Middle Market Growth - July/August 2018 by Association for Corporate Growth

JUL/AUG 2018

// THE OFFICIAL PUBLICATION OF ACG

Rehabbing

a Home Care Franchise Griswoldâ&#x20AC;&#x2122;s path from legal woes to Franchisor of the Year

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EXECUTIVE SUMMARY

Getting Better with Age

J.B. DOLLISON Chairman, ACG Global, and Managing Director, Crutchfield Capital Corporation

ike a wine that commands a higher price as it ages, a graying population can also signal profit potential for investors. Not only do we get better as we get older—or at least I like to think so, having just celebrated my 61st birthday—but we demand a different set of products and services. The trend of aging in place, for one, has created a market for home care services, such as those provided by Griswold Home Care, a franchisor headquartered in suburban Philadelphia and backed by private equity firm Pouschine Cook Capital Management. As our cover story illustrates, a massive market opportunity isn’t enough to insulate a company from extreme challenges, which Griswold learned as it faced an onslaught of regulatory changes related to the classification of employees. Our profile looks at what it means to steer a company through turbulent times. In Griswold’s case, that involved a commitment to hearing the concerns of frustrated franchisees. Its good-faith effort toward collaboration ultimately earned the company a Franchisor of the Year award from the American Association of Franchisees and Dealers in 2017. Another aging-related concern is succession planning. It’s a tricky issue for any company, but middle-market private equity firms face a unique set of challenges. Our feature story explores how firms are grooming the next generation of leaders and tackling the sensitive issue of splitting fund economics. It seems the older you get, the faster time flies, and that’s certainly how I feel as I approach the end of my year as chairman of the ACG Global Board of Directors. I’ll pass the baton to the capable hands of Angela MacPhee, CEO of RGL Forensics, on Sept. 1, but I won’t be going far. I’ll see many of you at ACG’s Public Policy Summit in Washington, D.C., on Sept. 12–13, next year’s InterGrowth conference in Orlando on May 6–8, 2019, and of course, at local ACG chapter events. It’s been an honor serving as your chairman, and I look forward to more stories in this magazine about the impressive contributions of ACG members to middle-market company growth and job creation. //

MIDDLE MARKET GROWTH // JUL/AUG 2018

JUL/AUG 2018

DON’T MISS QUICK TAKES Foreverence’s 3D Printed Urns 15

A QUALIFIED OPINION Maureen Hewitt of InnovAge 16

POLICY POINTS Joint-Employer Liability 32

IN THIS ISSUE Executive Cover and above photo by Jeff Wojtaszek

GROWTH STORY

Rehabbing a Home Care Franchise Fast-changing employment regulations and management missteps set Griswold Home Care in the legal crosshairs of its franchisees. It took a new CEO with a collaborative approach to rebuild trust and position the company to take advantage of demand for its services from the growing aging population. 18

Summary 1 Executive Suite 6 The Round 9 Midpoints by John Gabbert 13 Vertical View 14 Growth Economy 34 In Focus—

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Succession Planning: The Thorny Conversation No GP Wants to Have

Twin Brook’s Next Generation of Talent 36 The Portfolio 40 ACG@Work 44

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EXECUTIVE SUITE

Aging Sparks Changes in Health Care F How is the United States’

DAVID TYLER Title: Principal, Health Care Advisory Services Company: Grant Thornton LLP Location: Atlanta Expertise: Tyler leads Grant Thornton’s national managed care services practice, drawing on more than 18 years of experience, primarily in the health care industry.

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aging population changing health care? Estimates show that we incur approximately 60 percent of our health care costs in the last year of our lives. The U.S. Census Bureau projects that by 2030, 1 in 5 Americans will be age 65 or older. This represents a tremendous challenge for our society as more individuals receive care in high-acuity environments, which are both costly and undesirable for most patients. We need to offer alternatives that are less costly and provide an improved experience for patients. There are two keys to addressing this challenge. The first is to provide meaningful patient support across the entire continuum of care, from the intensive care unit all the way to general support in patients’ homes. And the second is to improve prevention and treatment of a handful of highcost and chronic conditions that are prevalent in the aging population. F What opportunities do you see

across the continuum of care? The broad opportunity is to keep people out of high-acuity environments. There’s a market for providers and businesses that help people remain in their homes and as self-sufficient as possible. Elderly patients often end up in higher-acuity environments because they need help with the basics. We see significant investment in in-home care services that offer not just clinical care but also support patients in their homes with such fundamentals as daily chores, care and feeding. There seems to be

a growing focus on behavioral health and chronic disease management. F Along the continuum of care,

where are the greatest profits? With the growth in the elderly population, each individual segment of the continuum offers expanding profit opportunities. Similar to retail, you can have both high-end and low-end health care providers that can have profit capability built into them. F What growth opportunities does

the aging population create in health care and life sciences? For investors, it’s important to have a broad portfolio because we just don’t know which solution, technology, medication or precision-medicine component will successfully increase efficacy and reduce the cost of treatment. But we feel confident that over the course of discovery, some of these will be successful. The greater the number of options, the greater the chance of discovering one that truly moves the needle and maximizes the opportunity for a return. Life sciences and pharmaceutical companies, large and small, are investing in things like precision medicine and the ability to service people in a more precise way. Yet there’s generally less innovation being done by the major pharmaceutical companies. Instead, they are acquiring innovative early-stage companies and/ or drugs. We see new entrants in the marketplace; the big developments in recent years have all been early-stage entrepreneurial companies. We think that this trend will continue. //

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THE ROUND

Jay Jester (left) and Jeff Immelt

Leadership Comes into Focus at ACG InterGrowth GE’s former CEO and InterGrowth panels addressed leading through crises and building gender-diverse teams By Kathryn Mulligan

he theme of leadership took center stage at ACG’s 2018 InterGrowth conference, which featured a keynote address from former GE Chairman and CEO Jeff Immelt and a panel session spotlighting the importance of gender diversity on corporate boards. Immelt, who took the helm of GE on Sept. 7, 2001, spoke before an audience in San Diego about the challenges of leading the company through two turbulent periods. One of those—the Sept. 11, 2001, terror attacks—happened just days after he began his tenure. At the time, the future of the

commercial aviation industry—a core business unit of GE—appeared uncertain. “Airplanes were now weapons,” Immelt recalled. Today, GE holds 75 percent of the market for jet engines, according to Immelt, up from 50 percent in 2001. He attributes that increase, in part, to critical decisions made in the days following the attacks. Crisis struck again with the global recession in 2008, which prompted GE to dismantle its lending unit, GE Capital, and refocus its efforts on its industrial businesses. “It was the wrong model at the wrong time,” Immelt told Jay Jester,

a managing director at Audax Group, who moderated the keynote session. “We had to build and invest in a hightech industrial global company.” He commented further on his tenure at GE and responded to the decline in the company’s share price during a podcast interview with Middle Market Growth. “Nobody likes where the share price is, myself included,” said Immelt, who stepped down from GE last fall and now serves as partner at venture capital firm New Enterprise Associates. “I bought $8 million of stock the last year I was CEO. I did that with the knowledge that as the team executes, we’re going to have a good company going forward.” Good Business Sense Companies stand to benefit financially when women hold leadership positions, according to a panel session that addressed gender diversity and how to increase investment in companies led by women. “We’re not here to say that invest-

MIDDLE MARKET GROWTH // JUL/AUG 2018

THE ROUND

ing in women is the socially responsible thing to do. It makes good business sense,” said the panel’s moderator, Bronwyn Bailey, vice president of research and investor relations for the American Investment Council. Data show a positive correlation between women in leadership roles and the financial performance of businesses. Jo Ann Corkran, managing director at angel investing platform Golden Seeds LLC, cited a study by Emory University that shows a company with one or more women on its founding team is at least 20 percent more likely to achieve positive revenue over the same period than companies with male founders. Panelist Patricia Lizarraga, a managing partner with Hypatia Capital Group, recommended that women, who control 50 percent of U.S. disposable assets, invest in funds committed to increasing the number of female board members at public companies. The latest private equity fund raised by panelist Trish Costello’s firm, Portfolia, is targeting women’s health care, an area that the male-dominated investment community shies away from, she said. “If we want companies matching our needs and making money off of them, we need to get involved.” The three-day InterGrowth conference featured panel sessions on a range of topics, along with networking events such as ACG Capital Connection and ACG DealSource. The final day featured a meet and greet with Democratic U.S. Rep. Scott Peters of California.

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Breaking Down the Blockchain Opportunity Experts at ACG Raleigh Durham’s Capital Conference offered insight into the transformative technology

isconceptions and skepticism surround blockchain—best known as the infrastructure behind bitcoin—but the business community is beginning to take note of the transformative potential of the technology. “This is the biggest revolution we will see in our lifetimes,” said Mark Yusko, CEO and chief investment officer with asset manager Morgan Creek Capital Management. Yusko gave the keynote address during a program focused on the crypto economy hosted by ACG’s Raleigh Durham chapter in April. The event featured speakers and panel sessions that explored the varied use cases and investment opportunities associated with blockchain. Removing the Middle Man Blockchain refers to a chain of data blocks that compile transactions, which build upon one another,

explained Jeff Ward, director of Duke University’s Center on Law and Technology. A “decentralized and distributed, trustless public ledger,” the technology uses code across multiple computers, which reach consensus on a transaction and record it in an immutable log. “There has never been a more secure ledger system in the history of the world,” he said. For intermediaries like banks, the technology’s ability to connect users directly without an intermediary threatens their traditional role in commerce, said Yusko, who pointed out that JPMorgan CEO Jamie Dimon had cautioned against trading in bitcoin and referred to it as “a fraud.” “Disruptive technologies cause people angst,” Yusko said. Today, it can take 30 days to settle a contract; that could be done instantaneously using blockchain, according to Yusko. Any time money transfers

across a border, two banks get paid, a model he views as inefficient and expensive. “That’s ridiculous. It’s going away,” he told the audience. A Smarter Contract Blockchain’s applications extend beyond currency transactions, and therein lies its true disruptive potential, Ward said, speaking during the event’s opening session. “The more we focus on replacement, the less we can use smart contracts or communicate directly.” So-called smart contracts—which automatically execute the terms of an agreement based on computer code—“have the potential to shift the balance of power between buyers and sellers,” said Jim Verdonik, a securities attorney and adviser for technology- and science-based businesses at Ward and Smith, speaking during the panel session “Blockchain: Where to Next?” In the case of an insurance smart contract, for example, an internet-enabled vehicle could immediately alert an insurance company after an accident. The car could report any damage and, using the smart contract’s logic (if a particular action occurs, it triggers a set response), facilitate an immediate payout. The test will be whether such contracts can be designed so as not to be unwound in court, Verdonik said. Transformative Potential The disintermediation and security inherent in the public blockchain could enable individuals one day to own their data and grant permission for the specific details they share. The controversy over Facebook’s treatment of data privacy and last year’s Equifax hack have shined a spotlight

on the gatekeepers and the eroding trust of users. “We went through a period of time where we put everything online,” said David Yerger, managing partner at hedge fund RDG Funds. “All of these institutions put our data online. But how are they securing it?” Using blockchain to offer fractional interest in property is another area where the technology could transform industries, specifically those in which a bundle of rights is divided among multiple stakeholders, according to Robert Massey, a tax partner with Deloitte who focuses on blockchain and cryptocurrency. He cited songwriting, pharmaceutical drugs and aftermarket concert tickets as several examples of areas where blockchain could effect meaningful change. “Take tickets,” Massey said. “If you put it on a chain, and every time (the ticket) changed hands, a percent of the sales went back to Lady Gaga.” Instead of ticket brokers profiting from sales of tickets to sold-out concerts, the artist would benefit from the increased prices. The technology has the potential to streamline payments and ensure fairly divided compensation across a wide range of applications. “I think every industry is looking at this in some fashion,” he added. // —Kathryn Mulligan

CRACKING THE COMPLIANCE CODE ACG PERT gathers together CFOs, CCOs and in-house legal counsel of middle-market private equity firms nationwide. As a member of PERT, your firm will join a national network focused on shaping compliance best practices alongside federal regulators.

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MIDDLE MARKET GROWTH // JUL/AUG 2018

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MIDPOINTS by John Gabbert

Innovation for an Aging Population

he United States is steadily going gray. Growth projections included in the Population Reference Bureau’s January 2016 report suggest the 65-and-over cohort will represent nearly 24 percent of the U.S. population by 2060, compared with 15 percent today. There is a huge market opportunity here. Although its peak earning years may have passed, the 65-plus age group still has significant purchasing power. A report from economic consultancy Oxford Economics released last August showed that people over 50 contributed 43 percent of total U.S. GDP. Aging also typically brings increased spending on health care and on devices to help with routine daily activities that get more difficult for older people. Over the past two decades—as the baby boomer generation headed toward retirement age—there has been a remarkable transformation in technology, from mobile applications to biotech. Many of those innovations have specifically targeted the aging and elderly demographic. These are a few of the primary areas where we’re seeing new solutions. Devices: An interesting category is

wearables specifically designed for elderly users. These include features such as voice-activated assistance, motion-sensing that detects potential falls, automated emergency notifications based on lack of usage, medication reminders and more. Austin, Texas-based UnaliWear, which makes watches that encompass

those functions, recently raised $5 million in Series A funding. Apps: Many companies are looking

to make technology and applications easier to use for those who may not be familiar with the wide variety of digital tools that exist. However, the niche use cases may be most compelling in this category. Businesses like MindMate—whose app is designed for those suffering from dementia or Alzheimer’s disease, stimulating users’ cognitive abilities and offering nutritional and exercise advice—are likely to grow in number.

JOHN GABBERT Founder and CEO, PitchBook

Therapies: Progress in the pharma

world is slow, but advancements have been made in novel therapies, specifically immunotherapies, “OVER THE PAST TWO which harness the power of DECADES—AS THE BABY the body’s immune system BOOMER GENERATION to fight diseases. However, immunotherapies are a broad HEADED TOWARD category, and more specific RETIREMENT AGE—THERE solutions are being developed. HAS BEEN A REMARKABLE Juvena Therapeutics, for example, which recently raised TRANSFORMATION IN $4.3 million in seed funding, TECHNOLOGY, FROM is a discovery platform based MOBILE APPLICATIONS on screening for restored TO BIOTECH.” muscle function. It aims to promote tissue regeneration in the elderly via protein-based therapeutics. Given the pressing need, expect more biopharma platforms to Content Sponsored by emerge. Innovations like these will be necessary as the U.S. population ages. It will be intriguing to see which products and services take hold and successfully address the needs of the aging and the elderly. //

MIDDLE MARKET GROWTH // JUL/AUG 2018

VERTICAL VIEW

PE Deals in Elder Care Private equity activity in the elder and disabled care industry increased sharply after 2014, rising to 42 deals in 2015 from 26 the year prior. Deal flow rose further to 44 in 2016 before dipping down to 38 deals last year.

Aggregate deal size in the elder and disabled care industry has yet to match its 2006 high of $9.88 billion. In 2015, it reached $5.07 billion, but hovered near $3.5 billion in both 2016 and 2017.

Among the highest valued corporate divestitures in the elder care space in recent years was the $1.1 billion sale of the U.S. operations of Extendicare, a provider of long-term senior care services headquartered in Markham, Ontario, to a group of investors led by Formation Capital.

In 2016, the Canada Pension Plan Investment Board and Welltower Inc. bought Aston Gardens, an owner and operator of senior housing properties in Florida, from its private equity owners. The deal was valued at $570 million, one of the decadeâ&#x20AC;&#x2122;s largest elder care secondary buyouts.

According to PitchBookâ&#x20AC;&#x2122;s database, U.S.-headquartered investors Transition Capital Partners, Progress Equity Partners, Evolve Capital and WindRose Health Investors, along with Bahrain-based Arcapita, are among the most active private equity investors in the elder care space by deal count.

Data provided by PitchBook

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QUICK TAKES

Foreverence Brings New Life to Urns

he trend toward personalization is reshaping the consumer experience—from individualized Nikes to made-for-you Starbucks lattes. Now it’s making its mark on the funeral services industry. “If in this day and age we have so many opportunities to customize, why can’t that also be applied to cremation?” asks Patty Saari, recalling a conversation with her husband, Pete, in 2013 that partly inspired him to start Foreverence a year later. The Eden Prairie, Minnesota, company uses 3D printing technology to create personalized urns. Clients come to Foreverence with their concepts to celebrate a loved one, anything from a Porsche-shaped vessel for an auto enthusiast to a replica of Prince’s Paisley Park estate, which the artist’s family created with Foreverence following his death in 2016. Rising rates of cremation have increased the demand for urns, which have for centuries been a simple box or vase, says Patty Saari, the company’s chief operating officer. According to the Cremation Association of North America, the cremation rate was 50.1 percent in 2016 and is projected to reach 56.3 percent by 2020. But the total market size for urns could be even larger than those figures suggest. It’s not uncommon for a family to buy a Foreverence urn years after a loved one has passed away; meanwhile, about one-third of Foreverence’s customers buy an urn for themselves long before their death, according to Saari. “Many products and services now are being chosen or purchased by

H Clockwise from top: Urns for musicians Prince, Lemmy Kilmister, Bob Casale and Scott Weiland (Images courtesy of Foreverence)

folks, especially the boomer population, who are wanting to plan in advance so that their family members don’t have to make these decisions in a time of crisis,” she says. The company uses 3D computer-aided design software and fullcolor jet printing. Its urns are printed using additive manufacturing technology (producing the urn one layer at a time) with ceramic-based materials. A typical Foreverence urn costs about $2,500, depending on its size and design, approximately the price of an entry-level casket, Saari notes. A conventional urn costs about $300-$500. Foreverence initially expected to sell through funeral professionals, but its growth has largely come from direct-to-consumer sales online. “The e-commerce transformation has disrupted many retail models, and funeral services are no different,”

Saari says, adding that the company’s business comes largely through digital marketing and word of mouth. In addition to Prince, the company has created urns for several other high-profile music stars, including Motorhead’s Lemmy Kilmister, Stone Temple Pilots’ Scott Weiland and Devo’s Bob Casale. Saari says Foreverence’s creations are a reminder that well-known figures and everyday people alike have lives worth celebrating. “It highlights how every single family experience— whether it’s for someone that people would know right away, or someone lesser known—is critically important,” she says. “It’s a wonderful, equalizing sort of experience for everyone to go through to realize how special each individual story and family is.” // —Kathryn Mulligan

MIDDLE MARKET GROWTH // JUL/AUG 2018

A QUALIFIED OPINION

Maureen Hewitt President and CEO, InnovAge Maureen Hewitt is president and CEO of InnovAge, which provides custom health care and social engagement to help seniors age in place, primarily through the Program of All-Inclusive Care for the Elderly. Hewitt corresponded with MMG about how the program works and InnovAge’s transition to a for-profit entity.

“LAST YEAR, INNOVAGE MADE ITS FIRST ACQUISITION AS A FOR-PROFIT ENTITY—A PACE CENTER IN ROANOKE, VIRGINIA—BECOMING THE LARGEST PACE PROVIDER BASED ON PEOPLE SERVED, WITH 4,000 SENIORS IN ITS NETWORK.”

MORE ONLINE Find photos of InnovAge’s facilities at middlemarketgrowth.org.

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Q A

What is PACE and how does the program work? The Program of All-Inclusive Care for the Elderly is an alternative to nursing facilities that is designed to help older, frail seniors age in place, remaining in their own homes and communities for as long as safely possible. The program is funded by the federal government in partnership with states, in a fully capitated (paying a set amount for each person enrolled), fully at-risk model serving frail seniors. PACE primarily serves older adults who qualify for both Medicaid and Medicare; it is also open to participants who pay privately. Most of the dual-eligible seniors enrolled in the program enjoy all the benefits of PACE at low or no cost. PACE participants receive most of their health care and social support at a PACE center in their local community. A customized care plan is developed for each senior with input from each member of the PACE interdisciplinary team, whose expertise includes primary and specialty care; medication management; nutrition; physical, occupational and speech therapy; social engagement; emergency care; in-home assistance; end-of-life care; and transportation. There are more than 120 PACE providers operating 242 PACE centers in

31 states. InnovAge was the first PACE organization to convert to for-profit status. All PACE organizations must meet the same requirements for quality outcomes, and all operate under the same capitated financial model. PACE providers assume the risk in providing care to seniors enrolled in the program; all care that is deemed medically necessary is provided at no additional cost to the participant. This model aligns with PACE’s philosophy of keeping seniors healthy and independent for as long as possible.

Q A

InnovAge transitioned to a for-profit entity under private equity ownership—why the change? InnovAge opened its first PACE center in Denver in 1990 as a nonprofit. The organization soon opened additional PACE centers across three states and added home care agencies, a day center for dementia patients, a foundation and a new corporate office—all as a tax-exempt entity. In 2011, the organization rebranded all of its business lines under the InnovAge name in order to position it for continued growth to serve more seniors in more communities. In 2015, federal requirements were amended to allow for-profit PACE organizations. Shortly thereafter, when InnovAge’s growth could not continue without an infusion of

“THROUGH PACE, INNOVAGE IS IMPROVING STANDARDS OF CARE AND ACHIEVING BETTER HEALTH OUTCOMES FOR FRAIL SENIORS AT A CRITICAL TIME IN THEIR LIVES.” capital, it converted to for-profit status and cemented a partnership with health care-focused private equity firm Welsh, Carson, Anderson & Stowe. Together, InnovAge and WCAS are expanding PACE to serve more seniors more efficiently. Last year, InnovAge made its first acquisition as a for-profit entity—a PACE center in Roanoke, Virginia— becoming the largest PACE provider based on people served, with 4,000 seniors in its network. InnovAge is currently building new sites and pursuing acquisitions and joint ventures with multiple PACE providers throughout the country.

How large is the market opportunity for serving seniors who are looking to age in place? In the United States, there are 12 million seniors who are dually eligible for Medicare and Medicaid; approximately 1.5 million of them would be candidates for a PACE program. Combined with the hundreds of thousands of seniors who could privately pay for PACE, the opportunity and the need are staggering. Currently, PACE programs collectively serve approximately 42,000 seniors. While PACE is a successful program with a proven track record, most centers serve an average of only 50 to 200 seniors. The program has largely remained in the hands of nonprofits that mostly operate PACE with a deficit.

Penetration of the eligible population remains low, at around 3 percent. Most PACE programs aren’t designed in a way to maximize the reach of their programs. InnovAge’s model allows for operating PACE centers across geographies, providing the same level of interdisciplinary care for each participant in a way that is scaled to serve more than 900 seniors in each center—and to do so cost-effectively.

How does InnovAge address risks associated with changes to health care policy and reimbursement rates? These are constant risks for organizations that care for Medicare and Medicaid patients, but there is also a clear trend across the health care industry from volume to value as a means of achieving better outcomes for patients while controlling costs. InnovAge’s business model is predicated on providing care that puts the patient first. Through PACE, InnovAge is improving standards of care and achieving better health outcomes for frail seniors at a critical time in their lives. The unique capitated cost structure of PACE is very much in line with these trends, which is why we remain excited about the prospects for further growth of PACE. //

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MIDDLE MARKET GROWTH // JUL/AUG 2018

CEO Matt Murphy helped steer Griswold through turbulent times

REHABBING A HOME CARE FRANCHISE

Griswold’s path from legal woes to Franchisor of the Year BY S.A. SWANSON

Photos by Jeff Wojtaszek

t’s stressful to start a new job. That’s particularly true when the role involves leading a company—and truer still when the business is part of a booming industry besieged by regulatory change. That’s the position Matt Murphy found himself in four years ago as Griswold Home Care’s fourth CEO in five years. Recent changes to state employment laws had compelled many of the company’s franchisees to transition their business models, straining their relationship with Griswold’s corporate office. During Murphy’s first three months on the job, the company began receiving legal complaints weekly from franchisees, he says. “If we didn’t get one, I’d go out to the front desk to make sure that there wasn’t one missing. It was just that regular of an occurrence.” Things got worse. In late 2014, just a few months into his tenure, Murphy received a call from Griswold’s lawyer, who said the attorney representing the franchisees indicated he had enough cases lined up to dismantle the company. “That felt pretty bleak,” Murphy recalls.

MIDDLE MARKET GROWTH // JUL/AUG 2018

GRISWOLD HOME CARE Business: Nonmedical caregiving services, including housekeeping, hospice care, companionship and more Headquarters: Plymouth Meeting, Pennsylvania CEO: Matt Murphy Franchises: 174, primarily in the mid-Atlantic region PE backing: Pouschine Cook Capital Management

That could have been the end for Griswold, but within just three years, the situation had turned from bleak to promising. No longer threatening to sue, Griswold’s franchisees nominated the company for Franchisor of the Year in 2017. That about-face was the result of Griswold’s new collaborative approach under Murphy’s leadership; rather than battling its franchisees in court, the company began rebuilding trust.

HUMBLE ROOTS Griswold Home Care was founded in 1982 by Jean Griswold, following the death of a member of the suburban Philadelphia church where her husband served as pastor. The elderly man, who lived alone, died of dehydration at home. That tragic event inspired Jean to start a company that would offer in-home care services to congregation members. In 1983, the company adopted a franchise model, under which franchisees across the country paired caregivers with clients to help with nonmedical tasks such as meal preparation, light housekeeping and bathing, and to provide much-needed companionship. “Their motivation wasn’t to take over

“WHAT YOU’RE TRYING TO DO IS KEEP PEOPLE IN THIS AGE COHORT IN A PLACE WHERE THEY ARE HAPPIEST AND FEEL MOST COMFORTABLE.” PATRICK PILCH Managing Director, BDO Center for Healthcare Excellence and Innovation

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the world,” Murphy says. “It was just to help as many people as they could.” The population that Griswold serves has grown rapidly in recent years. According to the U.S. Census Bureau, 49.2 million people were 65 or older in 2016, up from 35 million in 2000. Services like Griswold’s allow members of this group to remain at home as they grow older, according to Patrick Pilch, managing director at the BDO Center for Healthcare Excellence and Innovation. “What you’re trying to do is keep people in this age cohort in a place where they are happiest and feel most comfortable,” he says. In 2012, private equity firm Pouschine Cook Capital Management LLC purchased Griswold, recognizing the opportunity presented by its business model—nearly 99 percent of the company’s clients are seniors. Pouschine Cook already owned a home care company, and Griswold fit within its target size of companies valued at less than $100 million. It understood the franchise model, having invested in the hair salon franchise Fantastic Sams. Pouschine Cook also saw a chance to help Griswold navigate forthcoming regulatory changes, which often scare off other investors, according to John Pouschine, the firm’s co-founder and managing director. One such change was the elimination of the so-called companionship exemption, which had previously excluded caregivers like Griswold’s from minimum wage and overtime compensation requirements. In September 2013, the U.S. Department of Labor issued a rule to do away with the exemption. Franchisees had a year to get into compliance. At the time of Pouschine Cook’s investment, more than 95 percent of Griswold’s franchisees used the independent contractor model, in which franchisees pair caretakers with clients, without many of the responsibilities associated with being an employer. This model was legal in nearly all states, but that began to change dramatically during the Obama administration. DOL ramped up efforts to prevent workers from being misclassified as independent contractors when legally they should be considered

“WE ASSUMED WHEN WE WENT INTO THE INVESTMENT, THAT OVER TIME MAYBE ONE OR TWO STATES A YEAR WOULD PUSH HARD FOR TRANSITIONING INDEPENDENT CONTRACTOR MODELS TO FULL-TIME EMPLOYMENT MODELS. RARELY HAVE I SEEN STATES SO COORDINATED.” JOHN POUSCHINE Co-Founder and Managing Director, Pouschine Cook Capital Management

employees. DOL awarded millions of dollars to states to help address the problem. The trend intensified through 2014. State legislatures began looking into whether some independent contractors should be treated as full-time employees and receive associated benefits and protections. In 2015, DOL issued guidance that spurred more states to act, and many changed their laws. Griswold adopted a color-coded system to track the changes: Green for states with laws that explicitly said franchisees could keep their independent contractor model, yellow for where franchisees should start thinking about the transition to full-time employment, and red for where they needed to switch as soon as possible. By the end of 2015, Florida was the only green state left. Pouschine Cook had expected the regulatory shift to take about 10 or 15 years. “We assumed when we went into the investment, that over time maybe one or two states a year would push hard for transitioning independent contractor models to full-time employment models,” Pouschine says. “Rarely have I seen states so coordinated.”

FRANCHISEES FLEE

As states amended their laws, some of the changes weren’t easy for Griswold to interpret, but a growing number seemed designed to reclassify certain independent contractors as full-time employees. For Griswold’s franchisees, that was unwelcome news; the shift to a fulltime employee model would increase overhead and bring the risk of workers’ compensation and unemployment claims. In 2014, Griswold had 235 franchisees. By the end of 2017, that number had dropped to 174. Thirteen sold their businesses back to Griswold while some sued or negotiated to get out of their agreements and continued as independent businesses. Others simply shut down.

John Pouschine, co-founder and managing director, Pouschine Cook Capital Management

MIDDLE MARKET GROWTH // JUL/AUG 2018

“HE’S INTELLIGENT, BUT HUMBLE, AND I THINK THAT HIS PERSONALITY MADE A HUGE DIFFERENCE IN OUR LEADERSHIP.”

Meanwhile, the tally of legal complaints mounted. Franchisees claimed the home office hadn’t done enough to prepare them for the elimination of the companionship exemption and that they hadn’t been fully informed of forthcoming regulatory changes when they bought their businesses. More than two dozen franchisees threatened to sue, and 10 actually did. The tension sparked by the regulatory changes was compounded by mistrust sowed during the period prior to Pouschine Cook’s ownership. In 2009, the Griswold family sold the company to a pledge fund as part of its succession plan. The change in ownership ultimately signaled a cultural shift. The new owners replaced most of the long-time staff members with a new management team, according to Meg Mairn, the owner of Griswold Home Care Pinellas in Pinellas Park, Florida. “For us (franchisees), it was new and a big loss of relationships we had developed over many, many years,” she says. That prompted Griswold franchisees to band together and form their own association, under the umbrella of the American Association of Franchisees and Dealers, in part to share advice about business challenges that they felt the new management team couldn’t provide, Mairn says. She contends the management team didn’t make a sufficient effort to help franchisees navigate the impending shifts in employment law, and that it dismissed the group’s efforts to renegotiate the franchise agreement.

MEG MAIRN Owner, Griswold Home Care Pinellas

Photos: Courtesy of Griswold Home Care

TALKING IT OUT

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This is what greeted Matt Murphy in 2014 when Pouschine Cook, which bought Griswold from the pledge fund, hired him as CEO. He faced a clean-up job that included resolving the

H Matt Murphy with business consultant Isaac Segal (top) and Pennsylvania-based caregivers Darlene Scales (left) and Allegra Chaney

litigation, getting franchisees into compliance with new regulations for full-time employment, and helping them convert from the independent contractor system. As part of that effort, Griswold’s leadership visited a half-dozen locations around the country to meet with franchisees during what Murphy calls the “apology tour.” Each full-day session began with a town hall meeting where franchisees could grill executives. “I think our willingness to just stand in the front of the room and not put a limit on how much time they needed to talk demonstrated that we really were sincere about fixing the business, fixing the relationship,” Murphy says. He ensured that franchisees were fully informed about possible repercussions from states that might enforce a full-time employment model. “We weren’t trying to get franchisees to get ahead of pending changes. We were just trying to get them to comply with our interpretation,” Murphy says. Griswold’s home office began hosting weekly webinars to share regulatory information with franchisees and regain their confidence. “We said, ‘We’re not going to dodge your questions. If we’re on a webinar and it’s about how to comply with these new regs, and if you stump us, we’re going to promise to get back to you by the next week with the answer,’” Murphy says. “They’d heard that before, but what we did was actually get back to them.” Meanwhile, Murphy adopted a new approach to resolving the lawsuits facing Griswold, inspired by a conversation he had with an Alabama-based franchisee. “He said, ‘I see what’s going on with a lot of these other folks suing you,’ and then he said that the way he saw it, we could either fight it out or talk it out, and he’d prefer to talk it out,” Murphy recalls. “That’s when we kind of turned the page on resolving the issues in as peaceful a manner as we could.” Murphy’s desire to “talk it out” changed the course for the company. The legal proceedings, started by California franchisees in mid-2013, reached a settlement in early 2017.

“TO ME, THERE WAS NOTHING BETTER TO DEMONSTRATE THAT WE HAD REALLY ESTABLISHED TRUST WITH OUR FRANCHISE SYSTEM, THAT WE HAD A GENUINELY COLLABORATIVE RELATIONSHIP.” MATT MURPHY CEO, Griswold Home Care

In another effort at reconciliation, Murphy worked with several franchise operators, including Mairn, to renegotiate the franchise agreement. They went through the document clause by clause to consider the priorities of the corporate office and those of franchisees. “We tried to find win-win solutions for each of those items in the contract,” Mairn says, including a change to how royalty payments were calculated, to make the system more fair. “We literally rewrote the entire 40-page agreement. I think we must have had 35 drafts.” The result, she says, is “probably one of the best franchise agreements, most fair franchise agreements, in existence.” The success of that contract negotiation compelled Griswold’s franchisees to nominate the company for Franchisor of the Year. And in May 2017, Murphy found himself in the unlikely position of taking the stage to accept the award from the American Association of Franchisees and Dealers. “In the first six months, I would never have thought that anything like that would have been possible,” he says. “Even once we were sort of past our deepest, darkest hour, it was not fathomable.” For Murphy, the nomination was the real win. “To me, there was nothing better to demonstrate that we had really established trust with our franchise system, that we had a genuinely collaborative relationship,” he says.

ONWARD AND UPWARD As the U.S. population continues to age, more entrepreneurs are recognizing the sizeable

MIDDLE MARKET GROWTH // JUL/AUG 2018

E A collaborative partnership: Pouschine (left) and Murphy

market potential of home care services. “In my county, I think there are about 120 licenses for businesses that are similar to mine,” says Mairn, whose business received the AAFD’s Franchisee of the Year award in 2017. In spite of the mounting competition, Mairn says her operation is thriving, citing revenue growth of 7.5 percent last year, and 12 percent for the first quarter of 2018, compared with the same period the prior year. Today, Griswold’s franchisees span 32 states and include about 5,000 employed caregivers and 5,000 self-employed caregivers. The company itself owns 20 units, which employ 650 caregivers. It began selling franchise licenses this year for the first time since 2014, when it stopped amid the regulatory changes and tensions with franchisees. As a service to its franchisees, Griswold has

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continued its weekly webinars, which have evolved to serve as a forum for idea-sharing. “I’m not going to tell a 30-plus year franchisee how to run a home care business,” Murphy says. “The role that we’ve tried to play is the facilitator of best practices, not the inventor of best practices.” Mairn credits Murphy for calming the turbulent waters. “He’s intelligent but humble, and I think that his personality made a huge difference in our leadership,” she says. “It was the contract. It was the ‘mea culpa’ tour. It was the personal touch, reaching out.” With Murphy at the helm, Mairn says she’s confident in the company’s brand and its growth potential. “I haven’t felt this optimistic in a while. It’s a good time to be at Griswold.” // S.A. Swanson is a business writer based in the Chicago area who frequently covers technology.

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Succession The Thorny Conversation Planning: No GP Wants to Have

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BY BAILEY McCANN

uccession planning is a hot-button issue for firms of all sizes, but it is especially tricky for midmarket general partners. Over the past five years, the middle market has grown exponentially and matured quickly. But as the first generation of middle-market private equity leaders nears retirement, many firms are struggling with how to move forward, even when faced with increasing pressure from their limited partners. “The reality is we’re getting to that point when many investors expect to see a potential No. 2 at the table, but a lot of these firms haven’t had the conversation yet,” says Kenna Baudin, who leads the U.S. private equity practice at executive consulting firm Egon Zehnder. “Investors will typically start pushing GPs around fundraising time because they want to ensure that there will be an orderly transition in place if anything happens. It can be a red flag if GPs don’t have an answer for them.”

MIDDLE MARKET GROWTH // JUL/AUG 2018

Despite the threat of leaving investment dollars on the table, it’s hard for GPs to start thinking about the future. Many midmarket firms operate with lean teams, and adding staff may not always be feasible in the short term. The common model used at large private equity firms of transitioning from a single CEO to sharing the role with an heir apparent can be difficult if junior employees have overlapping responsibilities. There are other thorny issues as well. Firm founders are unlikely to consider dividing up deal economics, including a share of the carried interest, with a larger group of people without some prodding or unexpected staff turnover. “The “OUR PREFERENCE point where this can get IS THAT GPs DON’T messy is if you have junior START RAISING partners that are starting to do the math and they LARGER FUNDS don’t see a pathway forBECAUSE THAT ward, you might start to BRINGS UP A see people leave,” Baudin says. “People need to feel SEPARATE SET OF fully vested.” ISSUES, INCLUDING

WHETHER THE RETURN PROFILE WILL BE THE SAME AS IT HAS BEEN IN THE PAST.” WHIT MATTHEWS Investment Director, Aberdeen Standard Investments

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CULTURE REIGNS Whit Matthews, senior investment director for private equity at Aberdeen Standard Investments, a global asset manager, notes that firm culture often can determine how succession planning moves forward— or doesn’t. “Obviously as

investors, this is an issue we are always thinking about. We want to be comfortable with leadership over the long term,” he says. “If a GP is unwilling to engage in the discussion with us, it’s certainly a data point.” For GPs that are willing to engage in the conversation, Matthews adds, culture is key. When evaluating a GP, he looks at the pedigree of the management team, total headcount, and overall discipline and transparency. “Firms often solve for succession plans in one of two ways,” he says. “They’ll share the economics throughout the team, or they will start raising larger funds. Our preference is that GPs don’t start raising larger funds because that brings up a separate set of issues, including whether the return profile will be the same as it has been in the past.” On the transparency side, Matthews says he wants to be able to piece together a track record for everyone on the deal team. Even if someone isn’t leading the deal, he doesn’t want to be scrambling for information later if someone begins to take on a larger role. “Each firm is going to handle deal attribution in different ways, but we want to be able to generally figure out who did what. So there has to be a level of transparency within a process to allow you to make those assessments,” he adds.

TEAM EFFORT The team at Cleveland-based private equity firm Blue Point Capital is an example of what can go right when a prudent succession strategy is in place. Blue Point, which invests in lower middle-market companies in the United States

“THE KEY FOR US HAS BEEN MAKING SURE THAT PEOPLE UNDERSTAND THAT THERE IS A PATHWAY FORWARD AT THE FIRM.” CHIP CHAIKIN Partner, Blue Point Capital

and China, exercised its succession plan by the time it reached its third fund. “For us, the transition really happened pretty organically,” says Chip Chaikin, a partner at the firm. “The junior partners did most of the heavy lifting in terms of deal execution on our second fund, took over a majority of the management company in fund three, and by fund four the transition was entirely complete.” According to Chaikin, Blue Point was able to work through its succession plan by communicating transparently and sharing responsibility early on. “The founding team really started from a place where they didn’t have to have control over everything, so people were able to step in and take responsibility and prove that they could do it,” he explains. As a result, LPs were as familiar with the junior team as they were with leadership, which made the transition that much easier. Chaikin, who became a partner in 1999, adds that Blue Point has preserved its team-oriented culture as the firm builds its third generation of leaders. “We’re still young enough that the current leadership will probably stay in place for a while, but we are always looking forward,” he says. “The key for us has been making sure that people understand that there is a pathway forward at the firm. It’s not always an easy conversation. Sometimes people think they are ready before they really are. But we are always honest and transparent.” For Chaikin, managing Blue Point isn’t so different from working with portfolio companies when it comes to identifying future leaders. It’s important to evaluate how individuals manage a broad scope of activities when assessing how

they create value, he says. What are they doing in addition to working on deals? How is the team dynamic? Who is willing to step in? “One of the things about being at the smaller end of the middle market, where we are, is that you’re really partnering with entrepreneurs on a personal level—not just an economic one. The same is true for the people you work with internally each day. I think if you’re coming to this business with a focus on being a good partner to your companies, you’ll also be a good partner to the people you work with,” Chaikin says. “Not every firm operates like that, but it has worked for us.”

PLAYING THE LONG GAME Thinking holistically about a succession plan is key not only for an orderly transition of leadership but also for ensuring that deal flow and operations continue without interruption. Kate Price, a partner in the corporate practice of law firm Winston & Strawn, notes that when she works with firms on succession planning questions, she often points out that partners should also take a look at roles like business development and origination. “There are a lot of factors to consider in developing a succession plan. Thinking holistically about the firm is important. If you have made a plan only for your senior partners and then end up with a departure of several junior investment professionals, that can be very problematic,” she explains. “Succession planning isn’t only about retirement planning. It’s also about developing and retaining talent to build a strong firm into the future.” Price adds that the earlier GPs start thinking about a succession plan, the better. “Even if you

MIDDLE MARKET GROWTH // JUL/AUG 2018

don’t have individuals identified and prepared to step into the shoes of a founder, the earlier you think about it, the better off you’ll be when that day comes. It’s a much more difficult path to put off making a plan and then have to negotiate the details, or even hire new team members, on an accelerated timeline.” Jody Thelander, founder KATE PRICE and CEO of compensation Partner, Winston & Strawn consulting firm J. Thelander Consulting, agrees. She says she’s having more conversations about succession plans than ever before, but GPs should understand that if they are looking externally to find a No. 2 or to fill out the C-suite, the field is competitive. “People are interviewing for these positions. But finding top talent is difficult and working with that person after they are hired in order to give them the

“SUCCESSION PLANNING ISN’T ONLY ABOUT RETIREMENT PLANNING. IT’S ALSO ABOUT DEVELOPING AND RETAINING TALENT TO BUILD A STRONG FIRM INTO THE FUTURE.”

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specific institutional knowledge they need can be a heavy lift.” Human nature tends to dictate that we don’t make changes until we have to. But the evidence suggests that when it comes to succession planning, GPs need to be proactive. Many middle-market firms were established by founders who left large leveraged buyout firms because there wasn’t an opportunity to take on a leadership role. Today, many junior partners in the middle market may feel the same way. As the middle market continues to mature, founders will have to get comfortable with sharing a piece of their compensation and avoid the temptation to raise increasingly large funds to offset the cost of building a team. By bringing junior partners into the fold early and focusing on building an internal culture where individuals feel empowered to take on responsibility, midmarket GPs can ensure that their businesses survive from fund one to fund 10 and beyond. // Bailey McCann is a business writer and author in New York.

Successful Succession Planning Starts Early The sooner a private equity firm begins

exposure to other partners at the firm.

GPs undertaking succession planning.

discussing plans for its future leader-

“By the time the transition took place,

For continuity, Cummings and Kracum

ship, the better.

it was clear to investors that the recent

remain senior advisers. They both

track record was attributable to the

invested in Wind Point’s most recent

Early conversations, followed by years

next generation,” says Nathan Brown, a

fund and serve on several boards of

of planning, set up the Chicago-based

managing director at the firm.

portfolio companies from past funds.

Wind Point Partners is a case in point.

private equity firm for its successful

Today, Brown and four other man-

leadership transition. Spurred by its

aging partners make up Wind Point’s

Reflections

forward-thinking senior partners, Wind

leadership ranks. Their average age

Despite the success of the transition,

Point laid the groundwork for a gradual

is early- to mid-40s, but their average

in hindsight there are things that Brown

succession, culminating in a formal

tenure at the firm is 15 years, Brown

says the firm would handle differently.

transition to the new leadership team

says. Some of the partners have worked

Wind Point focused heavily on its LP

with the initiation of Wind Point’s eighth

together for as many as 18 years.

communication strategy, but it paid less

fund in April 2016. A decade earlier, the firm’s senior

Cummings and Kracum, who both

attention to communicating the transi-

joined Wind Point in the mid-1980s,

tion to other key stakeholders, including

partners, Bob Cummings and Rich

ensured the firm’s current leadership

employees, portfolio company CEOs,

Kracum, began actively planning for

team was prepared for all aspects of

investment bankers, lawyers and other

the succession by moving to second-

running the firm. Early on, they transi-

partners. Brown recommends creating

ary leads on deals and ensuring Wind

tioned tasks such as IT, compliance and

a plan to relay internal changes to this

Point’s limited partners had increased

office-space selection, and eventually

broader group of stakeholders.

handed over responsibility for critical

He also suggests hiring a third party

human resources decisions, including

to facilitate succession discussions.

those related to compensation, hiring,

Wind Point retained an organizational

promotions and terminations.

consultant following its transition to help

Face-time with limited partners was a

the current leadership team redefine

critical piece of the transition to ensure

its mission and communicate long-term

investors were comfortable with Wind

goals. But Brown says involving some-

Point’s next class of leaders, a process

one earlier in the process to help guide

that began years before the formal

conversations among the partners

transition.

would have been helpful.

“I think 15 years ago I was first given

Ultimately, the key is to begin having

the chance to be the emcee at an

conversations about the future well in

advisory board meeting,” Brown recalls.

advance, according to Brown.

“From then forward, Rich and Bob made

“Have the discussion around succes-

sure the other partners were seen in

sion sooner and more frequently than is

key speaking roles and in leadership

comfortable, even though it may seem

roles by our LPs.”

early,” he says. “It helps to socialize the

Many Wind Point investors have

key issues, and even if those key issues

commented positively on how the

aren’t decided, it’s helpful to understand

succession was handled, Brown says,

what each partner is thinking and look-

adding that at least one LP has provided

ing for over the longer term.”

Wind Point as a reference to other

—Kathryn Mulligan

MIDDLE MARKET GROWTH // JUL/AUG 2018

POLICY POINTS

Who’s in Charge Here? The Evolving Definition of the Joint-Employer Standard

T MARIA WOLVIN Vice President and Senior Counsel, Public Policy, ACG Global

BEN MARSICO Manager, Legislative and Regulatory Affairs, ACG Global

DON’T MISS ACG Public Policy Summit

he question of who is responsible for an employee has major legal implications for businesses, yet the scope of one standard continues to shift amid decisions by the federal labor enforcement body. The definition of the joint-employer standard—which governs whether two or more employers can be considered to jointly employ a worker—has changed in recent years, altering the conditions under which a business can be held liable for a number of labor law violations and be required to bargain collectively with labor unions. Its scope has evolved from a limited view to a more expansive definition through rulings by the National Labor Relations Board. “The expanded definition of a joint employer could create liability for investment firms, franchisors and general contractors for labor law violations over which they have no control or knowledge,” said Blinn Cirella, chief financial officer of private equity firm Saw Mill Capital, and a member of the steering committee of ACG’s Private Equity Regulatory Task Force. “This creates a troubling increase in scope whereby a virtually unlimited number of companies could be held liable for the labor law violation of a company simply by hiring them to do a service.”

Sept. 12–13, 2018 Willard Hotel Washington, D.C. Visit acg.org for details and registration information.

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Limited Standard Until 2015, a company was considered to be a joint employer if it exercised “direct” and “immediate” control over contractual terms, such as the

hiring, firing, supervision or direction of the employee of another company. Proponents of this definition claim that it has allowed franchises to prosper and ensures that companies are only held liable for labor law violations that they commit directly. Detractors say it is too loose and allows employers to look the other way while laws are violated. Expanded Standard In 2015, the President Obama- appointed NLRB ruled in a 3-2 decision to expand the definition of a joint employer in a case involving Browning-Ferris Industries. The question before the NLRB was whether the company was a joint employer with a staffing services company, Leadpoint, of employees who worked at a BFI facility. The NLRB said the two companies were joint employers based on BFI’s “indirect” and “potential” contractual control of the Leadpoint employees. The two dissenting NLRB members stated in the ruling that “the number of contractual relationships now potentially encompassed within the majority’s new standard appears to be virtually unlimited.” Federal agencies sought to make use of the new expanded joint- employment definition. The Occupational Safety and Health Administration and its Wage and Hour Division expanded the liability of joint employers under their statutes. Federal courts, under the Fair Labor Standards Act, have adopted expansive new tests for joint

employment, according to the Coalition to Save Our Local Businesses—a group of organizations, including ACG, seeking to clarify the joint-employer standard through legislative action. Return to Limited Standard On December 14, 2017, in a 3-2 decision in a case involving Hy-Brand Industrial Contractors Ltd., the NLRB overruled the board’s 2015 decision, reinstating the previous standard. Under the previous, more limited standard that preceded Browning-Ferris, two or more entities are deemed a joint employer only if one entity has exercised direct and immediate control over essential employment terms of another entity’s employees. Return to Expanded Standard A motion for reconsideration was filed following the Hy-Brand ruling, requesting that NLRB board member William Emanuel be recused from participating in the decision. The inspector general concluded in February that Emanuel should indeed be recused because his former law firm was involved in the Browning-Ferris suit. As such, the Browning-Ferris joint employer standard of “indirect” and “potential” contractual control as the litmus test is back in effect, creating the potential for employers to be held liable for employees whom they do not employ. Noting that the scope of the joint-employer standard is among the most critical labor relations issues, the NLRB at press time has indicated that it is considering rulemaking to address the uncertainty around the standard. It plans to issue a notice on the proposed rule, followed by a public comment period.

Public Policy Summit Brings Together Business and Government

ommunicating with government decision-makers is an essential precursor for well-reasoned public policy. To ensure the middle market has a proverbial seat at the table, ACG Global will host its annual Public Policy Summit in Washington, D.C., on Sept. 12–13. This event brings together ACG members and other stakeholders to discuss pro-growth public policy priorities, hear from influential legislators and regulators, and visit members of Congress. Since its inception, the summit has served as a forum for ACG members to hear from lawmakers, regulators and others engaged with policies that impact middle-market companies and investors. Past speakers have included Democratic Rep. Kyrsten Sinema of Arizona, a co-chair of the Congressional Caucus for Middle Market Growth; North Carolina Republican Sen. Thom Tillis, a prominent member of the Senate Banking Committee; and the Hon. Philip Miscimarra, a member of the National Labor Relations Board. Top tax attorneys, lobbyists, and industry experts have also spoken at the event in past years to provide their insights on the policy landscape. Hill Visits Participants in the Public Policy Summit have an opportunity to share their personal stories of middle-market corporate growth during visits to the offices of lawmakers on Capitol Hill. Summit attendees have

the chance to tell members of Congress about the role middle-market companies play in creating jobs and generating tax revenue, and to discuss the public policy issues that impact business growth. Congressional officials rely on their constituents for information and feedback; by communicating with lawmakers about important issues, ACG members help lay the groundwork for lasting relationships, increasing the likelihood of pro-growth and commonsense legislation and regulation. Task Force Meeting ACG’s Private Equity Regulatory Task Force—a group made up of chief financial officers, chief compliance officers and in-house legal counsel from more than 50 private equity firms—will convene during the summit to discuss the topic of fees and expenses and meet with officials from the Securities and Exchange Commission. During last year’s summit, the group met with SEC Commissioner Michael Piwowar. This is an invitation-only meeting exclusively for PERT members. To learn more about PERT, visit acgpert.org. By bringing together some of the smartest minds in government and business, ACG’s Public Policy Summit serves as a valuable resource for ACG members and federal officials alike. With the exception of the closed PERT meeting, registration for the summit is open to all—save the date and visit acg.org for the forthcoming speaker lineup and registration details. //

MIDDLE MARKET GROWTH // JUL/AUG 2018

GROWTH ECONOMY

PENNSYLVANIA // 1998–2015 Pennsylvania is among the most active states for private capital investment. The health care sector leads the way, accounting for 28 percent of deal flow, followed by business-to-business at 24 percent and information technology at 22 percent. The private equity support is clearly paying off—from 1998 to 2015, PE-backed businesses in the state grew sales by 100.8 percent, compared with 21.9 percent for all Pennsylvania businesses.

JOB GROWTH % BY SEGMENT

SALES

0.2% 15.6% 44.0% 40.2% 0%

ACG PITTSBURGH ACG PHILADELPHIA

SALES GROWTH % BY SEGMENT 1.9% 9.0%

100.8%

SALES GROWTH IN PE-BACKED BUSINESSES

21.9%

SALES GROWTH IN ALL BUSINESSES

21.7% 67.5% 0%

Small: Less than $10M in sales

TOTAL CAPITAL INVESTED IN PENNSYLVANIA IN 2015:

$9.39 BILLION

MM Seg 1: $10-50M in sales MM Seg 2: $50-100M in sales MM Seg 3: $100M-1B in sales Large: More than $1B in sales

JOBS

GROWTH IN PE-BACKED BUSINESSES

GROWTH IN ALL BUSINESSES

43.3% 21.8% 34

middlemarketgrowth.org

JOBS CREATED BY PE-BACKED BUSINESSES

23,140

MORE ONLINE See the impact of middlemarket private equity on your state at GrowthEconomy.org.

P A R T N E R S I N D R I V I N G M I D D L E - M A R K E T G R O W T H .® ACG

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Partners valuable

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for

corporate capital

network, clients

providers.

MIDDLE MARKET GROWTH // JUL/AUG 2018

Twin Brook Capital Partners Vice Presidents MichaelÂ LaBelle and BetsyÂ Booth

Photos by Matthew Gilson

IN FOCUS TWIN BROOK CAPITAL PARTNERS

Building a Lasting Legacy Twin Brook Capital Partners, founded by seasoned private equity executives, nurtures the next generation of talent

n a crowded landscape for private equity lending, Twin Brook Capital Partners has made a big impact in a short amount of time. It’s not surprising, since its six partners have a combined 130 years of experience in the industry. But the firm also has an energetic and innovative culture that encourages fresh thinking, fosters fast growth and nurtures talent. Twin Brook was founded in 2014 by Trevor Clark and Chris Williams, who also started Madison Capital together in 2001 and grew it to over $7 billion in assets by the time they left. With Twin Brook, the two have brought in highly experienced veterans—collectively the firm’s six partners have closed over 1,100 transactions with more than 200 middle-market private equity firms over the course of their careers— as well as fresh new faces. Since it launched in the fourth quarter of 2014, the firm has more than quadrupled in size, to 50 employees from about 10, and it has closed 195 transactions. It was named “2017 Lender of the Year” in March by Mergers & Acquisitions as part of the publication’s M&A Mid-Market Awards.

GROWING THE FIRM Twin Brook has made it a priority to attract and grow the next generation of middle-market talent. “Our organization is defined by our

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commitment to developing team members and providing an environment where they can achieve long-term success,” Clark says. “This focus on our team members is reflected in a culture of inclusion and shared sacrifice.” Betsy Booth and Michael LaBelle, who were both hired as vice presidents in 2015, represent the kind of talent the firm is nurturing. The two have taken similar career paths. They met while attending the University of Illinois, where they graduated in the same class. They later worked together at Madison Capital with Clark and Williams. When courted by the management team at Twin Brook, they both jumped at the chance to help grow a new firm. “It was a phenomenal opportunity to join a group of people I knew and trusted, and to be able to help build something from the ground up,” Booth says. “That was something I was always looking for in my career.” Even though Twin Brook was still in its early stages, the two were confident they were making a smart move. “Given the caliber of the people and their track record, we had a high degree of confidence that it would be successful,” LaBelle says.

HITTING THE GROUND RUNNING The two colleagues joined within a few weeks of each other, when the staff was just 10 people

MIDDLE MARKET GROWTH // JUL/AUG 2018

Vice President, Twin Brook Capital Partners

things that weren’t in the job description,” Booth says. “It was such an exciting time. We enjoyed developing these things in a very collaborative way.” Next, Booth and LaBelle were tasked with building an underwriting department. Booth estimates they hired approximately 25 underwriters. Eventually, the underwriters were organized into four teams, two of which were led by Booth and LaBelle. LaBelle coordinated weekly training sessions and brought in speakers to help the staff learn more about their core job responsibilities. “The combination of a stable capital base and organizational growth enabled us to take a more active role in many aspects of the business,” LaBelle says. These included establishing a recruitment process, interviewing and hiring staff, designing an onboarding plan, and developing a training program. “This is a place that strives to invest in people, and the regular meetings helped instill best practices while also solidifying the bonds within the team,” he says.

and the firm was operating out of a hotel office. “It was very tight, close quarters,” Booth recalls. Twin Brook has grown from those humble beginnings to a brand-new build-out on the 36th floor of the Deloitte building. Designed in the footsteps of its parent company, Angelo, Gordon & Co., in New York City, the newly acquired space at 111 South Wacker Drive in Chicago provides a runway for Twin Brook’s further expansion. Booth and LaBelle started by assisting in the development of templates and processes as well as producing transaction screens for underwriting. Given the anticipated volume of deals, they knew they had to develop highly efficient processes. Both loved the environment. “Joining the team during the firm’s infancy gave us the opportunity to do a lot of

A strong people-oriented culture at Twin Brook binds the staff together. While remaining focused on company goals, the senior leadership aims to create an atmosphere that encourages balance—embracing families and outside interests of the team. “On any given day you can hear people talking about their families or their hobbies,” LaBelle says. The firm actively promotes a culture of engagement. When new employees join Twin Brook, the firm welcomes them by hosting a get-together at the end of their first week. Outings to Cubs games at Chicago’s Wrigley Field and dinners for partners and junior team members with clients are among the other ways the firm fosters its close-knit culture. Professionally, the Twin Brook team takes the time to acknowledge the milestones of the firm and to share its successes as a group. Every time a deal closes, for example, a member of the closing team sounds a gong that reverberates floor-wide. “The group celebrations help us to

“AS A RESULT OF OUR CULTURE, THERE’S AN OPENNESS IN HOW WE DO THINGS.” BETSY BOOTH

A RICH CULTURE

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recognize the contributions of team members and motivate us to reach for the next level,” Booth says.

TRANSITIONING TO NEW ROLES Over the last three years, Booth and LaBelle have reached the point where they are ready for the next step in their careers at Twin Brook. Both have chosen to move to originations, where they source new investment opportunities and cultivate relationships with sponsors. Their experience in underwriting helped foster private equity relationships that made this a natural transition. The two note that Twin Brook’s flat organization and entrepreneurial culture make it a highly collaborative environment. Senior team members are always available for advice and guidance. “As a result of our culture, there’s an openness in how we do things,” Booth says. That has inspired a deep appreciation from Booth and LaBelle for what they’ve learned from senior members and for the way the partners

TWIN BROOK CAPITAL PARTNERS AT A GLANCE ɋɋ Middle-market direct lending arm of Angelo, Gordon & Co. ɋɋ Senior financing of up to $400 million to U.S.-based borrowers ɋɋ Focus on companies with $3 million to $50 million of EBITDA, with an emphasis on those with $25 million of EBITDA and below ɋɋ Primarily first-lien, senior-secured debt ɋɋ Deal sourcing primarily through private equity sponsors ɋɋ Over $5.8 billion in total committed capital

nurture new talent. And they want to pay that forward by mentoring their younger colleagues. “It starts with the partners,” Booth says. “For them, this is the legacy they’ll leave behind. They genuinely care about the next era, the next generation of the firm.” //

MIDDLE MARKET GROWTH // JUL/AUG 2018

THE PORTFOLIO

Smart Career Moves for Millennials SOUND DECISIONS // Contracting and Outsourcing Experience Pays Off

M Donna Astramecki Business Performance Consultant, Insperity

illennials who are savvy about expanding their general management skills should consider important but often overlooked areas: contracting with outside suppliers for customized goods and services, and outsourcing of services previously done in-house. Millennials, the generation born roughly between the early 1980s and mid-1990s, have been generally fortunate in their timing for starting their careers. Those born before, say, 1993 have benefited from relatively low U.S. unemployment as the economy steadily recovered from the financial crisis. As they move into their second or third jobs, their fortunes are rising with opportunities generated by an economy that is booming—at least in some places. A positive trend for millennials is the long-running wave of tech startups financed by seemingly unlimited amounts of venture capital and other early-stage funding sources, which shows no sign of abating. Tech startups and other early-stage companies continue to hire a steady stream of millennials, many of them liberal arts graduates whose training in creative thinking and communications turns out to be particularly practical in high-innovation settings. But now, as millennial employees look to the future, many see the need to broaden their business skills. This might lead some to pursue an MBA or other graduate degree. Others who are willing to seek out special projects or make a lateral move will find plenty of opportunities to expand their capabilities on the job. One step that millennials should consider for their personal business development is pursuing hands-on experience in contracting and outsourcing. Contracting for goods and services is how almost all business ultimately gets done. That cool, disruptive technology that your startup sells? It was created by a value chain consisting of thousands of suppliers spanning

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the globe. Each supplier was selected over its competitors via rigorous vendor-selection processes that looked in detail at, for example, how well the supplier can meet its customers’ longer-term technology and business direction. Contracting experience will be particularly useful for millennials who wind up working for a smaller company or freelancing. Today’s sophisticated contracting processes include: ɋɋ Modeling the current baseline state ɋɋ Visioning a new future state ɋɋ Determining the use case for services to be procured, and their scope and specs ɋɋ Building in flexibility for contractors to modify their services as requirements change ɋɋ Designing defensible vendor-selection processes ɋɋ Writing contracts with suppliers that ensure they meet minimum standards and incentivize them to exceed expectations A related area to look into is outsourcing. Many companies today embrace the mantra that they should do in-house only what directly leads to differentiation and creates a competitive advantage. Being part of an initiative to outsource what the company has previously done in-house and leverage scalable infrastructure will get younger employees involved in helping a company grow more nimbly and profitably. It’s time for millennial employees to get an edge by building skills in contracting and outsourcing. It’s an investment of time that could pay off in their future careers. // Donna Astramecki is an Insperity business performance consultant with 21 years’ experience that includes assisting executives to evaluate the impact of HR issues on their investment strategies, M&A, spinoffs and exits. Visit www.insperity.com/ acg for more information.

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THE PORTFOLIO

Quality of Revenue Matters for PPMs SOUND DECISIONS // Avoid Pitfalls of Physician Practice Management Deals

T Jay Stine Senior Manager, Healthcare Transaction Advisory Services, Dixon Hughes Goodman LLP

he physician practice management, or PPM, subsector represents traditional physician-run specialty practices. They include dentistry, dermatology, ophthalmology and pain management practices, which have recently seen an increase in M&A activity. Whether you’re an experienced investor or new to the space, utilizing historical cash collections to evaluate the quality of revenue during due diligence procedures can help eliminate misleading or inaccurate revenue that are all too common in PPM transactions. There are three primary reasons why quality of revenue matters for PPMs: Cash-basis accounting. PPMs are typically cash-basis taxpayers who do not invest heavily in their back office or prepare financial statements with the foresight of one day selling the practice. Cash-basis accounting can be misleading at face value due to the inherent volatility in the timing of cash collections (i.e., revenue), creating an opaque picture of profitability and limiting predictive modeling. Reimbursement complexity. Variations in patient volume, service mix, collection rates and billing practices can radically impact revenue. Likewise, many current procedural terminology, or CPT, codes that drive reimbursement are based on a “level” of care, with high-level codes yielding higher reimbursement. However, in certain instances, determining the proper CPT code can be subjective and different practices may bill differently depending on their conservatism (or lack thereof). Buyers should understand the complexity of billing strategies used by the practice and the related impact they can have on revenue and EBITDA. Reimbursement complexity is unique to each health care subsector and also will vary among the different thirdparty payers within that subsector. The facts and circumstances around health care revenue can

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change quickly; thus, attention must be focused on historical collection patterns at the meaningful payer and procedure level, as well as recent or potential future changes that are not yet reflected in the historical numbers. Revenue adjustments. In a quality of earnings assessment, proposed adjustments to revenue typically fall straight to EBITDA and directly impact purchase price adjustments. Quality of revenue analyses go hand in hand with quality of earnings analyses, and both are well worth the investment in a time of double-digit multiples. The rising senior patient dynamic coupled with the industry’s need to improve the quality of care and reduce per capita cost should prompt continued PPM deal flow. For that reason, it’s important to partner with a dedicated health care transaction advisory team that can properly navigate the quality of revenue based on industry expertise and experience. A quality of revenue analysis can enable buyers to analyze the PPM’s accrual-based revenue and profitability drivers to arrive at the appropriate purchase price. Separately, that same analysis can prepare sellers for the due diligence process and establish an accrual-based revenue number that will hold up under the scrutiny of potential buyers and reduce the risk of unexpected purchase price adjustments. // Jay Stine is a senior manager in the Healthcare Transaction Advisory Services practice for Dixon Hughes Goodman LLP.

MIDDLE MARKET GROWTH // JUL/AUG 2018

THE PORTFOLIO

Low-Hanging Fruit SOUND DECISIONS // Key Post-Investment Talent Management Strategies

W David Wise Senior Client Partner, Korn Ferry

Joseph Healey Senior Client Partner, Korn Ferry

ith vast quantities of dry powder, endless leverage and more competitors than ever, valuation multiples are at all-time highs. That means there is no way to make money on the “buy” as there was in the past. For private equity sponsors, it’s an environment that has put new emphasis on post-investment value creation to unlock value in portfolio companies. Most financial sponsors are experienced in optimizing operations and strategy. However, in our experience, PE funds chronically underestimate the value of focusing on the organization and talent. That’s where there are hidden opportunities to make changes that directly impact valuation—and in the process improve things for employees. Here are three areas to focus on: The right executive team. Really. Unless it’s a deal for a complete category killer, the quality and the “stuff” of the management team will be the greatest predictor of the exit outcome. This isn’t news: Lots of private equity firms assess management teams to understand if they’re good leaders. The mistake they make? Not validating that they’re the right leaders for a portfolio company cadence, and for a specific growth/ turnaround/platform strategy. Lots of executives are great leaders, but our research suggests that most of them aren’t built to lead a portfolio company. (One insight: A success factor that’s critical for a portfolio company CEO to have? Resilience. Make sure your CEO has it.) Alignment. Creating alignment with management around what good value creation looks like drives better exits, period. The biggest mistake we see sponsors make is building incentives entirely around the outcomes, which is often a base case growth/exit scenario that feels out of reach. It leads to infighting and drives suboptimal behavior. This is an area to sweat the small stuff when designing pay. How incentives are

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designed has a dramatic impact on what executives actually do. Yes, those dollars all come out of EBITDA, but behavioral science tells us that you’ll get better outcomes when the executive team has incentives that focus on how strategy gets executed, and when the executive team feels it has been treated fairly and competitively in the exchange. Quick productivity wins. When a deal is announced, employees become anxious and distracted. They’ve heard what life can be like under a private equity regime, and they know there will be change. Focus on quick wins that eliminate barriers to people doing their jobs well and that immediately impact productivity. You can do this in a number of ways. One of our favorites is a First 100 Days diagnostic, where you get live, post-close, hyper-specific data on things management can do (quickly, inexpensively, tactically) to remove barriers to getting work done. The impact on employees—to see how the first changes improve their work lives— is absolute gold. When you get them right, these actions show up in the valuation. But do them quickly. The faster people can see what the future will look like, and how it will be better, the faster the rest of it happens. // David Wise is a senior client partner in Korn Ferry Hay Group’s New York office, where he leads the private equity group for North America. He is also a member of the firm’s North American leadership team. Joseph Healey is a senior client partner and leader of Korn Ferry’s private equity practice.

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THE PORTFOLIO

Avoid Leaving Money on the Table SOUND DECISIONS // Key Steps to Simplify M&A Working Capital

W Bryan Graiff Transaction Advisory Partner, Brown Smith Wallace

Dan Schoenleber Transaction Advisory Principal, Brown Smith Wallace

orking capital is one of the most complex areas of transactions. Other than a rep and warranty claim, it tends to be one of the most contentious post-closing disputes and often requires litigation, or the threat of litigation, to resolve. While working capital is simple to define—current assets less current liabilities—problems can arise from lack of experience. Without proper working capital procedures in a transaction, either side could potentially leave money on the table. Neither the buyer nor the seller should “come out ahead” as a result of working capital; in order to ensure this happens, most purchase agreements include a working capital target, or “peg.” Here are key steps to simplify M&A working capital in a transaction: Agree on the working capital definition. Buyers typically prefer working capital to be based on GAAP, while sellers prefer it be based on their past practice, whether it fully complies with GAAP or not. Determining what will be included in the working capital calculation is also important. The best way to identify accounts to be included in working capital is to incorporate a schedule in the purchase agreement with a list of the included accounts and the target calculation. Calculate the working capital target. This target should not be agreed upon until the buyer has been given adequate time and information to assess the working capital needs of the company. Determining what the target should be is the most difficult piece of the process. Typically, the target is based on a trailing 12-month historical average of the company’s working capital. This often is the same period the purchase price is based on, and it also averages out the impact of seasonality in a business. Accounts need to be thoroughly reviewed to ensure a trailing 12-month average is a good

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estimate of the company’s working capital needs. Additional considerations include the latest trends in the business; anomalies and non-recurring items in the historical period; aging of receivables and payables, especially timing of payments to vendors; reserves or allowances for accounts receivable and inventory; and deferred revenue. Make sure both sides understand the closing date cash impact. Cash is king, and it’s what everyone is concerned about at the close of the transaction. Often, the working capital true-up can impact the cash paid and received at closing. If all parties are not on the same page, the transaction could fall apart. Verify during post-closing true-up. When a transaction closes, it is just the beginning of working capital calculations. The actual amount of working capital delivered by the seller is not always easy to determine at the closing date, which is why agreements typically allow for a 60- to 90-day period to finalize these figures. In determining the closing working capital, verify inventory (physical count), accounts receivable, deferred revenue and other significant working capital amounts. This post-closing period is the one opportunity to verify the working capital. There are many factors to consider when reviewing working capital in a transaction. In any scenario, it is important to spend the appropriate time on this area and get the right advisers involved to avoid leaving money on the table. // Bryan Graiff has over 25 years of C-level experience and has led over 100 buy- and sell-side transactions from both sides of the desk. Dan Schoenleber has more than 10 years of transaction experience and leads due diligence and quality of earnings engagements, post-closing working capital and opening balance sheet procedures.

MIDDLE MARKET GROWTH // JUL/AUG 2018

ACG@WORK

INTERGROWTH 2018 Keynote Session F Jeff Immelt (right), former chairman and CEO of GE, discussed his tenure at the companyâ&#x20AC;&#x201D;including the challenges presented by the 9/11 terror attacks and the 2008 financial crisisâ&#x20AC;&#x201D;during a Q&A panel with Jay Jester of Audax Private Equity.

H Featured Session Panelists discussed the importance of genderdiverse boards and management when investing in companies. From left, moderator Bronwyn Bailey of AIC; Patricia Lizarraga of Hypatia Capital Group; Trish Costello of Portfolia; and Jo Ann Corkran of Golden Seeds LLC.

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G Congressional Visit U.S. Rep. Scott Peters, a Democrat representing Californiaâ&#x20AC;&#x2122;s 52nd congressional district, met with InterGrowth attendees to discuss middle-market public policy objectives on the final day of the conference.

E Opening Reception More than 130 equity providers and corporate strategic acquirers hosted tables at ACG Capital Connection during the InterGrowth opening reception.

H InterGrowth Lounge Attendees maximized their networking time in the InterGrowth Lounge, the hub of activity at the conference.

MIDDLE MARKET GROWTH // JUL/AUG 2018

ACG@WORK

H ACG BOSTON ACG Bostonâ&#x20AC;&#x2122;s second annual M&A Outlook Conference featured keynote speaker Stephen Kolano of BNY Mellon Wealth Management, who gave a summary of the past year and an outlook on the future M&A environment. The chapter relaunched this conference last year to provide middle-market deal professionals with an update on the mergers and acquisitions landscape.

ACG NEW YORK F The 14th Annual M&A DealSource was held at the Metropolitan Club in New York, where more than 300 middle-market deal-makers connected and tasted over 60 American craft beers served by private equity professionals and investment bankers.

G ACG DALLAS/FORT WORTH The North Texas Economic Forum was held in Dallas with more than 500 top financial executives, board members and C-suite executives. Attendees gained insight into the consistent attractiveness of the market in North Texas.

middlemarketgrowth.org

ACG TORONTO F The Private Equity Mid-Market M&A 2018 Trends and Opportunities breakfast was held in Toronto, where more than 130 people heard an exclusive discussion with private equity firms and deal advisers who shared their perspectives for midmarket M&A in Canada.

H ACG TORONTO ACG Toronto’s Special Initiatives Committee held its Opportunities in the Evolving Canadian Retail Landscape seminar. The committee develops strategic partnerships to focus on thought leadership, innovation and professional development.

ACG RALEIGH DURHAM F ACG Raleigh Durham’s 2018 Capital Conference brought together more than 400 deal-makers for a program that spotlighted the crypto economy—addressing blockchain, cryptocurrencies, initial coin offerings and more—and featured ACG Capital Connection and ACG DealSource events. The conference kicked off with a curling outing, where attendees learned to play the ice sport and compete in a “closest to the button” competition, whose winners are pictured at right.

MIDDLE MARKET GROWTH // JUL/AUG 2018

ACG@WORK

E ACG DETROIT E ACG NATIONAL CAPITAL

ACG Detroit held its first Women in Leadership

The 24th Mid-Atlantic Growth Conference brought

event with TMA Detroit’s Network of Women.

together more than 280 corporate growth execu-

The event drew 130 attendees at the Townsend

tives, capital providers, deal-makers and transac-

Hotel. Pictured (left to right) are Yana Krivozus;

tion advisers from the mid-Atlantic region for a full

Leslie Sheidler, ACG Detroit’s first female chapter

day of informative speakers, ACG DealSource and

president; and Judy Wallace.

networking opportunities.

G ACG SAN FRANCISCO The 2018 West Coast M&A Conference was held at the Hyatt Regency San Francisco, where more than 450 attendees participated in the Diversity Forum, ACG DealSource and ACG Capital Connection. Pictured (left to right) are the event planning team’s Sam Dibble, Baker Botts LLP; Christina Bui, Kranz & Associates; Tyler Smith, ACG San Francisco; and Terry Hill, BPM LLP.

E ACG MINNESOTA ACG Minnesota hosted its sold-out inaugural AIM: A Women’s Leadership Conference, Flourish 2018, on International Women’s Day, featuring inspiring talks from female leaders. Pictured (left to right) from the Women in the Boardroom session are Jeanne Crain, Bremer Bank; Sheila Ronning, Women in the Boardroom; and Pam Moret, Bush Foundation.

CONTACT Want to share photos from your recent chapter event? Email us at editor@acg.org.

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P A R T N E R S I N D R I V I N G M I D D L E - M A R K E T G R O W T H .ÂŽ From

consultants

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THE LADDER

RANDY LEDERMAN has been named business development director of AloStar Capital Finance in the New York City region. Lederman will focus on building relationships with intermediary partners and private equity sponsors within the area. Most recently, Lederman was a director in Cowen Inc.’s Special Situations Group.

Stout’s Investment Banking Group announced STEPHANIE DAVIES (top) and BLAKE OTTÉ have joined as co-heads of sponsor coverage. They bring over 30 years of combined experience to Stout, where they will focus on the firm’s network of middle-market private equity clients. Davies most recently was the head of business development for Staple Street Capital and Otté previously led business development and capital markets for AloStar Capital’s northeast region.

Bertram Capital announced the promotion of MICHELLE CHAO to vice president. Chao focuses on sourcing and evaluating investment opportunities and manages intermediary relationships for Bertram in the western half of the United States and Canada. Chao joined Bertram in 2008.

Orix Mezzanine & Private Equity announced the addition of ZOLTAN BERTY as managing director. Berty brings more than 25 years of transactional experience to Orix, where he will be responsible for business development and investment activities in the western United States. Berty was most recently the managing director for Gladstone Capital Corp.

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KARIN KOVACIC has joined Monroe Capital LLC as managing director for the East Coast region. Kovacic joins Monroe Capital with over 15 years of experience. She previously was a senior vice president at Alcentra Capital Corp. Kovacic is on the board of directors for the Association for Corporate Growth and is chairman of the ACG Connecticut chapter.

MARIA WOLVIN has joined the Association for Corporate Growth as vice president and senior counsel, public policy, and will lead ACG’s Washington, D.C., operations. Wolvin brings over 12 years of experience providing strategic counsel and advancing public policy objectives in Washington. Most recently, she was vice president and senior counsel of regulatory affairs at ACA International.

KAREN CRAVEN has joined the Association for Corporate Growth as vice president of communications. She will oversee all of ACG’s messaging and communications, including Middle Market Growth. Prior to joining ACG, Craven was a partner with Harris Marketing Services. Her past experience includes senior leadership roles in both corporate and nonprofit settings.

MORE CAREER INFO Watch for more career information in The Ladder newsletter delivered to your inbox.

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MIDDLE MARKET GROWTH // JUL/AUG 2018

IT’S THE SMALL THINGS

SERVING THE AGING DEMOGRAPHIC // This Never Gets Old

Growing Old Gracefully— and Exponentially

PE Investing in Retirement … Housing, That Is

The number of Americans ages 65 and older is

The senior housing market is attracting substantial

projected to more than double to over 98 million

investor interest due to several factors, including

by 2060. The 65-and-older age group’s share of

impressive yields. The seven-year total return on

the total population will rise to nearly 24% from

investment for senior housing is 13.64%, consid-

15% in 2015. —Population Reference Bureau

erably higher than that of other major real estate property types. —CBRE

Medical Spending Is Healthy as a Horse U.S. health spending is projected to rise 5.3% in 2018, reflecting rising prices of medical goods and

services and higher Medicaid costs. —Reuters

Aging in Place, Tech-nically Speaking According to AARP, almost 90% of seniors would like to stay in their homes as they age. As a result, gerotechnology is growing to allow this population

U.S. Health Care Is Nursing a Shortage

to age in place, including through smart home and

In 2013, about 50% of U.S. health care facilities had

wearable tech products. —Washington Post

a vacancy rate of 5% or greater. That share rose to more than 80% in 2017. —Reuters

Seniors and the City In developed countries, the growth in the senior

Employment Is Having a Senior Moment

population over the next 15 years will result in a

Many employees work into their later years. About

demographic that will account for about 51% of

37% of men and 28% of women ages 65–69 still

urban consumption growth, representing more

participate in the labor force. —SeniorAdvisor.com

than $4 trillion. —McKinsey —Larry Guthrie

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