies face heightened vulnerability, emphasizing the need for PE leaders to prioritize cybersecurity in transactions.

The LP Wish List

An LP survey from law firm Barnes & Thornburg shows that investors are interested in AI applications and succession planning at their private fund managers

BY ANASTASIA DONDE

Despite high hopes that this year would be an active one for M&A, 2024 has so far continued to be slow in terms of dealmaking, fundraising and exits. A survey of private market fund LPs from law firm Barnes & Thornburg shows that investors are interested in innovative strategies like secondaries, cryptocurrency and private credit. Many are also focusing on their GPs’ use of artificial intelligence and succession planning, two items that private fund managers have scored low on so far.

“Fundraising, dealmaking, and exit values all saw steep declines in 2023 as high interest rates and economic volatility continued to quash exit opportunities—leaving both limited partners (LPs) and general partners (GPs) on the hunt for liquidity,” the report said.

The survey showed that GPs continue to struggle with fundraising and extended investment periods, succession planning is more important to LPs than a year ago, and credit-focused respondents are concerned about workouts and restructuring. Many LPs also said they want the funds they invest in to use AI for investment analysis and decision-making.

Almost 40% of both GPs and LPs said they saw increases in expenses over the past 12 months—double the number of last year’s response. Higher costs and a slow dealmaking environment could be preventing GPs from making significant strides in succession or AI. The market environment is also a reason for LPs to consider private credit, crypto funds or secondaries for better returns or liquidity.

Passing on the Reins

Barnes & Thornburg’s questionnaire found that succession planning was very important to LPs and that most GPs don’t have a plan in place. The survey, conducted in April, showed that a whopping 96% of LPs believe it’s important for the funds they invest in to have a succession plan, up from 66% last year. At the same time, only 38% of GPs have a plan, with 31% working on one, 16% considering doing so and 15% not even considering it. GPs with an existing plan referenced cost savings, governance priorities, disruption avoidance and talent management as key reasons for their thinking. “Only 20% attributed their actions to pressure from LPs, suggesting that some LPs may not be making their voices heard on this issue,” the report said.

The paper cited several reasons for GPs’ lack of preparedness in this area, including few other smooth transitions to use as models, consolidation that could solve the succession issue in a different way and high costs. “The market hasn’t seen many high-profile examples of seamless leadership transitions, which could be one reason why many GPs don’t have a plan in place,” the report said. “What’s more, the rise in fund consolidation could be a response to this quandary. After all, selling off a fund to another manager could be an effective business opportunity and a way to avoid some of the issues that arise during succession,” the lawyers wrote.

“With GPs reluctant to dismantle legacy funds and beset by cost pressures, it should perhaps come as little surprise

that the group made less headway on succession plans this year than last,” the paper continued.

Burgeoning AI Use

AI has been the talk of the town in the past two years as new products and companies keep launching. Of the LPs polled, 77% said they are encouraging the funds they invest in to use AI and machine learning for investment analysis and decision-making. This is another area where GP activity doesn’t match up with LP expectations. Of the GPs polled, 26% said they implemented AI for at least one function, about half (46%) are in the process of implementing at least one function, 16% are considering it, and 12% are not considering any AI functions at all. The most popular use cases among GPs for AI so far were market data analysis, compliance and target identification.

“AI is all the rage in 2024—and investment funds are just as bullish on the technology as other businesses,” the report said. Three-quarters of respondents agreed there will be more AI unicorns over the next year than any other startup type combined. Venture capital investors are the most active and outspoken supporters of AI, with Andreessen Horowitz aggressively investing in the sector from its recently raised $7.2 billion fund.

Looking ahead at the next two years, 36% of respondents said generative AI will likely make a significant impact on fund performance, with 29% answering that it’s already making an impact, 28% saying they are unsure if it will make an impact, and 7% saying it’s unlikely to make an impact.

The Search for Yield

In a lackluster M&A environment, some investors are searching elsewhere for returns. Eighty-four percent of respondents said private investment in cryptocurrency will increase in the next 12 months, for example, with 54% adding that they are more likely to invest in crypto funds than they were in the previous year. Almost 60% of respondents also expect the number of dedicated crypto funds to increase over the next 12 months.

The rise of private credit is also expected to continue, though some investors are wary of the potential for more defaults if market conditions worsen. “Tight lending conditions and high interest rates have fueled demand for

AI is all the rage in 2024—and investment funds are just as bullish on the technology as other businesses.

2024 INVESTMENT FUNDS OUTLOOK REPORT

Barnes & Thornburg’s Private Funds and Asset Management Practice

private credit, with Blackstone projecting the industry will exceed $3.5 trillion by 2028,” the report said.

At the same time, investors are cautious about restructurings. “Though the sector is expected to keep gaining momentum in the year to come, defaults could also rise should interest rates remain high,” the report said. Over the next six months, 44% of respondents said workouts and restructuring in their private credit portfolios is expected to increase, 49% said it would stay the same, and 7% said it would decrease.

As investors search for liquidity, the secondaries market is growing as a way for LPs to offload private equity stakes. Barnes & Thornburg’s respondents agreed that the secondaries market would be stronger next year, with 34% saying it would be “significantly or moderately” stronger and 41% saying it would be “slightly” stronger.

The market environment is also creating more concentration and consolidation, with LPs placing more money with large brand-name managers. “Fundraising concentration [last year] reached its highest level in over a decade,” according to McKinsey, with the 25 most successful fundraisers collecting 41% of aggregate commitments to closed-end funds.

The Barnes & Thornburg survey polled 138 respondents, of whom 40% were sponsors, 37% were service providers, 22% were LPs and 1% described themselves as “other.” //

ANASTASIA

DONDE is Middle Market Growth’s senior editor.

People First

ACQUIRING MINDS: BARRINGTON JAMES’ DAN BARRINGTON ON ACQUIRING S3

Lion Equity Partners Operations Principal Travis Dziubla outlines his private equity firm’s three-step approach to building an effective management team. 22

The leader of the life sciences recruitment firm discusses staffing post-COVID, the role of AI in recruiting and more.

HUMAN CAPITAL: BUILDING THE DREAM TEAM FOR A CORPORATE CARVE-OUT

28 ON THE MOVE

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

Acquiring Minds

Barrington James’ Dan Barrington on Acquiring S3

The CEO discusses how his firm uses AI and his plans for future growth

BY HILARY COLLINS

When Barrington James, a global life sciences recruitment firm, acquired S3 Science Recruitment in July, Dan Barrington, CEO of Barrington James, saw S3 as the perfect complement to his firm’s human capital offerings. He shares his plans for continued geographic growth, how artificial intelligence saves time for his team, and the trends and challenges he’s seeing in the life sciences recruitment world.

Middle Market Executive: What were you looking for in an acquisition, and what initially attracted Barrington James to S3 Science Recruitment?

DAN BARRINGTON: It was quite a long list to be honest with you, because we’re looking to grow our human capital offering both across life sciences and globally—anything

from executive search to contingent recruitment or contracting staffing. S3 worked predominantly in Europe in preclinical recruitment, something we don’t do, and although they’re small, it’s a very motivated team with good potential. We saw that S3 wasn’t getting much leadership development, and they were desperate to grow. It was the people at the end of the day who made us really excited about the company and the opportunity to increase our service offerings across life sciences.

MME: Can you talk about your plans to incorporate S3 into your operations?

BARRINGTON: S3 is keeping the name because they’ve got a great name in their industry, but it’ll be branded as a Barrington James company. Because it’s a smaller firm, all the systems have been integrated and we’ve spoken to

We’re using AI in a lot of ways, from updating records from CVs that come into our current CRM system, to helping write emails, to doing salary surveys.

all the clients we share. We’ve got a very comprehensive learning and development program at Barrington James, so members of the S3 team were all very keen to do that. We’ve also onboarded them into our benefits and rewards package, which is significantly better than what they had previously.

MME: What types of growth are you looking at going forward: organic, geographic, more acquisitions?

BARRINGTON: All of the above. In terms of geography, we’re targeting predominantly the U.S. and Europe, but we’re also looking at Australia. We’re always open to anything within the life sciences space; that’s the key thing for us. It’s the life sciences, human capital space—anything within that, inorganically and organically.

We believe that in the areas we’re in, there’s room to double, triple and quadruple the number of staff members we have, so we’ll continue to do that over the next four or five years.

MME: Per the press release announcing the S3 acquisition, it seems like you’re very interested in enhancing Barrington James’ technological capabilities. Are there any specific functions or applications you’re working on or hoping to add?

BARRINGTON: We’re always keen on looking at new technology, and it can really help us in the job we do. We’re looking at a new CRM now to help onboard and maintain candidate records according to the different rules and regulations in different countries, because there are quite a few of them.

All our tech is there to save time for our people rather than do the jobs of our people. What we’re trying to do is give our consultants back time in their day, so they can speak to our candidates and clients. Our unique sales proposition as a recruiter, as opposed to just being a mover of CVs, is to give our people time to build personal relationships. Any tech that can save our recruiters time is something we’re massively looking at.

Obviously, artificial intelligence is a big part of that now. We’re using AI in a lot of ways, from updating records from

CVs that come into our current CRM system, to helping write emails, to doing salary surveys.

MME: In the recruitment space more broadly, what challenges are you facing and what strategies are you using to overcome those?

BARRINGTON: It’s been a slower 18 months in every sector of recruitment since the post-COVID boom. The challenges we face are keeping our consultants motivated and keeping them hungry when times are hard and the market’s a bit tough and they have to work harder. That’s just about old-school managing and motivating people. We make sure we hire right, we have good career paths, great development paths and good incentives.

We continue to communicate to our staff, and we help them as much as possible with the tech that can make their day easier. One of our biggest challenges is getting people who want to do the job and work the hours and be the face of recruitment.

MME: What trends are you seeing in life sciences recruitment?

BARRINGTON: The life science world was turned upside down, like everything else, with COVID, but post-COVID we saw a massive uptick in companies recruiting staff, probably too quickly. The trend we’re seeing now is the opposite: People are recruiting staff too slowly. They want a perfect 10 for a job, whereas a couple of years ago they’d have taken a 4 out of 10. The truth is that a middle ground is probably their best option.

It’s also tough getting people to move jobs now, because people often want to bet on the devil they know. You can go to a company and then in two weeks be laid off—a “last in, first out” sort of thing.

I’d say one trend we’re seeing is a bit of an uptick in hiring for senior roles recently, which usually means that somewhere in the next six to nine months there will be an uptick in the slightly more junior roles. There’s been a lot of C-suite movement in our industry in the last year, so we think that’s going to come down the chain in early 2025.

HILARY COLLINS is the Association for Corporate Growth’s associate editor.

Human Capital

Building the Dream Team for a Corporate Carve-out

ITRAVIS DZIUBLA Operations Principal, Lion Equity Partners

n today’s rapidly evolving M&A market, carve-outs have become a strategic opportunity for both private equity buyers and corporations looking to sell. With excess dry powder on one side and rising costs of capital on the other, carve-outs are likely to continue making headlines as a way to achieve both parties’ objectives.

However, carve-outs are hardly the easiest deals to execute. Imagine a scenario where a large conglomerate decides to divest a small and sleepy division. That division must suddenly stand on its own two feet. The strategy is new and aggressive, cash is tight, the pace of change is fast, and mistakes are costly. This is the exact scenario where the right management team can make or break the success of the carve-out. At Lion Equity, we’ve seen firsthand the transformative power of a well-built management team in corporate carve-outs but have also found that building the right team requires a well-executed hiring process.

The Talent Mismatch Challenge

Inheriting a full management team in a carve-out is unlikely. Even if you do, it can be challenging for everyone to adapt to new owners and expectations. The post-close environment is usually starkly different from the parent company, demanding different skills for success. At the same time, ownership must be strategic with any management additions or changes to avoid early-onset change

fatigue or the loss of valuable institutional knowledge. This calls for a thoughtful and targeted approach to building the management team.

At Lion Equity, we specialize in corporate carve-outs and have deep experience building great teams that can guide our new portfolio companies through the fast-paced changes those carve-outs entail. To do this, we follow a three-step approach, starting in diligence, to quickly scope and build effective management teams: Define the strategy, lead the selection, and accelerate the transition.

Define the Strategy

Our experience shows the best management teams are fit-for-purpose. While a great general athlete may perform well, executives with skills and experiences tailored to the specific needs of the new standalone business will significantly outperform. Here’s how we identify those specific needs:

BUILD OUT THE OPERATING STRATEGY: Work with the acquisition team and management to form a hypothesis on the post-close strategy and define what success will look like.

SCOPE THE TRANSFORMATION: Identify major initiatives and investments required to execute the strategy, as well as the risks involved in that transformation.

IDENTIFY REQUIRED SKILLS: Determine the

While a great general athlete may perform well, executives with skills and experiences tailored to the specific needs of the new standalone business will significantly outperform.

capabilities and expertise needed across functional and core strategy areas to deliver on these initiatives. This gives you a clear picture of the specific needs of the carve-out.

ASSESS EXISTING TEAM GAPS: Evaluate the existing organization design and management team to identify gaps between what you need and what you have today. Use this “gap analysis” as a guide for determining which roles need to be added, which roles should be rescoped or which roles require talent changes.

At Lion Equity, this pre-close work allows us to identify potential talent changes in a targeted way. It gives us a North Star as we look to add the right people to the team.

Lead the Selection

The management selection process is a critical step and often where many new owners stumble. It requires time, persistence, diligence and leadership—tasks that cannot be easily outsourced and should be led by owners and the board. Below are some elements that help guide our selection process:

SCORECARDS: Develop scorecards that translate the business strategy into actionable skills, experiences and characteristics. These guide search partners in their hunt to find great candidates consistently and also provide future interviewers with a clear rubric for the questions to ask.

SEARCH PARTNERS: Establish relationships with two to three search partners specializing in the roles you commonly need. Develop long-term relationships so they understand your style, needs and expectations.

INTERVIEW PROCESS: Our experience is that Goldilocks rules apply: not too many, not too few and just the right people. Ownership needs to test whether the candidates have the skills and experiences that the strategy and scorecard highlight, so only choose interviewers who can assess those areas well. Make decisions collectively, objectively and, most importantly, quickly.

LEADERSHIP ASSESSMENTS: While personality or intelligence assessments are common, Lion Equity takes a different angle: leadership assessments. How do our candidates make decisions? Will their leadership style work well with the existing team and culture? Will their approach to decision-making be effective given the strategy we need to execute? These are important questions a good

organizational psychologist can help you think through. Maintaining focus throughout this process is crucial. Searches that drag on can demoralize the company and deter top-quality candidates. Keep your eye on the ball and close those searches swiftly.

Accelerate the Transition

A common mistake operating partners make is taking their foot off the gas once a hire is made, leaving new executives to figure things out by themselves. Our experience at Lion Equity is that most new executives who struggle will fail within the first 12 months. To remove early barriers to success, owners should:

PROVIDE CONTEXT: Offer a half-day session with new executives to give them all the context they need about the company, including diligence outputs, operating strategies and an assessment of the company’s current position.

DEFINE THE MANDATE: Clearly define what success looks like for this role. Hold a session outlining the core objectives of the investment thesis and key results ownership will use to measure success, tying both of those back to the new executive and their role.

ALIGN INCENTIVES: Ensure everyone understands how success is measured and achieved, and what that means financially for the executive. This alignment helps executives start with the right focus and momentum.

CHECK-INS : Hold formal 90- and 180-day check-ins with new executives to understand their progress but also their lessons learned and observations along the way. Some of Lion’s best value-creation plan additions come from these check-ins, so don’t skip them!

Closing Thoughts

In all PE, but especially in carve-outs, building a company with the right talent is a key factor for success. While it takes time, effort and a bit of luck, following these guidelines helps Lion Equity consistently define, find and establish the right talent with a clear line of sight to success. //

TRAVIS DZIUBLA is an operations principal at Lion Equity Partners, where he leads the strategy and operations efforts for the firm, including carve-out execution, integration support, strategy development and overall management of portfolio company performance.

Smaller deals are back on the rise, but driven by caution

By Andy Jones Private Equity Info Founder & Managing Partner

Private equity firms are focusing on smaller acquisitions, representing a shift to a pre-pandemic trend.

Private equity firms are investing in smaller deals and exercising caution with larger deals, according to new data from Private Equity Info’s M&A research database.

Although platform acquisitions by private equity firms are

down substantially in 2024, our data shows that the share of deals that are under $50 million have become the focus in 2023 and the first half of this year.

The sentiment seems to be: “If acquisitions are a mistake in this season, then make them small.”

This represents a shift back to pre-pandemic trends when smaller transactions were a larger percentage of acquisitions, before firms started acquiring larger portfolio companies as a result of a boom created from the economic stimulus.

The sentiment seems to be: “If acquisitions are a mistake in this season, then make them small.”

When evaluating the ratio of platform investments-to-exits, segmented by typical deal size from 2017 to June 2024, private equity firms focused on smaller deals are still active acquirers, while the firms that typically invest in mid-, large-, and mega-sized deals are showing significant reductions in acquisitions.

For the purpose of this study, deal sizes are determined by enterprise value ranges. Small deals are under $50 million; mid-sized deals are between $50 and $250 million; large deals are between $250 and $500 million; and mega-sized deals are more than $500 million.

For background, the private equity industry is growing in aggregate when the ratio of investments-to-exits is greater than one and contracting when the ratio is less than one. For the last 20 years, investments have outpaced exits as the private industry has expanded.

In 2018, private equity firms that typically invest in smaller deals made 3.3 platform acquisitions for every exit, while mid-, large- and mega-sized deals made 2.3 – 2.7 acquisitions for every exit.

From 2019 through 2021, there was more growth in large transactions, as the pace of smaller deals declined.

However, a reversal started in 2023 as private equity firms reverted to a focus on smaller deals again, which is especially acute considering exits are down significantly as well.

In the first half of 2024, small deals grew at a rate of 2.5 investments for every exit, while mega deals grew at 2.1 investments for every exit (down from its peak of 3.3).

The difference of approach between the periods is clear.

From 2015 to 2020, there was a strategic advantage in pursuing smaller deals, with less buyer competition and lower valuation multiples. Acquiring smaller companies presented a better value proposition with higher potential return on investment as the upper-end of the market became more competitive.

Over the past year-and-a-half, with the government stimulus invested, higher interest rates, and a higher inflationary environment, private equity firms are now deploying capital more cautiously.

A surge of available funds in 2021 led to a greater deployment of capital in mega deals. Now, macroeconomic events are driving firms back to smaller platform and add-on acquisitions.

Andy Jones is the founder of Private Equity Info, formerly an investment banker and engineer.

the Move

NICK POLANSKI

Atar Capital

Nick Polanski has joined private investment firm Atar Capital as director in operations. He will focus on commercial and operational due diligence for new transactions and provide operational support to Atar’s affiliated companies. Prior to joining Atar, Polanski served most recently as president of filtration at Culligan International. He began his career at Danaher and held strategic roles at Stanley Black & Decker, Assa Abloy, Innocor and General Electric. His experience extends to management consulting at Next Level Partners, where he specialized in large-scale private equity transformations.

MEREDITH MOSS

Presidio Investors

Meredith Moss has joined Presidio Investors as the private equity firm’s newest operating partner. She brings deep experience in the fintech sector, having held leadership roles that include CEO of Finomial, managing director at SEI and chairman of the board at Alliant National Title Insurance Co. At Finomial, she led the company to a successful acquisition by SEI.

RUSS BOWLING

PARC Auto

Kian Capital-backed PARC Auto, a Meineke Car Care Center franchisee, announced the addition of Russ Bowling as chief operating officer. Bowling has a deep background in the general automotive repair space, having previously served as vice president of operations for a large Jiffy Lube franchisee, managing the business operations of 187 retail oil change, preventive maintenance and general automotive repair locations. He began his career with Pro Oil Shop Inc./Havoline Xpress Lube.

JIM PENNOYER AND TIM JULIAN Lacerta Group

SK Capital-backed Lacerta Group, a provider of thermoformed packaging solutions, has expanded its leadership team with the addition of Jim Pennoyer as chief financial officer and Tim Julian as chief commercial officer.

CFO Pennoyer brings over 30 years of strategic financial management experience to Lacerta. He previously served as executive vice president and CFO of Metrea and vice president and CFO of Textron’s Specialized Vehicles division.

CCO Julian joins Lacerta with over 25 years of customer-facing experience, primarily in the packaging and specialty materials industry. He previously served as executive vice president of global sales at Industrial Labels Holdings and president of Nelipak’s American division.

GREG TURK

Illinois Police Officers’ Pension Investment Fund

Greg Turk has joined the Illinois Police Officers’ Pension Investment Fund as deputy chief investment officer. He will focus initially on the planning and implementation of private market investments. Turk previously served as director of investments for the Teachers’ Retirement System for the State of Illinois and was most recently chief investment officer at NG4 Capital, a family office.

KERRY POTTER MCCORMICK

Perkins Coie

Kerry Potter McCormick has joined law firm Perkins Coie’s Corporate and Financial Regulation practices in New York as a private funds partner. She has extensive experience advising fund sponsors and alternative asset managers on the launch and operation of investment structures and products. She previously held roles at law firm Barnes & Thornburg and Apollo Global Management, where she was a private funds and products counsel.

the Move

DAN PETSCHKE

Rohrer Corp.

Dan Petschke was named chief financial officer of Wellspring Capital Management-backed Rohrer Corp., a retail-packaging designer and manufacturer. Petschke comes to Rohrer from Velosio, a full-service technology organization, where he most recently served as CFO. He previously served as CFO with Dwellworks and with Northern States Metals, and he has held financial leadership positions with Barnes Group Inc. and Avery Dennison.

BILL WEBNER

Summit Technology Group

Bill Webner has joined Summit Technology Group, a portfolio company of private investment firm Enlightenment Capital, as chief executive officer of STG Public Sector. Webner brings decades of experience building and growing public sector management and technology consulting businesses, most recently as board chair, CEO and president of Capgemini Government Solutions. Prior to Capgemini, Webner was an executive at government and military contractor Booz Allen Hamilton.

PETER KURTO

Angeles Equity Partners

Peter Kurto has joined private investment firm Angeles Equity Partners as an operating partner in the affiliated Angeles Operations Group. Kurto brings over 20 years of extensive P&L leadership experience within portfolio companies. Prior to joining Angeles Operations Group, Kurto served as an operating executive at Monomoy Capital Partners. Before that, he held leadership roles including CEO of Columbus Industries, COO at H.M. Dunn AeroSystems and CEO at American Air Filter. Kurto began his career at GE.

JAMES ROONEY

Pretium Packaging

James Rooney was appointed CEO of Pretium Packaging, a designer and producer of sustainable packaging solutions that Clearlake Capital Group acquired in January 2020. He will also serve on the company’s board of directors.

Rooney brings more than 30 years of leadership experience in the packaging industry. Prior to joining Pretium, he served as the CEO of DazPak Flexible Packaging, where he led the integration of six businesses, streamlined operations and built a high-performing commercial organization. Prior to this role, Rooney led ALPLA Corp.’s North American business and held various leadership roles at Owens Illinois and Amcor.

JAKE FITZGERALD

PureTech Scientific

Jake Fitzgerald was named CEO of PureTech Scientific LLC, a chemical manufacturer serving the life sciences and specialty chemical industries. PureTech was founded by Iron Path Capital, a private equity firm focused on healthcare and specialty industrials.

Fitzgerald most recently served as president of Americas Packaging at Essentra, where he had been promoted after five years as regional business director. Prior to Essentra, Fitzgerald was site manager at Dow Chemical.

PETE CHATEL

Barco Products

Pete Chatel was named the new chief executive officer for Barco Products, a manufacturer and marketer of commercial outdoor furnishings and traffic safety products that teamed up with Argosy Private Equity in August 2023. A longtime leader of manufacturing companies in the hardware industry, Chatel was most recently the president of Hultafors Group North America. Earlier in his career, he held roles at Black & Decker and was part of the leadership team at Senco Brands, a private equity-backed manufacturer of fastening systems.

TAKING FLIGHT

Monomoy Capital’s Ben Humphreys is known to hop on a plane when a portfolio company needs help, part of his hands-on operating style that colleagues say has changed the trajectory of multiple businesses.

LPs’ PAYBACK PURGATORY

Amid a slowdown in private equity distributions, limited partners are adapting to alternative paths to liquidity while cautiously considering where to invest next.

“Ben has

a unique ability to spot trends and insights and see numbers into the future in a way that I’ve never seen anyone else be able to do.”

PRAB SANDHU

Former Monomoy Capital colleague

Taking Flight

How Monomoy Capital’s Ben Humphreys uses a hands-on approach—and frequent travel—to help portfolio companies soar

Image here

PHOTOGRAPHY BY Adam Lerner WRITTEN BY Britt Erica Tunick

Features

Although business is a popular college major, many M&A professionals wind up in finance by happenstance. For Ben Humphreys, it was a chance meeting through his college’s student government association that set him on the path to a career in private equity and his current role as a senior operating executive for Monomoy Capital Partners.

During his senior year at Colby College, a small liberal arts school in Maine, Humphreys was elected student government president and served as a representative on Colby’s board of trustees. It was there that he crossed paths with Robert Mettler, then CEO of Sears and Roebuck, who would go on to introduce Humphreys to the head of training programs for one of Sears’ major vendors, General Electric. After being encouraged to apply to GE’s financial management program, Humphreys was brought on by the company’s aircraft engine business—a move that would establish the trajectory of his career.

In the years since, his experience in aerospace restructuring at GE, operations work at Cerberus Capital Management and various roles at BlackRock and other firms helped prepare him to become a trusted advisor to Monomoy’s portfolio companies.

“Ben has a unique ability to spot trends and insights and see numbers into the future in a way that I’ve never seen anyone else be able to do,” says Prab Sandhu, a private equity investment professional who worked with Humphreys at Monomoy. “His ability to work with management teams and companies to understand not just the industry and the people but what the problems are that need to be solved is uncanny.”

A CAREER TAKES OFF

Humphreys spent his first year with General Electric in Cincinnati, where he worked in accounting and credit, financial planning and analysis, and business development—what he refers to as “corporate speak for M&A.” But following the 9/11 attack on the World Trade Center and its upheaval of the aviation industry, Humphreys was given the opportunity to go to

Ben is the person who is always willing to question stuff, and in a really good way.

ETHAN KLEMPERER

Senior Operating Executive, Monomoy Capital Partners

Cardiff, Wales, to help restructure an aircraft engine repair facility that GE had purchased from British Airways.

“I went to Cardiff for what was supposed to be six months and spent the next two and a half years there,” says Humphreys, who was born in England but moved to the U.S. when he was only a month old, growing up between Chicago, Washington, D.C., and Maplewood, New Jersey, which he considers his hometown. “It was serendipity. I stumbled into a part of GE that needed some intensive restructuring. … We had to close some excess facilities, re-lay out the plant, renegotiate some commercial arrangements with our principal customers. It was a fantastic learning experience.”

It was during a visit home to New Jersey during this period that Humphreys began dating his nowwife, kicking off what he describes as a “whirlwind romance.” Just six months later, the two were married, and within months they welcomed their first of three children. “We basically went from being single to married with a child in a little over a year, but it was the best set of decisions that ever happened,” says Humphreys, now 46. When his wife’s efforts to get transferred to Europe didn’t pan out, Humphreys returned to the U.S. to work as a manager in financial planning and analysis at GE Water & Process Technologies.

After five years with GE, Humphreys followed a colleague who had moved on to Cerberus. “GE was such a fantastic place, and I always thought I was going to be there for my entire career. But having an opportunity at such a young age in private equity, my wife thought it was crazy not to take the chance, and she encouraged me.” Humphreys spent seven years at Cerberus, working his way up to managing director and partner. While there, he worked on the private equity operating team, taking on the chief financial officer role for multiple portfolio companies, including a bus company and DaimlerChrysler, in which Cerberus had a majority stake at the time.

In 2012, after the head of Cerberus’ human resources moved to BlackRock, Humphreys was one of the first people she recruited. He held multiple roles in his years with BlackRock, including corporate business operations, business finance, and global marketing and communications. Subsequent roles included a brief stint as the CFO of Canary, an early entrant into internet of things security that competed against Nest, prior to its acquisition by Google, and Ring, before its acquisition by Amazon. Humphreys

also worked as an operating partner at middle-market PE firm Staple Street Capital.

GUIDING PORTFOLIO COMPANIES

The multiple hats Humphreys has worn throughout his career have given him a wealth of experiences to pull from at Monomoy. His principal roles there involve working with the firm’s investment team to help underwrite new investments, then partnering with portfolio companies’ management teams.

With a team of 20 professionals at Monomoy, which has about $5 billion in assets under management, Humphreys says the firm is able to devote an inordinate amount of attention to value creation for an organization its size. He personally likes to take a hands-on approach. Those who have worked with him throughout his career describe Humphreys as not only a team player but quite often the MVP.

Humphreys’ work ethic and ability to dig deep and look at things differently from others were qualities that Ethan Klemperer, a senior operating executive and head of Monomoy’s operating team, sought

Features

when he recruited Humphreys to the firm in 2019. “Ben is the person who is always willing to question stuff, and in a really good way,” says Klemperer, who also worked with Humphreys at Cerberus.

In one recent instance, Monomoy’s team was struggling to lower a product’s manufacturing costs. “The way Ben approached it was, ‘Well, maybe we should be thinking about changing our product.’ So, he partnered with the company to come up with a new product for that portfolio company—it’s the same product, but the way it gets put together and manufactured is totally different,” says Klemperer, who notes that the company was a second-generation family-owned manufacturer when Monomoy acquired the business.

Adds Patrick Olson, CEO of governance, risk and compliance firm ACA Group, who managed Humphreys during his time at BlackRock: “All too often you get large-scale problems and big project teams, and nothing ever comes of it. But Ben takes complexity and breaks it into components that people can really focus on.” Beyond that, Olson says that Humphreys applies an ownership mentality to the organizations he works with, demonstrating a level of commitment typically limited to business owners.

That commitment was on display in Humphreys’ work with a Monomoy portfolio company that was hit hard by inflation in 2022. The company was particularly vulnerable due to its steel-centric business and active importing, according to Sandhu. When freight rates surged, the company faced significant margin pressures while the CFO position was vacant. But Sandhu says Humphreys sprang into action and stepped in as the interim CFO, dedicating long hours, from 8 a.m. to 11 p.m. daily, to address the challenges.

“Typically, in a situation like this, third parties are engaged to support and fill in the gaps, but Ben took the initiative, working closely with the CEO and the team. He demonstrated strong leadership and resilience, effectively guiding the company and keeping everyone focused,” says Sandhu. “With Ben’s leadership, he was able to transform the finance function and the organization into a data-driven operation, implementing KPIs and reporting systems

that maintained a strong pulse on the business and directly improved the margin profile. This transformation contributed to the company becoming one of the top performers in the portfolio.”

NAVIGATING A TOUGH MARKET

Humphreys believes a recession could be on the horizon and describes a challenging revenue environment with low demand. To prepare, he and his team are focused on improving the efficiency of Monomoy’s portfolio companies, with an eye toward reaping the benefits when market conditions improve. “We can’t control the macro market or environmental behavior, but we can control our productivity plans,” says Humphreys.

At the same time, he’s aware that investors want GPs to put money to work. Humphreys says Monomoy has exited one to two portfolio companies per year on average and has consistently generated strong returns for its LPs. In early July, Monomoy closed its fifth PE fund, which was significantly oversubscribed, after only eight weeks of fundraising. Fund V, which set out to raise $1.6 billion, closed with $2.25 billion, with $250 million of that representing a GP commitment.

The potential impact of the November U.S. presidential election on the market is also on Humphreys’ radar, as is the political uncertainty among consumers that could make it harder for PE firms to deploy capital. He adds that Monomoy’s focus on industrial consumer products insulates the firm a bit from pressures other sectors may face because it tends to have a steadier stream of activity. Additionally, he notes that Monomoy is expanding its investment mandate into industrial services, which will enable it to cast an even wider net.

Monomoy mainly focuses on corporate carve-outs, family-owned businesses and some public-to-private deals in the $250 million-$500 million enterprise value range. But it can invest in larger businesses, according to Humphreys, as it did with the recent acquisition of Wisconsin-based Waupaca Foundry, one of the world’s largest suppliers of iron castings.

The Monomoy portfolio companies Humphreys works with include Astro Shapes, a manufacturer of custom aluminum extrusions; Edsal Manufacturing, a steel shelving products company; Mac Papers + Packaging, a distributor of paper, packaging and envelopes in the southeastern U.S.; and Thetford, a designer, manufacturer and distributor of sanitation, refrigeration and cooking products for RVs and marine vessels.

Despite his wide range of experiences and competencies, Humphreys believes that to enact real change and enhance the value of portfolio companies, PE firms need to focus on just a few things to fix or change. “If everything’s a priority, nothing’s a priority,” he says. “We look for three to five key things and make sure they are resourced and can really drive differential returns,” he says, noting that most of his time with portfolio companies is spent helping them acquire the resources and capabilities needed to achieve those core things, which could include talent, margin optimization or working capital improvements.

Scott White, president and CEO of Edsal Manufacturing, says Humphreys actually “walks the talk” and is incredibly hands-on. “He is an excellent business partner in terms of pushing the envelope,” White says, noting that he includes Humphreys in all staff meetings, operations meetings and strategic offsites. “When there are issues, he doesn’t just sit in New York and run things from a computer. He’s on a plane and will show up at 8 o’clock Monday morning and be here until 5 o’clock Friday night and over weekends, if necessary, to help us resolve issues.”

Because of his hands-on nature, traveling is a major part of Humphrey’s life. “This is a guy who is on the road four days a week, most weeks of the year, and he never tires,” says Monomoy’s Klemperer. While that means frequently being away from home, Humphreys is dedicated to his family and is an active participant in the lives of his children, who are ages 20, 15 and 10.

Humphreys is an avid golfer and soccer player, trying to find time to hit the green or the pitch whenever possible. He shares his love for soccer with his three children. He’s coached a couple of their teams, though he freely admits that his youngest child’s soccer skills are so far beyond his own that he didn’t think about trying to coach her. “Now I just get to watch,” he quips. And, with his family being from Liverpool, all the Humphreys are Liverpool Football Club fans. “The only time I describe myself as not American is when England is playing in the World Cup or European Championship,” says Humphreys.

While some people describe him as a workaholic and say his expectations of people can sometimes be too lofty, Humphreys believes these are strengths. “I know my standards for excellence are high. I also recognize that being partners with a management team is largely about convincing them and helping them be successful without trying to be individually successful,” he says, joking that people in his role often get blamed for the rain but not praised for the sun. “It’s incredibly fulfilling to see these businesses and the teams that I partner with achieve incredible outcomes.” //

BRITT ERICA TUNICK is an award-winning journalist with extensive experience writing about the financial industry and alternative investing.

Highlights CAREER

MONOMOY

CAPITAL PARTNERS

Senior Operating Executive  September 2019 - Present

STAPLE STREET CAPITAL

Operating Partner  June 2018 - July 2019

CANARY CONNECT

CFO  May 2017 - June 2018

BLACKROCK

Variety of Managing Director Roles  2012 - 2017

CERBERUS CAPITAL MANAGEMENT

Variety of Roles, from Analyst to Managing Director  2005 - 2012

GE WATER & PROCESS TECHNOLOGIES

Variety of Roles, from Analyst and Manager  2000 - 2005

LPs’

PAYBACK PURGATORY

Limited partners hungry for distributions adjust to a challenging exit environment

WRITTEN BY Meghan Daniels

Image here

Features

Broad economic uncertainty is weighing on the private equity market—and forcing the industry to get creative when it comes to liquidity solutions.

“We ended 2023 with a hopeful view, and we’ve seen some growth, although it’s been slower than anticipated,” says Jessica Mead, regional executive of North America at fund administrator Alter Domus. “The middle market has been directly impacted by the wider slowdown in the PE fundraising market generally.”

LPs are feeling the effects of a slowdown in distributions. Deal and exit activity have fallen significantly since the dealmaking rush of 2021, with distribution rates for private equity at just 15% in 2023, compared to 33.9% in 2021, and capital calls outpacing distributions to LPs by more than two to one, according to PitchBook.

“Deal activity and distributions are now moving in the right direction, but it’s been gradual,” says Bart Molloy, partner at placement agent Monument Group. “Dealmakers are always saying that the next quarter is going to be huge. We do foresee a busier Q4, as Q3 tends to be partly a wash with summer.”

The macro factors weighing on the market are familiar ones. Following the Federal Reserve’s aggressive tightening cycle in 2022 and 2023, interest rates have remained high, although the Fed announced a rate cut at its meeting in September. Geopolitical tensions and uncertainty around tax and regulatory policy leading up to the U.S. presidential election in November are exacerbating the “wait and see” nature of the current market.

Private equity funds globally collected $408.6 billion with 861 funds closing in the first half of this year, compared to $374.6 billion in the first half of 2023, according to Private Equity International (PEI).

In an environment with record amounts of dry powder—$2.62 trillion globally as of July, according to S&P Global Market Intelligence—and lagging distributions, some LPs are being highly selective with their capital outlay, choosing to focus on larger, well-established GPs with proven track records. In the first half of 2024, the top 10 funds globally raised

nearly $150 billion, according to PEI. “Even when the number of closings is down, the amount of aggregate capital has been more or less stable due to higher-than-average fund sizes being closed,” says Steve Hartt, managing principal at institutional investment consulting firm Meketa Investment Group.

The high level of dry powder—26% of which is 4 years old or older, according to Bain & Co.—is also increasing pressure on GPs to exit. “LPs are paying meaningful management fees on that capital and want to see it put to work. I’m hopeful we’ll see a bigger pickup in M&A and thus liquidity in the second half of the year, but there are always wild cards,” says Marc Lederman, co-founder and general partner at middle-market private equity firm NewSpring Capital, which in July raised $390 million for its fifth mezzanine fund.

In the U.S. middle market, private equity dealmaking was down 36.8% at the end of 2023 from its peak in 2021, according to PitchBook. Though no one expects a return to 2021 levels, signs of stability have been apparent in recent quarters, with the first quarter of 2024 measuring slightly ahead of the first quarter of 2023 in terms of deal value and flat by deal count, PitchBook data shows.

According to GF Data, an ACG company that tracks deals between $10 million and $500 million in enterprise value, deal volume in the first half of the year was up 23% on an annualized basis compared to 2023. Despite recent challenges, the middle market remains an attractive sector for LPs. “There tend to be lower prices, more opportunities for GPs to apply a value-creation playbook and more exit options,” says Hartt.

ALTERNATIVE STRATEGIES BECOME MAINSTREAM

Buyouts have suffered in the current environment. Last year saw the overall buyout market decrease by 32.7% in deal value, though this number was somewhat less dramatic for middle-market buyouts between $25 million and $1 billion, which decreased 18.9% in value, according to PitchBook. Deal

YEAR-ON-YEAR FUNDRAISING

volume in the middle market was down 12% in 2023 compared to 2022 for deals valued between $10 million and $500 million, according to GF Data, while average valuations dropped just 4%.

Many PE firms are still holding out on selling all but their most attractive assets. With traditional exit activity lagging, firms are looking for other ways to create liquidity. Secondaries—once a niche strategy—have continued to gain traction in the last few years. “Any stigma around using the secondaries market was removed five or even 10 years ago, but it took time for many institutions to get comfortable with the mechanics of these transactions. We’ve seen increasing comfort with using secondaries as a portfolio management tool to create fresh capital to deploy in the primary market,” says Molloy.

Secondaries and continuation fund strategies provide an alternative to buyouts in an uncertain market. In a traditional secondary transaction—sometimes referred to as an LP-led secondary transaction—an LP sells its interest in a partnership to another buyer, who then takes on the LP role. In recent years, GP-led secondary transactions have also been on the rise, with GPs restructuring the ownership of one or multiple assets to create liquidity for their existing LPs. These transactions often come in the form of continuation funds, in which GPs sell one or more of their portfolio companies from their primary fund to a new

I’m hopeful we’ll see a bigger pickup in M&A and thus liquidity in the second half of the year, but there are always wild cards.

MARC LEDERMAN Co-founder and General Partner, NewSpring Capital

Source: Private Equity International’s Fundraising Report H1 2024

Features

PE MIDDLE-MARKET DEAL ACTIVITY

investment vehicle, which they continue to manage. Relative to the overall market, secondaries are still a small player, but many see room for continued growth. “It’s becoming a bona fide exit alternative for GPs in a way that it hasn’t been historically. You’ve got very sophisticated capital that is focused on continuation vehicles. It’s something that every GP has to consider as an alternative,” says John May, founder and managing partner of private equity firm CORE Industrial Partners.

The overall secondary volume in 2023 was $112 billion, up 4% from 2022, according to Jefferies. In particular, the volume of GP-led transactions has increased as these deals become a key source of liquidity for LPs. Continuation funds made up 12% of sponsor-backed exit volume in 2023, vs. 7% in 2022, and GP-led secondary transactions increased 88% from the first half of 2023 to the second half of that year, according to Jefferies. In June, Hamilton Lane closed a $5.6 billion secondary fund, its largest fund to date.

LPs have mixed feelings about these transactions.

Source: PitchBook’s Q1 2024 US PE Middle Market Report *As of March 31, 2024

“Continuation vehicles help LPs generate liquidity, but that liquidity comes at a price. You thought something was worth $100, but now you’ll only get $90—but you can get it today. Ultimately, it’s always a little disappointing to get something for less,” says Meketa’s Hartt.

Net asset value (NAV) lending, in which GPs borrow against their entire underlying portfolio, is also on the rise. According to the Fund Finance Association, the market for NAV credit facilities is currently around $100 billion but is projected to grow to around $600 billion by 2030.

Among LPs, this strategy is even less preferred than continuation funds. “It’s LPs’ least favorite way to get capital back. It’s additional leverage on your assets without getting realization, and there are ongoing issues around alignment,” says Hartt. LPs cite a lack of transparency from GPs, with some not disclosing their use of NAV loans. Many also have reservations about the risks involved with GPs taking on leverage at both the portfolio company level and the fund level.

Continuation vehicles help LPs generate liquidity, but that liquidity comes at a price. You thought something was worth $100, but now you’ll only get $90—but you can get it today.

STEVE HARTT

Managing Principal, Meketa Investment Group

In July, the Institutional Limited Partners Association released a set of guidelines for LPs and GPs focused on the use of NAV-based financing facilities. The ultimate goal is transparency, with ILPA recommending that GPs seek approval from LPs before taking on a NAV loan and for the use of NAV-based facilities for distributions.

WHAT LPs WANT

In the current environment, predictability and a proven track record are key focus areas for mid-market LPs.

CORE Industrial Partners closed two new funds totaling $887 million in February, including its third flagship fund focused on manufacturing and industrial technology businesses and a new offering specific to the industrial services sector. Other recently closed middle-market funds include Kingswood Capital’s $1.5 billion third fund, CCMP Growth Advisors’ $500

million fourth fund, Monomoy Capital’s $2.25 billion fifth fund, Partners Group’s $15 billion fifth direct private equity fund and InTandem Capital’s $715 million third fund.

“What we saw resonate most with LPs in this fundraise was the fact that we have an established platform. LPs know what we’ve been able to do with regards to investments and exits. Our team brings operational expertise while our thematic sourcing approach allows us to continue to invest, regardless of the market environment,” says CORE’s May.

While many LPs are prioritizing existing relationships, those looking to invest with new managers have to vet firms carefully. “For most institutional LPs to add a new GP to their roster, they want to know that they can invest in at least two or three of your funds. It takes a lot of work to underwrite a new relationship, so they want to know the firm is going to be around for not just the next fund but the fund after that and after that,” says Lederman. Recent middle-market debut funds include StoneTree Investment Partners at $155 million, Agellus Capital at $400 million, Truelink Capital Management at $875 million and MFG Partners at $299 million.

Cash-strapped LPs also expect an increasing level of professionalization from all GPs in today’s competitive environment. “The firms out-raising others are strategically mapping out who their LPs should be. … They are building the kind of commercial organizations the best B2B sellers rely on daily,” notes Bain & Co. in its 2024 Private Equity Outlook.

This includes maintaining off-cycle communication with limited partners. LPs are looking for firms to keep them in the loop on all aspects of fund management, rather than just getting in touch when they’re being asked to sign a limited partnership agreement. “In the middle market, there isn’t a true off-cycle anymore. Continuous updates help build a case and set up a successful fundraise,” says Monument Group’s Molloy.

In addition, LPs want to be able to see how fund managers plan to handle uncertainty or potential difficulties down the road. “It’s a very different market than it was two or three years ago,” says May. “Investors are very keen on exactly what they’re looking for and how a given manager slots into their respective strategy.” //

MEGHAN

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

Uncover proprietary transactional information provided by an established pool of private equity groups on a blind and confidential basis. Obtain accurate and up-to-date information to value and assess middle-market businesses.

When it comes to valuing M&A transactions in the middle market, no other source provides the level of quality and granularity as GF Data.

GF Data provides the most reliable data on private-equity sponsored M&A transactions with enterprise values of $10 million – $500 million.

To learn more about subscribing or contributing, scan the code or contact bdunn@acg.org. GFData.com

The Wrap-Up

BACKSTAGE: THE RISKS AND REWARDS OF INVESTING IN WOMEN’S HEALTHCARE

An ACG Chicago panel looked at how regulation and emerging technologies are shaping women’s healthcare and shared red flags for investors.

ACG EVENTS

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

KEY TAKEAWAYS

Insights from the stories in this issue.

The experienced golfers are quick to cheer on members who are golfing for their first time. It is a great example of women lifting up other women.

The Risks and Rewards of Investing in Women’s Healthcare

A panel hosted by ACG Chicago discussed regulatory changes, emerging technology and other trends shaping the women’s health vertical

ACG Chicago

Fertility and menopause-related care are among the healthcare services experiencing increasing patient demand and spurring investment in women’s health. But like the broader healthcare arena, acquiring a women’s healthcare business comes with risks tied to reimbursement, regulation and patient privacy.

Panelists at ACG Chicago’s “Investing in the Next Generation: Women’s Health” event discussed how regulation and emerging technologies are shaping women’s healthcare and shared red flags to look out for when investing in this space. The event, hosted at the office of law firm Much Shelist, was sponsored by BDO and moderated by Springboard’s executive in residence for women’s health.

MODERATOR: How are public policy developments and regulatory changes impacting investments in women’s health, and how can investors, healthcare providers and operators stay ahead of these changes to optimize value for patients and the communities they serve?

DR. ROBERT HARRIS: That’s a tough one. Regulatory stuff, when you’re a physician, is something you’re highly in tune with and very irritated about most of the time. But from the standpoint of larger changes, we really don’t know what’s coming, and for us, it becomes a guessing game. It’s difficult to know what to do and in what direction to go, at least from an investment standpoint. It comes down to who gets elected or who’s in charge, and so all that matters.

From a payment standpoint, a lot of the equity issues in healthcare stem from how much providers get paid for things. You can’t really go upside down and take care of problems, so that’s really an issue. From a granular standpoint, provider reimbursement and what insurance is allowed to cover drive a lot of the care that you might be able to achieve or get somewhere.

AARON NEWMAN: I think we’ve seen a lot of positive trends in insurance coverage in the fertility space, which I spend a lot of time covering for private equity investments. You’re seeing a lot more states mandating fertility services, which are typically paid for out of pocket and are incredibly expensive—$10,000-$30,000 per cycle. We’ve seen states mandate that those be paid for either partially or, in some cases, fully by the insurance company. We’ve seen that across 20 states, and we’ll continue to see that, in my opinion, as fertility services become much more of a need.

Panelists

ANN FORD Partner, Malecki

KAMAL ADVANI

Operating Partner, NewSpring Capital

Brooks Ford Law Group, LLC

KIM Operating Partner, Rotunda Capital

DR. ROBERT HARRIS

Southeast Urogyn, a division of Together Women’s Health

JENNIFER LEE CEO, JLC Life Sciences

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

AARON NEWMAN Director, DC Advisory

PRABHU SOUNDARRAJAN Operating Partner, Sound Equity Partners

SPRINGBOARD’S EXECUTIVE IN RESIDENCE FOR WOMEN’S HEALTH Moderator

LIBBY COVINGTON Moderator; Partner, Craig Group

ELLEN

ANN FORD: I come at this panel with a few different lenses, including as both an attorney and investor. I’m an investor in a first-of-its-kind fund called Nurse Capital, whose investors are mostly women. The products are not all for women’s health, but I anticipate there will be more.

One thing I can say, for the lawyers in this room: If you approach investing in healthcare companies the same way you would for many other organizations, you are going to come face-toface with regulatory issues. Among the things that are really important in terms of the regulatory landscape for women’s healthcare is the postDobbs [the Supreme Court decision that reversed the constitutional right to abortion access] landscape, and what’s going to happen. We don’t know what the administration is going to do at this point, but that is something that it is worth trying to get ahead of.

I also think about the digital innovations in women’s healthcare—period apps, etc.—and the privacy implications for women’s health and the investments themselves.

JENNIFER LEE: We have seen significant advancement in women’s health, and we also have a lot of clinical trials right now in the United States focusing on oncology, dementia, infectious disease, etc. What I like about where we are going as a nation is that the Food and Drug Administration is focusing on improving diversity in clinical trials. Clinical trials—and we’re running about 360,000 as of today—have all these protocols with inclusion and exclusion criteria. We exclude females with certain conditions, so they’re not part of the clinical trials. If we open up the criteria for who can participate, I think that will give us more data on patients, especially women.

We don’t know a whole lot about a lot of things. For example, Asian

Americans, or Asians in general, have denser breast tissue, so when we do an X-ray, we don’t always see everything. We’re just realizing there is a difference—a difference across gender and across age. Once we recognize and understand those differences, then we can target that area of therapeutics.

MODERATOR: Let’s talk about emerging technologies. Since COVID, we’ve seen greater adoption of telehealth digital health platforms, and new technologies are reshaping the landscape of healthcare—not to mention women’s health. What preparations should stakeholders make to leverage these advancements effectively?

NEWMAN: I see this a lot with my physician practice management clients who are trying to serve their patients more effectively. A big part of healthcare is trying to drive down costs and make patients healthier, and having the right types of technologies, whether that’s remote patient monitoring or apps that can treat patients, especially high-risk patients. We’re seeing technology improve those types of patients’ health and their outcomes.

I see this in women’s health with maternal fetal medicine (MFM)—so, high-risk pregnancies—which is part of a broader OB-GYN practice. Generally, when someone’s pregnant and they’re having complications, they go to an MFM doctor. And that MFM doctor is charged with managing the patient’s pregnancy in a much more defined way. We’ve seen a lot more remote patient-monitoring apps that are allowing the patient to communicate with their physician on a more regular basis to make sure that their pregnancy is a safe one.

Throughout physician practice management, I think the advancement in technology is going to tremendously help bend the cost curve, which is a

huge problem that we’re seeing.

MODERATOR: How do investors and companies become educated to understand the different regulations that impact these technologies—from telehealth to AI to remote patient-monitoring— and advocate for changes?

LEE: As an investor, when I’m looking at technology, my first questions are: Where is the data going? Who is keeping it? Who owns it?

I just want to make sure that the companies are developing and utilizing technology for a patient’s health, and that the data is protected and wellguarded. I don’t want to be implicated in a company that has a lot of problems. We embrace technology, but when I wear my board member hat, I have to ask those tough questions because, at the end of the day, I want to know what’s happening.

DR. HARRIS: I’ll point to one technology area that has been a big deal over the last year. I bet you all have insurance, and you probably have no idea how much anything is going to cost you when you go have something done, right? And then you get something in the mail, and it says the procedure cost $38,000, and you just get angry. And then the bill says at the bottom, “Your insurance provider only allows $2,300 for that.” And you’re thinking, “That’s crazy.”

Now there is this cool technology from a payment standpoint that enables us to load in all of your “allowables.” We can get those now from insurance. We know what Medicare pays in every part of the country, and you load these in. And then, when we as the provider decide what we’re going to do, and the patient asks, “Well, how much is it going to cost?,” the amount owed appears on their phone with a little pay button. It’s like you’re buying something on eBay—it’s

kind of a PayPal for medicine. Those advances are a big deal. As a physician, I’m happy I get paid, and you’re happy you know how much you owe. It’s a transaction like any other transaction, which is rare for medicine. Our patients have been very responsive to that. These kinds of things that aren’t strictly clinical are a big deal, and they’re making medicine more like a normal retail activity.

MODERATOR: We talked about risks inherent in women’s health and risks of early-stage life sciences and healthcare investments. When evaluating women’s healthcare ventures, how do you balance the potential for high financial returns with the inherent risks? What red flags and green flags do you watch out for?

LEE: A red flag to me is when a company presents itself as the next Google or the next company that’s going to fix everything. That’s all great, but your data must substantiate it. The FDA spends months repeating everything that you’ve done as a company, and they’re going to make sure that your data is repeatable.

At the end of the day, science data speaks volumes. If we are not able to piece the puzzle together, we might have to run experiments, or you might have to extrapolate the data for us to understand.

NEWMAN: I’ll answer this from the perspective of red flags when I’m talking to private equity firms that are evaluating women’s health investments. I work a lot on the buy side for private equity firms, and one of the red flags that I see a lot when they’re looking to invest in a women’s health physician practice is they’ll say, “Hey, you’re making X now and we’re going to take your compensation down to Y, because you’re going to get this huge payday, and that’s

A red flag to me is when a company presents itself as the next Google or the next company that’s going to fix everything. That’s all great, but your data must substantiate it.

JENNIFER LEE CEO, JLC Life Sciences

going to produce a lot of earnings for the company.” That is a huge red flag. There have been a lot of private equity firms that have made bad investments because they’ve cut physician compensation way too much, and it’s caused a bit of a melting ice cube for that investment.

Another red flag is when a private equity firm is looking at buying a roll-up in physician practice management, and the original owner just bought a bunch of practices and didn’t integrate them. The owner just acquired practices all over the country, or maybe all over a specific region, and didn’t integrate them financially, didn’t integrate the accounting, and they don’t have a unified way to compensate the positions. It’s just a huge aggregation of practices but not really a company. Unfortunately, we’ve seen a lot of investors implement that strategy over the past four to five years. That’s causing a bit of a dark cloud over physician practice management investing right now. //

VOICES OF THE MIDDLE MARKET

In depth interviews about the trends impacting midsize companies and M&A. Guests include CEOs, economists, private equity investors and other influencers who discuss what they’re seeing in the market.

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ACG NEW YORK SUMMER DEALMAKING CONFERENCE

Hosted in the Hamptons at the Montauk Yacht Club, ACG New York’s annual Summer Dealmaking Conference brought together senior deal professionals on July 23-25. The conference included a DealSource event with a virtual meeting scheduling platform exclusively for deal professionals, as well as waterside networking events, catamaran rides and other fun activities.

The Summer Dealmaking Conference runs alongside Freedom Capital Markets’ Family Office conference, providing ACG attendees the opportunity

to meet and network with a larger audience of family offices. Freedom Capital Markets and ACG jointly host an annual networking reception to bring dealmakers and family offices together.

Next year’s Summer Dealmaking Conference will take place July 29-31, 2025.

ACG CLEVELAND WIT SUMMER GOLF OUTINGS

ACG Cleveland’s Women in Transactions group hosted a series of sold-out monthly golf outings that ran from June through September. The series kicked off June 11 with an instructional session for participants to tune up their golf skills. Each outing included 25-30 participants, including both experienced golfers and newer entrants to the sport.

The series embodies ACG Cleveland’s goal of improving access to M&A-related careers for women and other underrepresented groups in the industry. The chapter hopes to break down barriers to women’s participation in networking events, such as golf, where business traditionally happens.

One

thing that has impressed us has been seeing the interaction between the experienced and novice golfers. The experienced golfers are quick to cheer on members who are golfing for their first time. It is a great example of women lifting up other women.

CORRIE MENARY

ACG Cleveland WiT Committee Chair and Partner, Kirtland Capital Partners

ACG DENVER GOLF TOURNAMENT

ACG Denver hosted more than 130 golfers on July 23 at The Ridge at Castle Pines for its annual golf tournament. This year’s tournament featured increased networking in a casual setting, as well as intentional placement of single golfers into foursomes—for example, an M&A partner with one private equity professional, an investment banker and a corporate player.

New this year was the addition of a women’s golf clinic. ACG Denver launched its Women’s Network this year, which helped contribute to increased participation of women in the tournament.

The 2025 golf tournament is tentatively scheduled for July 22 at the same course.

ACG BOSTON ACCELERATOR 2024

ACG Boston’s 2024 Accelerator program was held July 31-Aug. 2 in Portland, Maine. A leadership development program for rising leaders in the M&A community, Accelerator convened 23 participants for this year’s program, which focused on fostering more peer interaction. It included a “stages of the deal” session, where participants were divided into groups with a representative from each function of a typical deal team (e.g., investor, investment banker, accountant, attorney, etc.). This was intended both to educate the group on each role in the transaction and to open dialogue about how best to work together to close a deal.

On Accelerator’s first day, ACG Boston hosted a pop-up event in Portland to foster networking between Accelerator class participants and ACG members, to rave reviews.

This year marks Accelerator’s 10th anniversary, and ACG Boston plans to host a reunion of all 10 classes this fall. The 2025 Accelerator program will take place next August.

WEST COAST DEALMAKER INVITATIONAL

ACG’s most recent DealMaker Invitational golf tournament was held at Half Moon Bay near San Francisco. The invitation-only outing brought together dozens of senior dealmakers for two days of golf, along with networking over meals and in the event’s Deal Lounge. The DealMaker Invitational was sponsored by G-P, Grata, Insperity and ReedSmith.

ACG TORONTO 6TH ANNUAL SUMMER DEALSOURCE NORTH

ACG Toronto welcomed private equity and M&A dealmakers to the Arcadian Loft in the city’s financial district for the 6th Annual Summer DealSource North. The sold-out event featured prescheduled meetings for investment banks and M&A advisory firms to meet with private equity, capital providers, corporate development and family office firms from Canada and the U.S. on July 11. An opening reception the day prior at the Vintage Conservatory Wine Club kicked things off.

ACG SEATTLE NORTHWEST MIDDLE MARKET GROWTH CONFERENCE

ACG Seattle’s Northwest Middle Market Growth Conference took place on Aug. 1 at the Fairmont Olympic Hotel in Seattle with 275 attendees.

The event featured a dynamic panel of female leaders who discussed how family-held and private businesses are navigating the market and why diversity of thought matters. The session was part of the Seattle chapter’s MAKERS—Motivation Ambition Kindness Entrepreneurial Resolute Success—initiative, whose goal is to achieve equal representation of women in the middle-market dealmaking space in Seattle by connecting female leaders in the dealmaking community.

The event also featured an entertaining and informative keynote from Brian Belski, chief investment strategist for BMO Capital Markets, and a Young Professionals Roundtable with a keynote speaker focused on ACG Seattle’s Y20 initiative, a two-year program for select professionals under age 35.

Upcoming Chapter Events

• OCT. 21-22: ACG AgTech Conference –ACG St. Louis

• OCT. 23-24: ACG

Southeast Region Women’s Forum – ACG MidAtlantic/Southeast Chapters

• OCT. 29-30: 25th Annual Midwest Capital Connection – ACG Chicago

• NOV. 4-8: Middle Market Week – ACG New York

• NOV. 6: Operators’ Forum at Middle Market Week – ACG New York

• NOV. 7: 9th Annual Stars of the 101 Awards Dinner – ACG 101

• NOV. 7: 2024 Annual Growth Awards – ACG San Francisco

• NOV. 11-12: ACG Capital Connection and 8th Fall DealSource North – ACG Toronto

• NOV. 13-15: Florida ACG Capital Connection – ACG Florida Chapters

• NOV. 20-21: 11th Annual Deal Crawl Conference – ACG Charlotte

• DEC. 13: Outstanding Corporate Growth and Leadership Awards – ACG Wisconsin

For a complete list of upcoming events, visit acg.org/events.

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, industry education and more. Here are some of the best resources ACG provides that can help you do your job better.

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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.

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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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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.

Takeaways

CATCH UP QUICKLY:

From limited partners’ priorities to red flags when buying a physician practice, here are some of the highlights from this edition of Middle Market Executive.

HEIR UNAPPARENT

While 96% of limited partners believe it’s important for the funds they invest in to have a succession plan, only 38% of GPs have one, according to a Barnes & Thornburg survey. The law firm suggested the lack of preparedness could stem from too few smooth transitions to use as models, consolidation among funds and high costs associated with succession planning. “The LP Wish List,” p. 18.

DISTRIBUTIONS ON ICE

The slow private equity exit environment has limited partners waiting longer to see their capital returned. In response, some LPs are getting selective about where they invest, focusing on large, well-established GPs. That’s contributed to a relatively steady level of capital raised from recent years, even as the number of fund closings is down. “LPs’ Payback Purgatory,” p. 40.

PUTTING LEADERS TO THE TEST

While personality or intelligence assessments are common, private equity firm Lion Equity Partners opts for leadership assessments as a way to evaluate management team candidates on their decision-making process, leadership style and other qualities. “Building the Dream Team for a Corporate Carve-out,” p. 24.

FIRST, DO NO HARM (TO COMP)

When investing in women’s healthcare businesses, a common mistake that private equity investors make is cutting physician compensation too much, noted Aaron Newman, director at DC Advisory, speaking on an ACG Chicago panel about the women’s health vertical. “That’s causing a bit of the dark cloud over physician practice management investing right now,” he added. “The Risks and Rewards of Investing in Women’s Healthcare,” p. 48.

THE SCIENCE OF STAFFING

In the wake of COVID-19, life sciences companies hired rapidly, according to Dan Barrington, CEO of recruiting firm Barrington James. Now, they are recruiting staff too slowly, in his estimation: “They want a perfect 10 for a job, whereas a couple of years ago they’d have taken a 4 out of 10. The truth is that a middle ground is probably their best option.” “Barrington James’ Dan Barrington on Acquiring S3,” p. 22.

PICK YOUR SPOTS

To enact meaningful change at portfolio companies, Monomoy Capital Partners’ Ben Humphreys suggests picking three to five key things to focus on and making sure they have the right resources behind them. “If everything’s a priority, nothing’s a priority,” he says. “Taking Flight,” p. 34.