Middle Market Growth - 2022 Guide to Dealmaking // Special Edition by Association for Corporate Growth

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THE FROM FUTURE THE EDITOR OF WORK

A Clearer Path Forward When we asked investment professionals to sharpen their

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

prediction tools for 2022, we found both excitement and caution. Dealmakers are getting accustomed to what a “new normal” looks like. Even though there is concern around the Omicron variant and new travel restrictions, the pandemic is not expected to be as dangerous with the advent of vaccines and new treatments. At the same time, a host of other factors—many resulting from the aftermath of COVID-19—could weigh on dealmaking in 2022. These include supply chain issues, inflation, the cost of labor and a variety of other elements. Although one thing is clear: Dealmakers don’t expect M&A to be derailed by the pandemic again like it was in 2020 and their crystal ball is less murky than it was last year. In ACG’s second annual survey on the M&A outlook for the new year, 80% of respondents said they were positive on dealmaking in 2022. Even if 2022 turns out to be a less busy year than its predecessor, that could be a welcome change. 2021 was backbreakingly busy for M&A professionals, driven by pent-up demand from COVID lockdowns the year prior and fear of rising capital gains tax rates. When it comes to other factors that could negatively impact dealmaking, M&A professionals are already coming up with solutions. When thinking about supply chain disruptions, middle-market companies are diversifying their vendor sources and upgrading technology to streamline the process. Labor shortages have been an issue across the board, but businesses of all sizes are attempting to sweeten the deal for prospective employees with perks like free transportation, meals provided on site and higher wages. And inflation could yet be solved by a hike in interest rates next year. This could also tamp down some of the sky-high valuations we’ve seen in recent deals, which would be a welcome change for buyers. According to the survey and middle-market sources, technology, healthcare and business services are expected to continue to be hot investment sectors in 2022. M&A professionals are also watching for a revival in consumer, travel, leisure and entertainment as COVID risk declines. Whatever your area of focus, we look forward to covering a robust market in 2022 and continuing to offer valuable insights in these pages. As business travel ramps up, there will be more opportunities for the ACG community to connect in person at InterGrowth and other regional events. We wish you success and a more predictable environment in 2022! //

MIDDLE MARKET TRENDS REPORT // 2022

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THE EXECUTIVE FUTURESUMMARY OF WORK

New Year and New ACG Moving forward into 2022, all we know for sure is that the

DAVID GERSHMAN Chairman, ACG Board of Directors, and Partner and General Counsel at Trivest Partners

“new normal” will be “new” and no one can say what “normal” is anymore. 2021 was a historic year for deal activity and must-have assets became cliché. M&A volume heading into the end of the year was certainly robust. We are all learning that stopping the world for a year and a half manifests wholesale changes. From the supply chain, to inflation, to the future of work, we are all taking part in a grand experiment together. We are committed to making the Association for Corporate Growth the true trade association for middle-market dealmakers. ACG is the platform where we can all learn from one another, share best practices and chart our path forward. Most importantly, ACG will always be the place to find investment opportunities and make connections. I am very pleased to be starting my term as ACG’s Global Board Chair in 2022. We have a fabulous team of highly skilled trade association and event planning executives working hard for us every day. Under the leadership of CEO Tom Bohn, we have focused on modernizing ACG. Tom has built the team at ACG to over 55 professionals (up from fewer than 20 people when he joined in 2019) and has made great strides to make ACG a unified entity with a national focus. Tom and his team have also worked hard to safely bring back InterGrowth, set for April 2022 at the Aria in Las Vegas. We are also working hard to improve many regional events. It was great to celebrate ACG LA’s Capital Connection West event in person again in November. As we embark on a new year in dealmaking, there are many exciting developments in store. Middle Market Growth has been split into two editions. Middle Market DealMaker will closely target the community of M&A professionals, while Middle Market Executive will be a mustread for small and midsize corporates and their managers. The publications and events are even more valuable at a time when M&A is so dynamic and investment professionals need to be well plugged in to the dealmaking community. We hope that ACG members will find more opportunities to connect in person this year and share their insights on M&A in future issues of the magazine. Now please allow me to introduce you to our second annual M&A Outlook report. Wishing you and your families a healthy and happy new year! //

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PRESIDENT AND CEO

Thomas Bohn, CAE, MBA tbohn@acg.org

CHIEF OPERATING OFFICER

Matthew Hickman, MBA mhickman@acg.org VICE PRESIDENT, ACG MEDIA

Jackie D’Antonio jdantonio@acg.org CONTENT DIRECTOR

Kathryn Mulligan kmulligan@acg.org CONTRIBUTING EDITOR

Danielle Fugazy dfugazy@fugazygroup.com SENIOR EDITOR

Anastasia Donde

adonde@acg.org ART DIRECTOR, ACG MEDIA

Michelle McAvoy mmcavoy@acg.org

CONTENTS 4

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SENIOR VICE PRESIDENT, SALES

Dealmakers Look Forward to an Active but Slightly Cooler Market in 2022

Harry Nikpour hnikpour@acg.org SENIOR DIRECTOR, STRATEGIC DEVELOPMENT

Visualizing the 2021 Global M&A Landscape

Pioneering Life Science M&A with Cloud-Based Technology

The Great Resignation in the Middle Market

How to Leverage Remote Hiring for Employee Retention

How to Up Your Operational Game to Stay Competitive and Profitable

Kaitlyn Gregorio kgregorio@acg.org

Association for Corporate Growth membership@acg.org www.acg.org Copyright 2022 Middle Market Growth® and Association for Corporate Growth, Inc.® All rights reserved. Printed in the United States of America. ISSN 2475-921X (print) ISSN 2475-9228 (online)

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48 WEBSITE Visit middlemarketgrowth.org to read the latest issue and web-exclusive content.

NEWSLETTERS

MMG WEEKLY Stay up to date on middlemarket trends, ACG events and industry news.

CONTENTS 6

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MEDIA NEWSLETTER Access recent GrowthTV videos and podcast inter-

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views, and find out about upcoming webinars. Sign up at middlemarket

Supply Chain Strain Hits the Middle Market

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2022 GUIDE TO DEALMAKING

Inside the Report For its 2022 Outlook Special Report, Middle Market Growth and its partners surveyed the middle-market dealmaking community about what they are expecting in the coming year. From the beginning of September through early November, MMG polled a cross-section of more than 250 dealmakers on various topics, from their outlook on 2022 to supply chain issues, and interviewed a number of industry professionals to gain perspective on the headwinds and tailwinds facing the M&A industry. Below is some information about the survey findings and the partners we worked with for this report.

Dealmakers Look Forward to an Active but Slightly Cooler Market in 2022 In partnership with S&P Global Market Intelligence, MMG surveyed M&A professionals on their feelings about dealmaking in 2022. After what shaped up to a very busy year, 2022 is also looking robust and the majority of survey respondents feel optimistic about the new year. The technology, healthcare and business services sectors are expected to continue offering valuable investment opportunities. Dealmakers are also watching for a resurgence in consumer, restaurants, travel and leisure as pandemic risk declines. Heaps of money raised at private equity funds and general optimism will continue to drive a lot of investment activity.

About S&P Global Market Intelligence: S&P Global Market Intelligence is a division of S&P Global (NYSE: SPGI), the world’s foremost provider of credit ratings, benchmarks and analytics in the global capital and commodity markets, offering ESG solutions, deep data and insights on critical business factors. S&P Global has been providing essential intelligence that unlocks opportunity, fosters growth and accelerates progress for more than 160 years. For more information, visit www.spglobal.com/marketintelligence.

The Great Resignation in the Middle Market In partnership with Globalization Partners, MMG surveyed dealmakers about hiring and retention trends in 2022. The great resignation, labor shortages and challenges in recruiting are weighing on the middle-market too. But small and midsize companies—and their sponsors—are coming up with creative solutions to lure and retain talent. In the private equity industry, where dealmaking has been incredibly busy and workers have been stretched thin, sponsors are trying to mitigate burnout with wellness programs, encouraging employees to take days off and other mental health measures. At portfolio companies, managers are offering various perks like increased hourly wages, free transportation and meals on site.

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2022 GUIDE TO DEALMAKING

satisfaction ratings. With Globalization Partners, you can succeed faster. www.globalizationpartners.com Cyberattacks Pose Greatest Threat to Middle-Market Businesses As technology became more important to businesses amid the pandemic, cyberthreats became more of a risk to U.S. companies. Businesses expect cyberattacks to remain a risk in 2022 as working from home or hybrid models become the norm. MMG partnered with QBE Insurance and surveyed U.S.-based middle-market C-suite leaders about the risks of doing business in 2022. Some of the risks that business owners are worried about include the impact of regulatory changes, retaining talent, cyberthreats and business interruption, including supply chain issues. Survey respondents noted that the macro risk surrounding the pandemic has declined.

About QBE Insurance Group Limited: QBE is the largest ASX Listed Insurer by both gross written premium and market capitalization. It provides insurance services mainly to Australia, North America, Europe and the Asia Pacific region. In 2019, QBE had over 11,700 employees in 27 countries worldwide. www.qbe.com/us Supply Chain Strain Hits the Middle Market Supply chain issues have hampered business for the better part of a year and the disruptions are expected to carry into 2022. Heightened demand for goods and services during the pandemic, factory and port shutdowns from COVID outbreaks and labor shortages at supply sites have all exacerbated the problem.

The situation is unprecedented and many companies are changing the way they do business. Some are looking at solutions including reshoring, diversifying the supplier base and upgrading technology.

Four Sectors Primed for Growth With the help of Grata, our editorial staff and Grata analysts identified four industries that are seeing growth in terms of employees and clients. These areas are fertile ground for investment activity from private equity. The pandemic accelerated an already active investment scene in home health. The proliferation of Black Lives Matter protests in 2020, meanwhile, gave a renewed focus to inclusion and several beauty brands are now offering more skin care and hair care products for customers from a broader range of races and ethnicities. As many consumers shopped at home during lockdowns, Amazon consultants and re-sellers became a lucrative part of the market, leading to greater interest in e-commerce. Staying at home also propelled an increased interest in gaming and “esports.” The industry is expected to continue growing, albeit not at the same rate it did during COVID lockdowns.

About Grata: Grata is the leading private company intelligence engine. With Grata, dealmakers gain unparalleled visibility into the private market with extensive, up-to-date data and comprehensive information on over 6 million middle-market businesses. Grata’s smarter search experience helps users discover deep contextual company insights in order to gain an informational advantage and win high potential deals. www.grata.com

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2022 M&A OUTLOOK

SP ONSO R ED BY

Dealmakers Look Forward to an Active but Slightly Cooler Market in 2022 WRITTEN BY ANASTASIA DONDE | ILLUSTRATED BY EVA VÁZQUEZ

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2022 M&A OUTLOOK

Some of the factors driving heightened activity and rising valuations in 2021 will continue into 2022, but M&A practitioners expect less of a dealmaking frenzy in the new year.

Winding down from a frantically busy year of M&A transactions, investment professionals are looking ahead to another active market, even if it’s not expected to be quite as busy. According to a recent survey of ACG members sponsored by S&P Global, 80% of respondents said their outlook on M&A activity for 2022 remains positive.1 “I’m positive on dealmaking, but I don’t think it’ll be gangbusters like it was in 2021,” says Art Penn, founder of direct lending firm PennantPark. The backlog of deals that didn’t launch in 2020, coupled with expected changes to tax rates and attractive valuations, were some of the factors for unprecedented activity in 2021. The volume of U.S. middle-market buyouts from January through November 2021 came to $714.8 billion, eclipsing 2020’s year-end total of $613 billion, according to Pitchbook. Prepandemic total deal volume amounted to $699 billion in 2019. “It will be busy in 2022, but not as busy as it was this year, which is good, because everyone is exhausted,” Penn adds, explaining that private equity

firms and lenders, as well as their lawyers, accountants and other service providers, have been stretched thin. “2021 was fueled by the fact that the world shut down for a long time. The market didn’t start picking back up until August or September of 2020, so there was a lot of pent-up demand,” says Lauren Boglivi, partner and co-chair of Proskauer’s M&A and Private Equity Group. “2022 will still be busy but probably less so. I don’t think you can keep up that level of demand.” Some of the elements that drove a particularly busy year in 2021 will still be around in 2022, but will be less pronounced. For example, a record amount of dry powder will still be present, but the fear of changes to the capital gains tax rate is dissipating, which will likely lead to a less frenzied dealmaking pace. Thirty-six percent of survey respondents said that deal flow quality and quantity was the primary variable that influenced their positive outlook on M&A. Dry powder and credit market conditions came in second at 22%, while valuations and seller

2022 will still be busy but probably less so. I don’t think you can keep up that level of demand. Lauren Boglivi Partner and Co-Chair of M&A and Private Equity Group, Proskauer

middlemarketgrowth.org

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Which industries do you expect to focus on in 2022? 50

47% 38%

37%

33% 30

27%

Te c

olo

g rin tu fac nu Ma

ph He arm al ac thca eu re tic & als

me an r pr d s od er uc vic ts es

Co n

Bu se sine rvi ss ce s

*Industries shown are the top five that scored the highest. The question had 29 other options, where respondents could choose multiple answers. Source: Survey of ACG members

expectations were in third place at nearly 17%. Dealmakers and advisors say that the number of auctions and new deals hitting the market peaked in late summer 2021 and industry practitioners spent the rest of the year working on closing them. David Clark, head of financial sponsors at Raymond James, was telling most of his clients to prepare for exits in 2022 rather than try to fit them in during the fall or winter. There was too much of a backlog of work that needed to be done to close existing deals. “Our recommendation to sellers was: Don’t try to bring something to market now, people are busy trying

to get deals closed by the end of the year,” Clark says. He’s recommending that his sponsor clients prep marketing materials and quality of earnings and plan to launch processes in the first or second quarter of 2022. Sash Rentala, head of the financial sponsors group at Solomon Partners, agrees: “Deal volume peaked in August. Post-Labor Day, we’ve focused on closings.” Some market participants expect a busy dealmaking environment to be the new norm, even if it slows a bit from 2021. “We’re in an environment where activity will remain busy on a near-perpetual level,” says

Andrew Olinick, co-head of North America Private Equity at Londonheadquartered 3i. Excess dry powder, more companies in line to be sold and sellers looking at high valuations garnered by competitors all continue to be motivating factors for a strong pipeline. “There was a lot of pent-up demand in 2021, both for buyers and for sellers. The expectation of the capital gains tax changes might have artificially inflated volume in 2021,” says Michael Ewald, global head of private credit at Bain Capital Credit. Despite the fear of changes to the capital gains tax, which drove some dealmakers to hurry toward exits, the

MIDDLE MARKET TRENDS REPORT // 2022

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2022 M&A OUTLOOK

What is your outlook for M&A in 2022? Positive

Neutral

80%

18% Negative

What is the key catalyst or variable that most influences your outlook? Consumer trust and economic recovery

10% 14%

Potential tax policy changes Dry powder and credit market conditions

22% 36%

Deal flow quality and quantity Valuations and seller expectations COVID-19

16% 2%

rate now looks less likely to change at all. If it does, the hike is expected to be minimal. Market players are now watching another potential change: the likely rise of interest rates that will impact the cost of debt for leveraged buyouts. Federal Reserve officials said in November that interest rates will likely rise before the end of 2022. A rate hike will mean that lenders won’t be able to offer as much leverage on deals, which could directionally impact valuations. Private equity sponsors will then have to lower

their purchase prices or put up more equity. “Our expectation is that next year, demand for M&A will remain high, growth will slow down a bit, rates will go up a little and that will solve the inflation problem to an extent,” says Olinick.

VALUATION TRAJECTORY Despite the busy dealmaking pace, high valuations have continued to make it difficult to compete. However, 56% of survey respondents think high valuations are a

short-term phenomenon, while 44% said that high valuations will remain for an extended period. Beyond the potential for rising interest rates, market players say that valuations are expected to at least level off in 2022. Many of the top tier businesses coming out of the pandemic have already been sold. “Some of the better companies have transacted already. I think the market will cool off a little bit and valuations will come down,” says Clark. Sectors also impact valuations. Sectors such as technology will continue to garner high multiples, while others like manufacturing, industrials and consumer tend to fetch lower valuations. More of the latter type of businesses are expected to come to market next year. “There are a lot of high-quality companies that had minimal impact from COVID that came out in late 2020 and early 2021 and were able to attract very high multiples,” Clark says. “Midway through 2021, more COVID-impacted companies came out, and there were more EBITDA adjustments. It’s harder for buyers to get comfortable around those.” Still, sellers will remain aggressive. “The way businesses are being sold is changing,” Olinick says. “There are a lot of preemptive approaches and narrow processes. The market has gotten much more focused but hasn’t compromised valuations.” He also expects valuations to level out a bit when interest rates rise. The good news is lenders have been disciplined through the frenzy and are prepared for a busy but more subdued 2022. “Some lenders have gotten fast and loose with pricing and terms but not necessarily on leverage multiples. While purchase prices have gone up, the leverage hasn’t followed as much, which is encouraging to see,” says Ewald.

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SECTOR TRENDS

Some of the industries that were hot in 2021, like technology, healthcare and services, will continue to be attractive next year. Some note that pockets of consumer and industrials will also start to come back online. When asked which industries investors expect to focus on in 2022, survey respondents selected business services, technology, healthcare and pharma, manufacturing, and consumer products and services as some of their top picks. Jeff Jacobs, head of M&A execution at Solomon Partners, agrees that technology has been attractive in 2021 and will continue in 2022. His firm has focused on areas like B2B and CRM software, cloud, business intelligence analytics and digital transformation. Within financial services, a lot of focus has been on fintech and bank insurance, according to Jacobs. He also sees potential consolidation through M&A as companies seek to protect their supply chains from future disruptions. “Companies are using M&A to solve bottlenecks and shortages driven by supply chain issues,” he adds. Healthcare and technology drove a lot of investment activity this year and pockets in these sectors will continue to be attractive as investors begin to shift their focus. “As we get further into the economic recovery, it tends to be a bit more ‘risk on’ with more interest in consumer products and services,” says Bain Capital’s Ewald. These could be household goods and services, as a lot of people are “nesting and sprucing up at home,” he adds. As more people go out to restaurants, investment activity in that space could pick up too, Ewald notes, though many restaurants still have a labor shortage problem.

As we get further into the economic recovery, it tends to be a bit more ‘risk on’ with more interest in consumer products and services. Michael Ewald Global Head of Private Credit, Bain Capital Credit

“The hope was that, [the] consumer would be out in full force, but then the Delta variant hit and there wasn’t as much of a comeback in vacations and international travel,” says Ewald, noting that this area could still pick back up in the new year. Several M&A experts agree that they are watching the consumer space for a comeback. “As we get further away from COVID, there will be less noise around some of these industries that could lead to more of a play for consumer companies,” Clark says. This could include areas like home furnishings, retail, travel and leisure.

PANDEMIC AFTERSHOCKS

Most of those surveyed said that the pandemic is expected to have a minor impact on dealmaking next year, with 39% saying that the impact will vary widely and another 15% answering that it will have a major impact. “In 2021 you still had some impact. Now that we’ll have a full year of results that are more distanced from

the pandemic, there is more of an acceptance of what the new normal will look like,” says Clark. Some investors are watching companies that experienced a “COVID bump” and weighing whether that performance is sustainable. Companies like Peloton and other direct-to-consumer products experienced an uptick in 2021. “They had a huge increase in top-line cash flow. Next year, the numbers will be more normalized,” Solomon’s Rentala says. Investors and advisors tell Middle Market Growth that the pandemic itself isn’t expected to weigh as much on activity in 2022. But knock-on effects like supply chain disruption, rising inflation, labor shortages and the increasing cost of labor will be more pressing issues. These are likely to squeeze companies’ EBITDA margins and will affect the potential valuation of businesses going to market as they grapple with these factors. “Obviously, labor is a big challenge, reducing capacity in many industries,” says Bob Baltimore, co-head of M&A at investment bank Harris

MIDDLE MARKET TRENDS REPORT // 2022

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2022 M&A OUTLOOK

How will the pandemic continue to impact businesses in 2022?

46%

Minor impact

15%

Major impact

Williams. “That’s continuing to ripple through the economy and the cargo ships stuck at sea because there aren’t enough dock workers, as well as many other disruptions. So, until we have COVID truly under control, those and other related issues will likely continue,” he adds. “Supply chain issues will continue into next year and will weigh on different companies’ performance,” says Bain’s Ewald. The availability of components and the cost of getting them to make consumer products that are affected by both supply chain bottlenecks and inflation could negatively impact some companies, he explains. When it comes to entertainment, travel and leisure, it’s still unclear when and whether consumers will go back to it. Even if the risk of the

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What is your assessment of the current state of high valuations?

39%

56%

The impact will vary widely

Short-term phenomenon

COVID-19 pandemic dissipates, people might be more fearful of something like it happening again. “The question is: Next time you see something that was affected badly by COVID, will you be more cautious about investing in it?” says Penn, highlighting businesses such as trade shows, theater and cruise lines. With the pandemic and some of its effects weighing on pockets of dealmaking, it’s increasingly hard to predict how COVID will impact the market. “COVID-19 is going to continue to be around, but as more people get vaccinated, it’ll become easier to live with,” says Ewald. “It’s uniquely difficult to forecast with so many factors impacting dealmaking. Our crystal ball is cloudier than usual.” //

44%

Sustainable for an extended period

I’m positive on dealmaking, but I don’t think it’ll be gangbusters like it was in 2021. Art Penn Founder, PennantPark

From September through the beginning of November 2021, ACG surveyed dealmakers about their outlook for 2022 and other topics. 250 people were surveyed.

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S&P GLOBAL MARKET INTELLIGENCE

Visualizing the 2021 Global M&A and Capital Markets Landscape Q3 2021 Global M&A Activity, YoY by Region Q3 M&A deal value surpassed $1.08T, eclipsing the previous high of $1.06T in Q4 2020. 2021’s investment activity is expected to surpass pre-pandemic levels by the end of the year. Q3 2021 Total Q3 2020 Total Deal Value Deal Value (US$B) (US$B)

Region

YoY % Change

Q3 2021 Number of Deals

Africa

2.2

1.9

16%

Asia-Pacific

206.7

142.1

45%

1,672

Europe

267.4

200.3

34%

3,465

Latin America & Caribbean

19.4

14.3

36%

338

Middle East

8.9

2.5

250%

100

United States & Canada

571.2

408.9

40%

5,234

Total

1075.7

770.0

40%

10,893

34%

40%

16% 36%

45%

250%

YoY % Change 0-33%

33-66%

66-100%

>100%

Global deal activity continues to rebound from COVID-19 lows, with pent-up activity from 2020 contributing to a 40% YoY pick-up in global deal value as of Q3 2021. Data as of October 14, 2021. Transactions include announced or completed deals in Q3 of 2020 and 2021 with the target’s geographic location disclosed. Source: S&P Global Market Intelligence.

Global Equity Capital Markets Issuance by Quarter Equity capital markets activity continued its strong momentum in the third quarter with $223 billion raised, bumping the 2021 YTD total to $778 billion. The total amount of proceeds raised is up 25% from the same period last year. A total of 5,234 offerings have been brought to market in 2021 YTD, a 23% increase from the comparable 2020 period.

Gross Proceeds Raised

Number of Offerings

1000

$901

900

$778

800 700

$670 $573

600 ($B)

6000

6,364

6,287 5,317

5000

5,234

4,716

4000

$554

500

3000

400 2000

300 200

1000

100 0

0 2017

2018

2019

2020

2021

2017

2018

2019

2020

2021

Data as of October 14, 2021. Transactions include announced or completed deals in Q3 of 2020 and 2021 with the target’s geographic location disclosed. Source: S&P Global Market Intelligence.

Content Provided by ACG Partners and Featured Firms

03_SPGlobalSection.indd 19

MIDDLE MARKET TRENDS REPORT // 2022

12/8/21 2:35 PM

S&P GLOBAL MARKET INTELLIGENCE

Average M&A Transaction Value 2018-2021 YTD

Top 10 Unicorn Investment Themes, as of Q3 2021 (by Tagged Classification)

$100

$70

$72.7

$71.7

Number of classification tags

$80

$86.5

$90

$67.0

($M)

$60 $50 $40 $30 $20 $10

75 64 63

50 40 30

42 39 36 34 31

26 26

20 10 0

2019

2020

2021 YTD

N Se etwo cu rk rit y Ma Le ch arn in ing e Lif es tyl e Int Ar ell tifi ige cia nc l e Fin tec Cr h yp to Mo cu bil rre eD nc y ev elo pm To ent ols Blo ck ch ain Cu sto Fit me ne rR ss e Ma la na tion ge sh m ip Clo ent u Se d D rvi ata ce s

2018

Global M&A values in 2021 are trending up. Here we see the average transaction size is $86.5M YTD, an increase of 29% compared with 2020. Data as of October 14, 2021. Transactions include announced or completed deals between 1/1/2018 and 9/30/2021. Source: S&P Global Market Intelligence.

Emerging technology themes dominate the unicorn investment landscape, as investors track changing consumer behaviors and increasingly digital business strategies. Companies with thematic tagged business models with a latest post-money valuation greater than $1B. Source: S&P Global Market Intelligence.

2017

SPACs that Successfully Completed an Acquisition or Reverse Merger (%)

ESG as a Driver of Private Equity & Venture Capital Investment

2018

(72%)

2020 2019

(67%)

Firms hold an estimated total of $2 trillion dollars in AUM (reported) with 4,367 investments classified as 'Environmentally Responsible.'

(62%) (39%)

2021

(2%) 0

100

200 Unsuccessful

400

300 Pending

500

Successful

Global SPAC IPO activity has experienced a slight increase with $17B in gross proceeds raised in Q3, compared to $16B in the prior quarter. However, we still see an unusually large number of pending SPAC acquisition and reverse merger deals in the pipeline with only 2% seeing completion thus far in the year. Data compiled Oct. 7, 2021. Analysis includes global initial public offerings for Special Purpose Acquisition Companies (SPACs) with a closed date between Jan. 1, 2017 and Sept. 30, 2021. Source: S&P Global Market Intelligence.

middlemarketgrowth.org

03_SPGlobalSection.indd 20

Private equity and venture capital firms with a Firm Ethos in ESG-related investments. Source: Preqin via S&P Global Market Intelligence.

Dive into the data and power your M&A workflow >

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Essential intelligence for the middle market. We uncover the insights that matter most so you can monitor the market, identify new investment opportunities, value portfolio companies and more. The S&P Capital IQ Pro platform brings together robust financials, coverage on 18M+ private companies, proprietary news and research, and tech-forward productivity tools.

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SP ON SOR ED BY

PIONEERING LIFE SCIENCE M&A WITH CLOUD BASED TECHNOLOGY M&A in the Life Science Industry

often be operational on a cloud-based ERP system in as little as 6-8 weeks.

Despite being one of the most active industries for mergers and acquisitions, private equity firms are becoming more

Answerthink - An SAP Platinum Partner

deliberate and even cautious when considering potential deals with growing biotech and pharmaceutical companies.

Answerthink, a leader in implementing SAP cloud technol-

With an increase in regulatory pressures and realization

ogy for life science companies, has a robust methodology

that few companies will get their product off the ground,

and a proven solution called EzLifeSciences that helps

institutional investors have reservations. Investors are

private equity and Life Science companies secure their

attracted to life science organizations that have developed

acquisitions and overcome the different challenges men-

business models that allow them to scale easily, improving

tioned earlier. Their EzLifeScience solution, built on the SAP

their operational efficiency through cloud technology.

HANA platform, is preconfigured, rapidly deployable, and a scalable solution for life science organizations that accom-

How Cloud Can Ease the Caution

modates both business growth and acquisition strategy. With an end-to-end services model that includes sales, services,

Cloud models are replacing cost intensive legacy systems

consulting, support, hosting, and training, Answerthink

with a more flexible, subscription-based operating model

addresses critical business challenges delivering:

based on variable costs. These models can scale up or down as a business’ organic and inorganic needs dictate, and provide advanced capabilities based on leading practices with minimized investments into the future. Cloud-based ERP technology options may be especially relevant for organizations looking to divest various assets. Divestitures often

• • • • •

Integrating business applications Validated reporting Increase speed to market Fully compliant solutions meeting FDA requirements Global implementations with United VARs

include transition service agreements (TSAs) provided by the seller to the buyer post-deal, including operational services or support for an interim period after the transaction closes. These agreements often include financial penalties for not exiting a merger or acquisition by the agreed upon date, which increases the pressure on both sides of a deal to exit quickly with minimal impact to the business. Obviously, this can be challenging if the TSA includes support services for a traditional, on-premises ERP system, due to the complexity involved with ERP system configuration.

RISE with SAP Opting for a cloud-based ERP solution, such as RISE with SAP, can be a practical, cost-efficient alternative to traditional fixed-cost on-premises that could turn a potential M&A deal-breaker into a deal maker. RISE with SAP is a comprehensive, intelligent, and customer-specific offering, which includes core elements to help companies achieve digital transformation. By requiring minimal hardware and nominal configuration, a medium-sized organization can

To further differentiate their expertise, Answerthink is a member of United VARs, a global alliance of SAP resellers in 90 countries. Private equity firms may be hesitant to invest in companies that have an international manufacturing component. To allow investors to take advantage of opportunities in emerging markets without worrying about complying with regulatory frameworks in different jurisdictions, Answerthink leverages the expertise within their international network of SAP partners. (www.united-vars.com) Mergers and acquisitions are not easy. There are several ways it can go wrong, and IT business system integration is one of the biggest factors that can make an M&A deal a huge success or a terrible failure. Investors are looking for companies that embrace innovation while realizing the value of their investment. With RISE with SAP, along with Answerthink’s EzLifeScience™ solutions, your merged entity will make the appropriate business process improvements as an intelligent enterprise model. //

Content Provided by ACG Partners and Featured Firms

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04_AnswerThinkAdvertorial.indd 23

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05_GlobalizationPartners.indd 24

12/8/21 2:36 PM

HIRING INITIATIVES

XX XX

SP ONSO R ED BY

The Great Resignation in the Middle Market WRITTEN BY DANIELLE FUGAZY | ILLUSTRATED BY EVA VÁZQUEZ

05_GlobalizationPartners.indd 25

12/8/21 2:36 PM

HIRING INITIATIVES

Small and midsize businesses and their investors strategize with employee wellness programs, perks, higher wages and new hiring tools to mitigate labor shortages.

The private equity industry is busier than ever and there aren’t any signs of it slowing down in the near future. U.S. private equity dealmaking notched a record deal value through Q3 2021 and everyone agrees that the end of the year and at least the beginning of 2022 will be just as busy. According to Pitchbook Data, U.S. private equity dealmaking closed 6,004 deals for $787.6 billion from January 2021 through the end of the third quarter. Deal count and value totals for 2021 are already above the highest-ever full-year numbers. The U.S. is entering 2022 with a backlog of deals that will likely keep things hopping for a while longer. The frenetic pace is exhausting employees at private equity firms and portfolio companies alike. Between the great resignation that we’ve all heard so much about and burnout, U.S. companies are contending with the tightest labor market ever. To deal with the issue of burnout, which could eventually lead to quitting, some firms have demanded staff take paid time off. The Carlyle Group is one of them. In fact, Carlyle is

promoting employee wellness with a $750 annual well-being stipend and gave all employees worldwide a week off in the summer. Companies such as Bumble and Nike also gave employees paid time off. Other businesses started initiatives like walking meetings to get people away from their screens and cubicles and no Zoom on Fridays to help mitigate videoconferencing fatigue. Firms hope that helping employees cope with burnout will not only stem the tide of the great resignation, but also lead to better productivity. The World Health Organization pegs the ROI from strategies that focus on mental health at $4 in greater productivity and improved health for every $1 invested. Additionally, there is increasing evidence suggesting that the likelihood of a job change increases substantially following traumatic experiences like the COVID-19 pandemic. “The world is feeling burnt out. Every stage of COVID affected us. We work in a demanding industry that hasn’t slowed down, and in fact, has accelerated. We need to get creative

We’ve never been busier with hiring. We are growing and so are our portfolio companies. We’re hiring everyone from associate level professionals to principals. Lisa Knapp Talent Manager, NewSpring

middlemarketgrowth.org

05_GlobalizationPartners.indd 26

12/8/21 2:36 PM

How do you usually search for new talent? 60

How quickly after transactions close do you hire talent? 60

2021 2021 2020 2020

57% 57%

2021 2021 2020 2020

52% 52% 50

42% 42% 40

39% 39%

35% 35%

30 24% 24% 22% 22%

30 22% 22%

19% 19%

19% 19% 17% 17%

10% 10%

20 16% 16%

6% 6%

5% 5% 3% 3% 0

os t Alm r alw os epla ays ti a ce ne mw C ed re lm pl aeyds -su to im ace Cianteeel idte Hi med -suy to ia ite it’s re a s n tely n Hi ot ee it’s re a an a ded no s ne bso , bu t a ed lu t n a ed te bs , b olu ut Alm te os t Almim nev os med er h t i im neviatel re me er y pe Hir dia hir rio ing tel e do o y c H pe coir f a cu rio ming sse rs a p d a o ss ft co of ans yc’csuring t er a mp se nes a he an ssinedftse y’s g r a ne the ed s

Alm

5% 5%

hu nt e R a ne ely dh r tw o un n o t ne Relryk o an e er tw o f a xis or n a dvi tin k o n so g f ex rs Ad adv istin i ve rt sors g Ad ise o nli Do vert ise ne n’t on h li Do ave a d ne n’t ha m efin ve et ed a d ho d me efine th d od Ot he r Ot he r

7% 7%

Source: Survey of ACG members

with ways to encourage people to take care of themselves to find what works for them and what boundaries they need from their professional lives,” says Lisa Knapp, talent manager at NewSpring, a private equity firm with a variety of different strategies. “People are fatigued and need downtime.” Employee exhaustion, coupled with people making employment changes, has made the search for talent all the more difficult. A record 4.4 million Americans quit their jobs in September. September’s “quit” numbers constituted 3% of the workforce, according to the Bureau of Labor Statistics. That number is up from the

previous record set in August, when 4.3 million people quit their job— about 2.9% of the workforce. Private equity firms and their portfolio companies are feeling the impacts of the tight labor market. In fact, 37% of dealmakers say they are looking to hire C-suite employees right now. That is followed by managers and senior leads, according to a recent survey conducted by ACG and sponsored by Globalization Partners1, a company that helps businesses hire globally. Adam Miller, a founder and managing partner with HYGGE Capital Partners, says that this is in line with

what he is seeing in his business. HYGGE is a dedicated human capital management consulting firm that works with The Riverside Company and other private equity sponsors. “Firms are raising more funds and doing more deals and there is a lot of movement with talent. There is also a great deal of back filling happening in addition to growth and expansion,” he says. The proof is in the numbers: 30% of survey respondents say they have had to hire more talent since the start of COVID. Although that figure is not huge, it’s up from 6.88% from the year before, which is a significant increase.

MIDDLE MARKET TRENDS REPORT // 2022

05_GlobalizationPartners.indd 27

12/8/21 2:36 PM

HIRING INITIATIVES

What is the main reason you might hire new talent?

22% 22% 22%

78% 78% 78%

To start fresh after closing deals with new talent

Expecting to expand into new markets and need teams on the ground

To start fresh after closing deals with To start fresh after new talent closing deals with new talent

Expecting to expand into new markets and need Expecting to expand into teams on the ground new markets and need teams on the ground

21% 21% 21%

79% 79% 79%

To start fresh after closing deals with new talent

Expecting to expand into new markets and need teams on the ground

To start fresh after closing deals with To start fresh after new talent closing deals with new talent

Expecting to expand into new markets and need Expecting to expand into teams on the ground new markets and need teams on the ground

2021

2020

2021

2020

2021

2020

Do you ever start searches for new hires prior to the deal closing? Yes, we like to be ready when the deal closes Yes, like to ready when the deal closes We may start searching butwemake thebefinal decisions after closing Yes, we like to be ready when the deal closes We may start searching but make the finaltodecisions after No, we don’t dedicate any time hiring prior to closing close We may start searching but make the final decisions after closing

24% 25% 24% 25% 24% 25%

No, we don’t dedicate any time to hiring prior to close No, we don’t dedicate any time to hiring prior to close

37% 37% 14% 37% 14% 14% 29% 29% 29% 20%

What level of talent are you usually looking to hire?

2021 2021

C-Suite Directors or heads ofC-Suite departments Directors or heads of departments Directors and or heads Managers of departments senior leads Managers and senior leads Managers and Associates senior leads and below

20% 20% Associates and below Associates and below

2021 2020

31% 31% 30% 30%

2021 45% 2020 2021 45% 2020

45% 45% 45% 45%

36% 36% 22% 36% 22% 22% 25% 25% 25% 17% C-Suite

C-Suite

2021

31% 30%

2020

2020 2020

17% 17% Associates and below Associates and below

middlemarketgrowth.org

05_GlobalizationPartners.indd 28

12/8/21 2:36 PM

Lower paying jobs are experiencing higher churn rates today. According to a CNBC|Momentive workforce survey completed in the fourth quarter of 2021, exactly half of U.S. workers describe their companies as being understaffed, and these workers are more likely to say they have recently considered quitting. Respondents say higher wages for new hires are a must in the current job market, but existing workers will also need to see pay raises as the starting point for sticking around, and many are expecting a pay bump in 2022, according to the survey. Sandra Grinker, a principal with AEA Investors, says COVID impacted people’s professional work choices. For example, if you look at geographic locations with distribution centertype jobs, they are usually located near other distribution facilities. “Many industries are seeing intense competition for talent. Even doing things like offering employees transportation, free breakfast, or $1 more an hour is meaningful and is fueling turnover in many types of jobs,” says Grinker. “It’s well publicized that people are reevaluating their lives since COVID and many have decided to make changes. People have changed careers, looked for different positions or decided to retire.” How firms are searching for talent has changed as well. In 2020, most firms relied on their network to find talent (42%), with only 10% using online methods. While most still rely on their networks, use of online methods has nearly doubled. In 2021, 19% of respondents said they are using online methods to advertise for openings while fewer are using headhunters. “Digitization and automation of human resource operations is driving innovation. Advances in the latest technologies, such as AI and

It’s well publicized that people are reevaluating their lives since COVID and many have decided to make changes. People have changed careers, looked for different positions or decided to retire. Sandra Grinker Principal, AEA Investors

predictive analytics, are facilitating the integration of human resource management solutions with analytics. The industry has a strong emphasis surrounding attracting the right pool of candidates, retaining human capital and performance management. Startups are developing solutions to address remote workforces, promote corporate culture, streamline and improve onboarding, benefits, collaboration, training and more,” says Miller. Technology in the human resources sector is indeed growing. According to Fortune Business Insights’ report, “Human Resources Technology Market, 2021-2028,” the global market size was $22 billion in 2020 and $24 billion in 2021. That is expected to grow to $36 billion in 2028. In 2021, AEA used LinkedIn for select talent searches—something Grinker wouldn’t have contemplated previously. “Up until recently, we only used headhunters. What we get from our headhunters is high quality, but lower volume, so by incorporating LinkedIn as a recruitment tool, we have increased and diversified our talent pool,” says Grinker. Using

LinkedIn increased the firm’s flow of candidates and gave them access to people they may not have been aware of, which was great for diversity, equity and inclusion initiatives. Additionally, Grinker felt using technology during the hiring process is more helpful for certain positions. For example, technology-focused positions, like data scientists, are more likely to apply for jobs through technology platforms. “While I might not use a tool such as LinkedIn to source candidates for all of our positions, we have been pleasantly surprised by some of the leads obtained through tech-enabled recruiting platforms. It is definitely more time-consuming weeding through hundreds of candidate profiles online, however, the pool of talent is so tight right now that we all have to be a little creative, and for some positions online tools can work well,” says Grinker. As a result of the talent shortage, it seems firms are looking to hire more quickly than they have in the past. In 2020, only 6% of firms would hire C-suite positions immediately after closing a deal; that number has jumped to 16% in 2021. However, the

MIDDLE MARKET TRENDS REPORT // 2022

05_GlobalizationPartners.indd 29

12/8/21 2:36 PM

HIRING INITIATIVES

What is the outlook for your portfolio companies in terms of hiring in 2022? 60

How are you incentivizing employees?

58%

40%

22%

23% 20

17%

14% 13% 10

5% 2%

timeline for when the actual hiring process begins does not seem to be changing. In 2021, 30% of respondents started searches for new hires prior to the deal closing. That was the same in 2020. Forty-five percent may start the search prior to the deal closing but make the final hiring decisions after the close. Only 25% do not dedicate time to hiring prior to close. Going forward, hiring isn’t expected to be easier as many firms are looking to expand in 2022. Almost 60% of survey respondents said their portfolio companies will be hiring in 2022 because they are expanding; that’s up from 39% in 2020.

middlemarketgrowth.org

05_GlobalizationPartners.indd 30

r he Ot

nu se s M inu o ing ney ed tow uc ar ati d on

Mo r ho e wo me rk op fro Be tio m ns we tter lln he es alt so h pt and ion s Hi gh er sa lar y

r wi port ll fo th be h lio ey ir co ar ing mp e e b an xp eca ie an us s Ou din e wi r p g ll o or ar nl tfo e r y li ep be o c lac hir om ing ing pa so if t nie me he s Ou on y wi r e ll n po ot rtf be olio hir co ing m th pan is ie ye s ar

“We’ve never been busier with hiring. We are growing and so are our portfolio companies. We’re hiring everyone from associate level professionals to principals,” says Knapp. In addition to expanding, companies are also increasing headcount in HR. “Companies are adding new positions like wellness directors and DE&I professionals to the rosters every day. The roles and titles vary depending on size and other factors, but overall, it’s a great thing,” says Miller. In the private equity world, HR professionals are hoping that after bonuses are paid in January, they may

see some relief in the search for talent. “More than ever, search firms are watching when the bonuses hit to see if people are happy or will be moving on,” says Knapp. Grinker says that industry-wide, firms are seeing an increase in pay to keep pace with the market. “There has been an uplift in base salaries for many positions already. It will be interesting to watch how across the industry, things look after the bonus cycle and when firms return to the office full time. A lot of firms are still hybrid and plan on a full return in January. At that point, there may be more movement,” says Grinker. //

From September through the beginning of November 2021, ACG surveyed dealmakers about their outlook for 2022 and other topics. 250 people were surveyed.

12/8/21 2:36 PM

GLOBALIZATION PARTNERS

How To Leverage Remote Hiring for Employee Retention

n 2020, companies were forced into remote work to reduce the effects of the pandemic. Supported by online

tools, companies around the world adopted this new system with the purpose of reducing the health risks of Covid19, but it also had an unexpected result: a better work-life balance for millions of employees. Now, people are willing to quit their jobs and look for one that does not require them to go to a physical office. In this scenario, remote hiring has become crucial to ensure talent retention. According to a survey by CFO Research

of Industry Drive and Globalization Partners, decision makers understand the relevance of remote hiring and think it is a way to achieve success. The poll included 215 finance executives in North America, the Asia-Pacific region (APAC), as well as Europe, the Middle East, and Africa (EMEA). Statistics showed that CFOs were optimistic about their results for 2021; 93 percent believed that their

Please indicate which of the following operating models your business anticipates operating under for the next 12-18 months? Hybrid or remote workforce On-site workforce Don’t know/Not sure

Hybrid or remote workforce On-site workforce Don’t know/Not sure

74%

24%

10%

20%

30%

24%

40%

50%

60%

74% 80% 70%

0% 20% 30% 60% 80% What aspects of your job10%contribute to40% you 50% enjoying a70%positive experience, if you have one, with your current Good work/lifeemployer? balance 50% 41% Being part of a team work/life balance 50% 38%Good Having g the right g tools/equipment for the jjob Being part of a team 41% 36% Being listened to/having feedback considered 38% g the right g tools/equipment for the jjob Compensation 36%Having Being listened to/having feedback considered 36% methods 35% Good communication 36% 33%Compensation Concern for my well-being 35% Good communication methods 33% Career development and progression 33% Concern for my well-being 28% The physical working environment 33% Career development and progression onboarding process 13% The physical working environment 28% TheNo aspects of my job contribute to me enjoying 6%Theaonboarding positive experience process with my current employer 13%

10%

20%

30%

40%

50%

40%

50%

No aspects of my job contribute to me enjoying a positive experience with my current employer

Source: www.globalization-partners.com/blog/2021-global-employee-survey

companies would meet or exceed their goals and expectations. Perhaps the reason for this optimism is the global positive

percent considered hiring talent with the

Trend Index by Microsoft which showed

perception of the work-from-anywhere

appropriate skills in more cost-effective

that more than 40 percent of the global

model and the new possibilities afforded

jurisdictions to be of interest to them and

workforce desired to leave their current

by remote hiring.

to their company’s key stakeholders.

job during 2021. Companies have been

The coronavirus pandemic was a

taking advantage of remote work to hire

breaking point that cleared many experts’

The Great Resignation

doubts. Seventy-five percent of the CFOs

What began as a temporary solution

planning to return to the office must find

polled affirmed that this worldwide crisis

became not only a viable permanent

ways to keep hold of that talent.

altered the way they thought about hiring

option but also a new way of manage-

and workforce management. Additionally,

ment. The effects of remote hiring on

Survey, conducted by Globalization

81 percent changed their point of view

work experience inspired a movement

Partners, the way people feel towards

about remote employees for the better,

called “The Great Resignation.” Employ-

their jobs changed after the transition

and 74 percent anticipate operating under

ees are quitting their jobs and looking

to remote work in 2020. This research

a hybrid or remote model during the

for places where they can keep working

gives in-depth insights into employees’

upcoming year. Thanks to this paradigm

remotely. According to the U.S. Depart-

sentiments toward their remote work

shift, companies started tapping into a

ment of Labor, in April, May, and June, a

environment, their intention to stay in

global talent pool, accessing employees

total of 11.5 million workers quit their jobs.

their current roles, and their overall job

everywhere in the world. Eighty-five

This is supported by the recent Work

Content Provided by ACG Partners and Featured Firms

05_GlobalizationPartners.indd 31

talent anywhere in the world, but those

As stated in The 2021 Global Employee

satisfaction.

MIDDLE MARKET TRENDS REPORT // 2022

12/8/21 2:36 PM

GLOBALIZATION PARTNERS

What, if anything, do you think are the benefits of working in a global team? 60%

Team diversity More creativity

50%

Global insights into other markets

40%

Cost-effectiveness Responsiveness to clients

30%

Morale

20%

I don’t think there are any benefits to working in a global team

10% 0%

Other Less than a year

1 year, up to 2 years

More than 2 years, up to 3 years

More than 3 years, More than 4 years, up to 4 years up to 5 years

How long people expect to stay in their jobs

Source: Work Trend Index: Microsoft’s latest research on the ways we work

Improved perception of employers

to stay in their current job for more than

employees’ trust, but other findings sig-

four years declared that diversity was

naled different areas of opportunity that,

The changes adopted by companies

the main advantage of their team. It’s no

if tapped into, can boost talent retention.

during the pandemic had a positive

coincidence that teamwork and the abil-

For example, 32 percent of the employ-

effect on the perception employees

ity to express opinions influence people

ees surveyed felt less connected to

had toward their jobs. According to

to keep their current positions.

their coworkers. The three biggest chal-

the global employee survey results,

Happiness with the reporting line also

lenges global teams face are scheduling

48 percent of employees felt happier

correlates with retention: 44 percent stated

across time zones, process speed, and

since they started working remotely,

that their perception of company leader-

lacking communication methods. We

and 34 percent sensed that their voices

ship improved in the last year. From this

can surmise that technology plays a key

mattered more in the company.

group, 50 percent plan to stay at their com-

role in connecting people in different

panies for more than three years. Retention

countries—if done in an efficient and

top three factors that contribute to a better

can be promoted by leadership – by setting

nonintrusive way, employees will be

work experience globally. The first aspect

goals and objectives that encourage

more likely to report happiness and,

was a better work-life balance, followed by

healthy work habits, and empowering

therefore, stay longer in their roles.

being part of a team, and having the right

middle management to do the same.

Surprisingly, compensation was not in the

tools/equipment for the job. Workers realized,

One thing that both surveys clearly

Leaders’ ability to steer their teams

revealed, when interviewing employees as

after a year at home, the value of well-

through a crisis correlates strongly with

much as CFOs, is that remote hiring is not

being—and employees want to hang onto

employee loyalty. In fact, response to the

the future; it is our present. Companies

this learning. Companies that understand

Covid-19 pandemic significantly impacted

that understand this shift and adapt will

how their workforce feels about their work-

teams’ loyalty towards those in charge,

have a competitive advantage in employee

life balance can enhance talent retention.

suggesting that transparency is more valu-

retention. But the message from the work-

able than appearing calm and collected.

force is clear: A healthy work-life balance is

At times when they perceive their leader

more important than compensation. If that

According to those surveyed, diversity is

stretched and stressed, and seeing how

means that employees need to quit their

the main advantage of remote work. This

stress is handled among leadership, work-

jobs and find a new remote role, they will.

has a direct correlation with talent reten-

ers become either more convinced of their

tion: 58 percent feel that diversity is the

loyalty or more set in their unhappiness

ees and take measures to value their

most important benefit of global teams,

with current leadership.

global teams, and keep them connected

Diverse teams nurture retention

followed by more creativity (51 percent),

More than 5 years

and global insights into other markets

Retention boosts opportunities

(49 percent). Moreover, people who plan

Diversity and leadership build up

middlemarketgrowth.org

05_GlobalizationPartners.indd 32

Companies that listen to their employ-

and happy, will see a boost in their productivity—motivating their talent to continue working for them. //

Content Provided by ACG Partners and Featured Firms

12/8/21 2:36 PM

HIRE ANYONE, ANYWHERE. TODAY. No entity? No problem. Use the #1 global employment platform.

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SP ON SOR ED BY

HOW TO UP YOUR OPERATIONAL GAME TO STAY COMPETITIVE AND PROFITABLE Author: Aani Nerlekar, Senior Director, Solutions Consulting, SS&C Advent

INVESTOR ENTHUSIASM FOR PRIVATE EQUITY continues to grow. A primary driver of the sector’s growth is an unrelenting institutional appetite – according to a 2020 Deloitte report, 66% of institutional investors allocated to private equity in 2020, and an estimated 41% plan to increase their PE allocations in 2021.1 What does this mean for deal flow and capital raising? First, more competition is putting pressure on firms to differentiate themselves in an increasingly crowded field. Second, a performance track record is essential, but to stand out, PE managers must also demonstrate strong operational integrity. The growth, diversity, and complexity of private equity funds present substantial operational issues. Accurately allocating profits, losses, expenses, fees, and tax impacts among investors entails a specialized mix of expertise and technology. Investor demand for greater transparency and standardized reporting compounds the challenge. How PE firms manage, account for and report on their funds is essential to client satisfaction and regulatory compliance, not to mention the ability to compete and grow. Resilience and efficiency through automation may well determine how well a firm can manage risks and drive profitability. Does your current technology platform meet these fundamental requirements? • Support for complex strategies and structures • Comprehensive, granular investor accounting, including commitments, calls and waterfall calculations • Transparency for investors across multiple investments • Reporting in line with ILPA guidelines • Automated close rebalancing • Scalability to keep pace with growth without running up operating costs

operational due diligence. As an integrated, front-to-back platform, TNR is specifically designed for private equity fund operations, accounting, data management, and investor servicing and reporting.

A global team of experts backs TNR to help with many aspects of fund operations, including partnership documents, fund structures, investor and fund manager reporting, and tax allocations. TNR supports the full range of complex fund structures, including master-feeders, holding companies, SPVs, and more. Fundraising and investor relations modules enable you to track capital calls and client communications. In addition, a dedicated web portal provides limited partners with access to their account information, documents, and notices.

Keeping Investors Happy Given the amount of capital flowing into private equity, the number and variety of funds are bound to grow. Increasing investor interest presents opportunities for fund managers, but winning investor trust is no slam dunk. Institutional investors expect high-quality servicing throughout the relationship, and fund managers must prove they can deliver. A controlled, auditable operating environment demonstrates that fund managers can meet their investor and regulatory obligations, improving their chances of attracting allocations. Having the operational expertise and infrastructure to compete at a high level will be vital to capitalizing on investors’ growing appetite for private equity.

Contact us or request a demo on how SS&C TNR can help you compete more effectively and demonstrate strong operational integrity. //

ABOUT SS&C ADVENT SS&C Advent helps over 4,300 investment firms in more than 50 countries—from established global institutions to

TNR: A Foundational Solution

small start-up practices—to grow their businesses, minimize risk, and thrive. Find out how you can take advantage

SS&C’s TNR solution provides a modern private equity

of our industry-leading solutions to support your business

business foundation, enabling firms to demonstrate best

goals. To learn more about the right solutions and services

practices, meet transparency demands, and stand up to

for you, contact advent@sscinc.com.

1. Henry, P.; Fumai, F.; Taylor, T.L.; Patel, J. Deloitte. The Growing Private Equity Market. (2020, Nov 5). Retrieved from: https://www2.deloitte.com/us/en/insights/industry/ financial-services/private-equity-industry-forecast.html

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ASSESSING AND MANAGING RISK

SP Spon ONSO sore R ED d by BY

XX XX

Cyberattacks Pose Greatest Threat to Middle-Market Businesses WRITTEN BY SUE TER MAAT | ILLUSTRATED BY EVA VÁZQUEZ

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ASSESSING AND MANAGING RISK

Cyberattacks worry middle-market leaders, but that’s not all. Midsize businesses are concerned about regulatory changes as well as supply chain disruptions.

By the close of 2020, nearly 350,000 people in the U.S. had died of COVID-19, but a vaccine looked promising as the middle market, like the rest of the country, braced for another uncertain year. At the time, many businesses worried about reputational issues and a pending recession in 2020. But now after more than a year, are those same concerns still pressing, or are there other issues that have arisen that now worry businesses more? In other words, how has the pandemic affected the middle market from last year to this one? In 2020, Boston-based market research firm HawkPartners surveyed more than 300 middle-market executives about how the pandemic has changed their perception of risk. Sponsored by the Association for Corporate Growth (ACG) and QBE North America, HawkPartners created the second annual Mid-Sized Company Risk Report. In 2020, the report showed that businesses were most concerned about the possibility of a recession as the pandemic battered companies, causing many to close and others to

manage with Paycheck Protection Program loans. The new 2021 report highlights the most significant business risks for middle-market companies in various industries, including construction, electronics, financial, banking, and food and beverage. With annual revenues between $200 million and $3 billion, the surveyed companies revealed that in 2021, cyberattacks and security, changing regulations and business interruptions were among the most pressing risks.

CYBERSECURITY

In 2020, business executives were worried about cybersecurity, but that risk is even more pronounced today, according to the report. Middle-market executives cited cybercrimes as a growing concern. According to the FBI 2020 Internet Crime Report, the agency received a significant increase in complaints in 2020 related to internet crimes. The more than 790,000 complaints that year jumped by 300,000 compared to 2019. Losses in 2020 due to internet crime were more than $4.2 billion.

The [cyber] attackers are smart and capable, and there’s a need for organizations to be mindful of this. Ian Loring Managing Partner, Crosspoint Capital

middlemarketgrowth.org

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Macroeconomic Micro Risks

Regulatory/Legislative Micro Risks

Most Concerning Macro Business Risks

MIDDLE MARKET TRENDS REPORT // 2022

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ASSESSING AND MANAGING RISK

Digital Micro Risks

The top cybercrimes reported in 2020 were phishing scams, non-payment/nondelivery scams and extortion. Also, in 2020, COVID-19 fueled pandemic-related cyberscams, resulting in more than 28,000 complaints that targeted individuals and businesses. The most costly type of complaint revolved around business email compromise schemes. More than 19,000 complaints accounted for about $1.8 billion in losses. Ian Loring, managing partner of California-based private equity firm Crosspoint Capital, says that a combination of factors, including the effects of the pandemic, has caused the middle market to be increasingly worried about cyberattacks. Over the last few years, middle-market companies have been targets more often. Previously, larger firms seemed to be attacked more frequently. “I do think this is an inexorable trend, and it’s not going away,” says Loring. “The attackers are smart and capable, and there’s a need for organizations to be mindful of this. It’s only going to accelerate as things democratize in the middle market.”

Surveyed business executives said that digital risk was the second most concerning macro risk. In 2021, 60% ranked digital risk among their top five macro risks, an increase from 55% in 2020. Within digital risk, cyberattacks/ breaches were named by executives as the most pressing micro risk. Fortyfive percent of respondents said it was concerning to their business in 2021, while 37% felt that way in 2020. Additionally, 49% said cyberattacks/ breaches was their top digital risk, up from 41% in 2020. Another concerning risk for middlemarket companies was remote work. Before the pandemic, IT departments could be relatively sure that company data would be secure as employees used company computers in their offices or at their workstation, but remote work has opened up a new avenue for cybercriminals to access data through unsecured systems and internet access. Because so many employees are working from home, HawkPartners added a new dimension to the survey. It asked executives about

cybersecurity risks specifically related to remote/hybrid work. Thirty-three percent said cybersecurity related to remote/hybrid work was concerning, while 24% cited it as a top risk. Loring says the combination of more people working from home, greater awareness about cybercrimes in the middle market and more sophisticated cybercriminals likely elevated cybersecurity as a more pressing issue in the 2021 survey. “The pandemic accelerated the lack of boundaries because people are working from home,” Loring says. “When the pandemic happened, people were no longer working at the office and that created a lack of boundaries, and then add ransomware on top of that.”

REGULATIONS AND LEGISLATION

Regulatory/legislative macro risk was also cited as one of executives’ most pressing concerns in 2021. In fact, this macro risk jumped two spots on the macro-risk ranking, moving from eighth to sixth in the survey. For instance, in 2021, 39% of

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respondents ranked regulatory/ legislative risk among their top five macro risks, while 37% said the same in 2020. Likely the uptick in middle-market executives’ concerns here is due to a change in administration and new and proposed regulatory changes, says Brian Williams, partner at New Yorkbased Carl Marks Advisors, a middle market investment banking firm. “Just the general political climate toward business is different now than it was a year ago and that creates uncertainty,” Williams says. “The federal administration—it’s more people viewing it as a less business-friendly climate. If you really asked people what specifically changed, what can’t you do today that you could do two years ago, people would have a hard time pointing to anything specific, but it’s a feeling of the energy and attitude of what things are.” Within regulatory/legislative issues, changes to regulations and tax compliance appeared to be of greater concern in 2021 compared to 2020. For instance, 40% of respondents said changes to regulations that impact business was a top risk compared to 28% in 2020. In 2021, 20% said tax compliance was a top risk compared to 10% in 2020. While regulatory changes and tax compliance were more concerning in 2021, legal compliance was cited slightly less often as a top concern. Twenty-one percent said sufficient compliance with regulatory laws was a top risk in 2021 compared to 26% in 2020.

BUSINESS INTERRUPTION

For many in the middle market, disruptions in the supply chain can be potentially disastrous. For example, earlier this year, New Jersey-based National Tree Company, a middlemarket provider of artificial trees,

The general political climate toward business is different now than it was a year ago and that creates uncertainty. Brian Williams Partner, Carl Marks Advisors

wreaths and other holiday décor had to make a decision about its supply chain, says Chris Butler, the company’s CEO. Since its business is seasonal and revolves around the Christmas holidays, not getting supplies from China could obliterate National Tree Company’s profits for 2021. So, instead of waiting, the company decided to pay higher container rates early on to ensure it would receive its products. Had the company waited, it would be in far worse shape, according to Butler. “For us, we had a crisis. We dealt with it very quickly,” he says. “We decided to pay the higher container rates, but a lot of people waited to see what was going to happen. We got in early and paid it.” Like Butler, many survey respondents were concerned about supply chain disruption. Business interruption risk ranked in third place among the top concerns cited in 2021, rising from fourth place in 2020. Within business interruption, the micro risk—fragile supply chain risk— increased significantly between 2021 and 2020. Thirty percent of respondents said it was concerning to their business in 2021 while 22% said that in 2020. Also, 14% said it was their top risk, up from 8% in 2020. Butler says that the middle market might be better able to weather the

supply chain storm, compared with smaller businesses or those without private equity funding. Since National Tree Company is backed by Floridabased private equity firm Sun Capital Partners, it has support that other companies don’t. “Smaller companies that don’t have backing will be in big trouble,” Butler says. “Their liquidity will be tough. A lot of mom-and-pop businesses will have been massively impacted by this, and it’s an unfortunate problem.”

IMPROVEMENTS OVER 2020

While the middle market appears more concerned about cybersecurity, business interruptions and regulatory issues, executives said that some of their worries have lessened in the last year. Pandemic macro risk declined in the minds of middle-market executives as an overall concern. In 2020, it was the third-highest macro risk, but in 2021, it’s fourth, according to the survey. For every pandemic micro risk in 2020—employee safety, pandemic impact on supply chain, lack of demand, ability to interact with colleagues, customer safety, cash flow, inability to meet demand and travel restrictions—business executives were equally or less concerned in 2021. As businesses feel less affected by

MIDDLE MARKET TRENDS REPORT // 2022

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ASSESSING AND MANAGING RISK

Business Interruption Micro Risks

the pandemic, 2021 was more like a transitional year. 2022 will likely give a clearer picture of exactly where business is heading. “I almost look at 2022 as the first real look at what the new normal will be for people,” says Williams. “A lot of government programs are gone, and in 2022, we are going to be dealing with— OK, here’s how much it costs to make my product with labor, here’s what my parts are costing, here’s my logistics costs and what does that mean for what my business model looks like.” Also, reputational risk dropped two spots from 2021 to 2020 in the macro-risk ranking from sixth to eighth place. Within reputational risk, actions of errant employees was cited as the biggest risk factor. During 2020, as social media platforms continued to grow and become more video-centric, some employees were caught on camera taking actions that embarrassed employers. As tempers flared during the

middlemarketgrowth.org

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racial-justice marches in the summer of 2020, businesses cited this as a top concern. But in 2021, 13% cited actions of an errant employee as a top risk, down from 25% in 2020. Another issue that dominated the fears of some middle-market businesses was the worry about a pending recession. The survey showed that the macroeconomic risk category dropped two spots to 11th place as a top macro concern. Among the biggest drop within this macro risk category, the micro risk posed by a recession/economic downturn was less concerning in 2021 compared to 2020. That decline is to be expected. In 2020, the specter of the 2009 crash loomed large in business leaders’ minds as some companies made preemptive layoffs in anticipation of a major downturn as businesses closed. But a recession did not materialize, and now it appears the pandemic is more under control.

In 2021, 16% of respondents said that a possible recession was concerning to their businesses compared to 23% in 2020. Twenty-seven percent said it was a top risk in 2021, compared to 35% in 2020. “I don’t anticipate a recession, but we avoided a recession by pumping so much money into the system that the rising tide raises all the boats. The question is what the cost is, and now we have these big infrastructure bills that are on the table, which will increase the national debt. Is that OK? Opinions vary,” says Howard Brownstein, a turnaround and crisis management professional and president and CEO of Pennsylvania-based The Brownstein Corporation. “The danger of a recession isn’t any likelier as we come out of the pandemic. The risk goes down because businesses can do business normally again, but it’s too soon to declare victory over the pandemic.” //

HawkPartners surveyed 302 US midmarket decision-makers at companies with revenue ranging from $200 million to $3 billion. QBE Insurance Group Limited, Australia’s second largest global insurer, sponsored the survey.

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QBE

What the REIT Market Must Know about Changes in Tax Law

iven the uncertainty in the mar-

could make REITs an even more

ket due to the pandemic, inves-

attractive investment tool as people

Increasing the corporate tax rate

tors and other professionals

look for alternative investment options

Some proposals have included an

engaged in the real estate investment

and REIT qualifying income and activity

increase of the income tax rate for

trust (REIT) market are currently waiting

expands—ultimately fueling an increase.

C-corporations to as much as 28%,

on the final outcome of a number of tax

While some proposals may escalate

up from the current rate of 21%. Large

changes and how they will impact the

REIT market activity, a few could also

corporations would be impacted by a

overall REIT market.

decrease activity, including a limitation

7% increase in the corporate tax rate,

of the Section 199A deduction and an

potentially increasing their tax liability

Congress have passed several tax

expansion of the net investment income

by a substantial amount, and in turn,

changes in order to fund a number of

tax. Due to the purely speculative

decreasing profit and stock value.

new government investments, including

nature of many of these tax changes,

both infrastructure and education,

the information available is ongoing and

porate tax rate is focused on large

among others; what we don’t know is

constantly evolving.

organizations, the truth is most busi-

The Biden Administration and

how the tax changes will materially impact the REIT industry. At a high-level, some of the changes

Nonetheless, here are a few changes

nesses impacted by these changes

and the impacts they could have on the

are small. Of the 1.6 million registered

REIT market:

C-corporations, over 1 million of them

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Although it may appear the cor-

MIDDLE MARKET TRENDS REPORT // 2022

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QBE

have business receipts below $500,000

$400,000 for any other taxpayer. This

that trade or business in some circum-

a year. This means a potential mon-

deduction is phased out for taxpayers

stances.

umental impact to a myriad of busi-

with taxable income over $400,000,

nesses, depending on whether the rate

and a complete phaseout at $500,000.

away with the focus of this tax solely

While bringing in more revenue, this

on passive income and provide that a

increase is graduated and, if so, what

Some of the proposals would do

the income thresholds would be for the

limitation could affect the ability of

high-income individual would be subject

top tax rates.

non-corporate REIT shareholders to

to net investment income tax on net

Moreover, investors may consider

apply the deduction to qualified REIT

income or net gain notwithstanding if

alternative investment strategies that

dividends they receive. Depending on

the taxpayer materially participates in

provide a better return, like REITs. In general, REITs can provide a consistent source of income. In terms of taxes, REITs are eligible for dividends paid deductions such that their tax profile more closely resembles pass-through entities and would not be as significantly impacted by this increased tax rate as corporations are, so the overall REIT profits would generally not feel as much of an impact (whether directly or indirectly) as the C-corporation stock alternative, except to the extent that

At a high-level, some of the changes could make REITs an even more attractive investment tool as people look for alternative investment options and REIT qualifying income and activity expands—ultimately fueling an increase.

those profits are flowing into the REIT through Taxable REIT Subsidiaries (TRSs). This would mainly be attributable to the increased C-corporation tax liability and the resulting lower profits

their taxpayer status and their income,

a trade or business that generated the

and stock value.

they would face a greater limitation than

net income or net gain.

Section 199A qualified business income deduction

This could become particularly

extent that the limitation does apply,

problematic for individuals who

the taxpayers might be more inclined

qualify as real estate professionals.

Section 199A of the Internal Revenue

toward receiving income through

Currently, these professionals are

Code (the Code) allows a non-cor-

entities to which section 199A does not

generally exempt from the net invest-

porate taxpayer to take a potential

apply, e.g., corporations.

ment income tax because they are

deduction of as much as 20% of

materially participating in a trade or

“qualified business income” plus 20%

Net investment income tax

of the combined REIT dividends and

Section 1411 of the Code imposes a

professionals might become subject

qualified publicly traded partnership

tax on net investment income in the

to the net investment income tax even

income. Qualified business income

case of certain individuals, estates,

though they were not subject to that

includes the taxpayer’s share of net

or trusts. The tax is currently 3.8% of

tax before because the proposal would

income with respect to qualified trades

the lesser of net investment income or

remove the exemption. As a result, we

or businesses.

the excess of modified adjusted gross

may see fewer real estate profession-

income over a threshold amount. Net

als entering or engaging in the industry,

ing limitations on the 199A deduction:

investment income is generally passive

potentially decreasing activity in the

The taxpayer’s aggregate deduction

income that is not derived from a trade

REIT market.

for any given tax year may not exceed

or business in which the taxpayer

$500,000 for a married filing joint

actively participates. A taxpayer who

The BEAT

return or surviving spouse, $250,000

materially participates in a trade or

Section 59A of the Code (base erosion

for a married individual filing a separate

business may be able to avoid the

anti-abuse tax or BEAT) imposes an

return, $10,000 for an estate or trust, or

Section 1411 3.8% tax on income from

additional tax on taxpayers. The BEAT

One proposal has included the follow-

under the current 199A regime. To the

middlemarketgrowth.org

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business related to real estate. These

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12/8/21 3:13 PM

applies to applicable taxpayers – any

and beyond, to ensure there is no rent

Administration’s proposal is looking to

corporation (other than a regulated

disqualification.

promote, including broadband/tele-

investment company, REIT, or S

One proposal would eliminate

communication, electric transmission

corporation) that has: (i) average annual

so-called “double downward” attribution

lines, and passenger and freight rail

gross receipts of at least $500 million

that can result from the application of

services.

for the three preceding tax periods; and

constructive ownership rules applicable

This could allow more REIT options

(ii) a base erosion percentage (BE%) for

to REITs. A person treated as owning an

and opportunities, while playing a pivotal

the tax year in excess of the applicable

interest in a corporation or other person

role within the infrastructure develop-

threshold (the BE% test).

as a result of the application of attribu-

ment plans. However, it is still unclear

tion rules under Section 318 would not

how the IRS would characterize income

BEAT rate from 10% to 12.5%, and

be treated as owning that interest for

from such activities if these investment

15% for tax years beginning after

purposes of applying Section 318 to

plans do happen to go into effect.

December 31, 2023 and December

attribute that interest to another person.

“Strong balance sheets and access to

31, 2025, respectively. It significantly

These changes are intended to simplify

credit and liquidity are helping the REIT

broadens the application of the BEAT

the attribution analysis.

market continue to take advantage

One proposal would increase the

and increases the tax rate on the

Simplifying the attribution analysis

of a growing economy,” says Toria

base. REITs benefit from the increased

under this change could make it less

Lessman, SVP, Underwriting Leader,

application of the BEAT in that they

likely that entities would be treated as

at QBE. “But many are looking at the

will still not be subject to this new

related. REITs might not have as much

Biden Administration’s tax changes and

broad application of the BEAT, though

at risk for unknowingly having rent from

wondering the implications for their

their TRSs may be subject to it. Unlike

a related tenant due to constructive

businesses.”

corporations, this enables REITs to

ownership, thereby resulting in an

conduct more foreign business without

invalid REIT status, which could allow

potential movement that could impact

worrying about triggering the BEAT,

for an increase in investor peace of

the REIT market, both increasing and

thereby potentially increasing activity in

mind.

decreasing activity based on the overall

the REIT space.

As you can see, there is a lot of

impact. Some of the key challenges for

Attribution rules

Expansion of REIT qualifying property and income

For purposes of determining the REIT’s

Finally, due to the Infrastructure

expansion of the net investment income

percentage ownership of a corpora-

Investment and Jobs Act, REITs may

tax. However, the market could also

tion’s stock or a non-corporate entity’s

have greater opportunity to invest in

benefit and see more activity due to an

assets and net profits, Section 318 of

qualifying real estate and generate qual-

increase in the corporate tax rate, an

the Code’s constructive ownership

ifying income. This package proposes

expansion of the BEAT application and

rules apply. A special 25% attribution

numerous investment plans, such as

liberalization of rules regarding REIT

rule applies to partners owning stock

in the electric vehicle market, giving

qualifying property and income. While

when computing a person’s percentage

both grant and tax incentives to build a

it’s impossible to know if or when any

ownership of a REIT or of a REIT’s

network of charging stations, as well as

of these changes will become law, one

tenant for purposes of determining

investment plans for battery farms, car-

thing is clear—REITs are not immune to

whether certain payments qualify as

bon storage and high-speed broadband

the changes.

rent in determining a REIT’s qualifying

to every American household.

income. The problem is that if the attribution application determines that

primarily be available to infrastructure

a REIT receives payments from an

REITs. As previously discussed, we

entity in which it is deemed to own 10%

could see an uptick in REIT invest-

or more, this is deemed related party

ments as an alternative to traditional

rent and is not qualified rent, poten-

stock investments due to a potentially

tially harming their REIT status. These

increased corporate tax rate. This

attribution rules force REITs to analyze

increase in capital for the REIT market

not only their own holdings, but those

could allow infrastructure REITs to

of their 10% and over stockholders

expand into the markets that the Biden

07_QBESection.indd 45

of the Section 199A deduction or an

Please contact QBE for more

These potential opportunities would

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the REIT market would be a limitation

information. //

This article is for general informational purposes only and should not be construed as legal, commercial or other professional advice. QBE makes no warranty, representation, or guarantee regarding the information herein or the suitability of this information for any particular purpose. Actual coverage is subject to the language of the policies as issued.

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12/8/21 2:37 PM

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LOGISTICS

XX XX Supply Chain

Strain Hits the Middle Market WRITTEN BY MEGHAN DANIELS | ILLUSTRATED BY EVA VÁZQUEZ

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LOGISTICS

Companies grapple with unprecedented logistics issues while looking for solutions, including diversifying vendor sources and upgrading technology.

For almost two years, the COVID-19 pandemic—and the unprecedented demand for goods that came with it—has wrought havoc on the global supply chain. Middle-market companies have faced obstacles in sourcing, manufacturing and delivery, and many have had to fundamentally rethink their supply chain and logistics strategies. The situation is unprecedented to say the least. After a brief dip in the early pandemic, spending on goods has risen almost every month since April 2020, according to the Bureau of Economic Analysis. U.S.-bound imports have continued to rise each month this year, with an average of 95,341 TEU (Twenty-Foot Equivalent Units) imports in Q3 of 2021, according to Panjiva. The fourth quarter was on pace to exceed last year’s record-breaking holiday season. Though suppliers have increased production dramatically since the beginning of 2021, they are still working to match the continuing demand. “There has been a massive shift in e-commerce over the course of the pandemic where people, for health

and other reasons, have moved most of their buying decisions online. This is true even as it relates to some of the most expensive and valuable assets people own, like houses and cars,” says Shane Kaiser, a director at Houlihan Lokey. A confluence of factors in addition to the surge in demand for goods has contributed to the strain. Factory and port shutdowns were commonplace in early 2020 thanks to coronavirus outbreaks, but troubles have continued into this year as well. For example, in August, China suspended operations in the Meishan terminal, a crucial terminal in its third-busiest port, after detecting a single COVID case. The infamous Suez canal blockage in March had ripple effects that lasted far longer than the six days the ship was stuck, increasing port congestion and putting further pressure on already-taxed supply chains. With the increased demand for goods also came soaring container prices. While prices have dropped as of October 2021, the prices for ocean freight remain several times their pre-pandemic cost, according

If businesses can’t get a component at all, they can’t make a sale. For major retailers, there are penalties for not having shipments available on time. Jim Pratt Managing Partner, Forsyth Advisors

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to Bloomberg. And price isn’t the only concern: Availability has also been severely limited. “While people are concerned about cost, availability can be an even more immediate concern. If businesses can’t get a component at all, they can’t make a sale. For major retailers, there are penalties for not having shipments available on time,” says Jim Pratt, a managing partner at Forsyth Advisors. Other factors contributing to the supply chain crisis include outdated freight and rail systems, truck driver and other labor shortages, lack of container movement, full warehouses and more. Record-high inflation rates and freight prices further complicate the issues. A whopping 80% of middle-market companies are currently experiencing supply chain challenges, according to a recent ACG survey. For 60% of respondents, delayed or canceled shipments of inventory or raw materials posed the biggest problem.1 High transportation costs were also a big

concern, with 23% of respondents citing these costs as their greatest supply chain challenge. COVID didn’t create these problems, but it did bring about a perfect storm in which nearly every business seems to be experiencing all of them at the same time. “The issues in the supply chain that companies are facing right now have been around for decades, but they’re really being highlighted now in an atmosphere of heightened demand,” says Pratt. The impact on middle-market companies has been significant. Elkay Interior Systems (EIS), which designs, manufactures and installs commercial interior solutions, has struggled with the availability and cost of key raw materials, increased lead times for intercompany supply between Asia and the U.S., increased costs for air and sea freight, unexpected shifts in construction schedules due to labor shortages, decreased availability of shipping containers, clogged ports and more. “There have been instances

when shortages in shipping containers and backlogs in Chinese and U.S. ports have resulted in air freighting products to meet U.S. customer product schedules,” says Prem William, head of global supply chain at EIS. For air freshener company Drift, increased lead times and uncertain availability of key materials have made it necessary for the team to scale back on marketing efforts multiple times. “The most significant impact for us has been on the acquisition side. We’ve had big media hits that would have been huge acquisition opportunities for us that we weren’t able to capitalize on because we couldn’t guarantee getting our product to new customers in a timely manner,” says CEO Ryan Baylis. Companies are used to dealing with supply chain problems but not all at once. “The greatest challenge has been the compounding nature of the current environment,” says William. “For the past 18 months we have had to deal with multiple disruptions simultaneously, absorbing the

Over the past year, have you added a dedicated supply chain professional, or hired another professional with supply chain experience to your team?

26%

Yes

66%

Not yet, but we plan to 0

Source: Survey of ACG members

MIDDLE MARKET TRENDS REPORT // 2022

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LOGISTICS

Are you experiencing supply chain disruption?

The greatest challenge has been the compounding nature of the current environment. For the past 18 months, we have had to deal with multiple disruptions simultaneously.

Yes

80%

20%

cumulative cost increases associated with both raw material and logistics, extreme variability in demand and scarcity of human resources needed to manage the supply chain.” Juggling these crises in real time while working to minimize delays to customers is a full-time job. In addition to COVID-related concerns, there are also unrelated supply chain disruptions to contend with, including climate-related natural disasters like fire and flooding, bad weather, regulatory restrictions and geopolitical affairs. With these obstacles looming, middle-market companies are eager to find ways to make their supply chains more resilient—adopting new tools, restructuring teams, adjusting product lines, adapting timelines and rethinking suppliers. Nearly 60% of respondents to ACG’s survey said that supply chain challenges have led their companies to change the way that they do business.

RESTRUCTURING TEAMS

With more frequent and more pressing supply chain issues than ever before, middle-market companies are having to adjust operations accordingly. According to the ACG survey, 34% of companies have either hired a dedicated supply chain professional, added an additional professional to their team, or plan to do so soon. Other middle-market companies are shifting responsibilities for supply chain management to top executives. “We’re seeing CEOs and other senior management take a much more active role in solving supply chain crises,” says Forsyth Advisors’ Pratt. “The people that normally would handle supplier relationships are good at being the squeaky wheel but in this scenario a greater relationship focus is needed. More and more CEOs are negotiating lead times and deliveries with suppliers.”

Prem William Head of Global Supply Chain, EIS

RESHORING AND DIVERSIFYING THE SUPPLY BASE

For today’s businesses, evaluating and identifying risks at every point in the supply chain is key to addressing issues and making processes more resilient for the future. Depending only on one geographic region (or factory or supplier) for raw materials or inventory can be disastrous in the case of a crisis or shutdown in that area, as countless companies have learned over the past year or two. As a result, many middle-market companies are looking to move suppliers closer to home and also increase the number of suppliers so there is a backup if needed. EIS, for example, is diversifying its Asia supply base across both China and Vietnam, “to allow for orders to be placed strategically depending on market conditions,” says William. The company is also expanding its supply chain in Mexico and reshoring

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production into regional business models to minimize exposure to logistics delays (and the associated cost increases). For many companies, diversifying may mean finding alternatives to China. While this is important to avoid overreliance on any one source, it can come with its own challenges. Shifting production to Southeast Asian countries like Vietnam, Indonesia or Thailand, for example, “will necessitate different logistics strategies as well,” notes the Harvard Business Review. Ports in these countries don’t always have the capacity to handle the largest container ships, and shipping from there may not allow for direct service to major markets. Ultimately, diversifying suppliers and/or reshoring won’t happen overnight, but the pandemic has illustrated how important it is for businesses to be prepared to encounter supplier issues before they strike.

ADOPTING TECH SOLUTIONS

Only 22% of middle-market companies have full insight into their supply chain providers, according to the survey. This lack of transparency can cause countless issues, especially in such a volatile environment. Adopting new technology can help middle-market companies gain more insight into their providers and streamline their overall supply chain. For many businesses, their current technology may be outdated and may not provide the real-time insights they need to address issues as they arise. According to the survey, 34% of respondents have adopted new technology solutions for supply chain management. Technology’s ability to forecast and predict supply chain issues down the line can be a game-changer for

businesses. EIS recently launched a digital supply chain initiative to help “better predict what may happen as well as create visibility into supply chain disruptions in real time, allowing us to make decisions before they are a problem,” says William. “We just implemented a machine learning forecasting process that looks at over 40 external macroeconomic factors to develop a more realistic view of what may happen in the future.” This has significantly reduced the company’s overall projection error since its implementation, ultimately helping lower costs and increase customer satisfaction. Technology is key to more resilient supply chains. But for many compa-

cloud-based software-as-a-service applications, that continually enhance the supply chain backbone,” the Bain report says. While ERP systems remain at the core of their operations, they minimize their reliance on the software and delegate tasks that the ERP was once responsible for to smaller SaaS products and other emerging technologies. This kind of tech architecture can more easily adapt to change, which is inevitable given the rapid pace of technological innovation. There is a huge range of technology solutions that have the potential to transform the way businesses manage their supply chain, notes Bain, including artificial intelligence and

Robotics is transforming warehousing as more and more businesses adopt, innovate and embrace the concept of using autonomous robots to fulfill orders. Shane Kaiser Director, Houlihan Lokey

nies, especially those that may not have changed supply chain management practices for some time, getting started can be intimidating. Taking an adaptive approach to technology adoption is crucial, notes a recent Bain & Company brief. Rather than thinking about technology transformation as a multi-year process—as once was standard—successful companies “deploy rapidly evolving technologies, including

machine learning tools to improve forecasting, robotic solutions to transform warehousing, drones for last-mile delivery and location monitoring, blockchain for traceability and smart contracts, 5G for inventory management and remote services, and 3-D printing for decentralized production. Many of these technologies have been in development or available for some time, but greater demand

MIDDLE MARKET TRENDS REPORT // 2022

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LOGISTICS

Has supply chain disruption caused your company to change the way it does business?

59%

Yes

39%

Other

for optimization and supply chain management solutions has accelerated their implementation. “Advanced robotics is one vertical that we all knew was a possibility but which has been a surprise in terms of how quickly it’s come front and center in the industry. Robotics is transforming warehousing as more and more

businesses adopt and innovate and embrace the concept of using autonomous robots to fulfill orders,” says Houlihan Lokey’s Kaiser. Middle-market companies’ rush to streamline and update their supply chain technology has attracted the interest of investors as well. “Any time there is a

We’ve had big media hits that would have been huge acquisition opportunities for us that we weren’t able to capitalize on because we couldn’t guarantee getting our product to new customers in a timely manner. Ryan Baylis CEO, Drift

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breakdown in the system, that creates an opportunity for investors. That’s what we’re seeing in the middle market and lower middle market where there has been a flood of financing volume,” says Kaiser. “With highly fragmented market participants, there’s a strong investment thesis for new entrants looking to fill in gaps and address the pain points that the broader supply chain ecosystem is facing.” Some legacy incumbents have been slow to adopt new technologies, creating a huge opportunity for startups to enter and displace their models. The numbers support this hypothesis. Investment in the mobility, logistics and supply chain technology sector has been sky-high. The $31.1 billion financing volume in Q1 2021 represents a more than 180% increase from 2020 levels, while $39.1 billion in M&A activity in Q1 2021 puts the sector on track to surpass the $106.3 billion in 2020, reports Houlihan Lokey. “The industry is on track for an alltime high as it relates to acquisition from PE-backed and strategic companies,” says Kaiser. //

From September through the beginning of November 2021, ACG surveyed dealmakers about their outlook for 2022 and other topics. 250 people were surveyed.

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04_The 09_You

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SP ON SOR ED BY

SMES HOLD VAST POWER IN THE RACE TO SUSTAINABILITY

Anthony Casciano President and CEO, Siemens Financial Services, Inc.

THE END OF 2021 BROUGHT THE UNITED STATES inflation rate to its highest in over a decade, as our global supply chain faced extraordinary challenges brought on by the COVID-19 pandemic. At the same time, an increased focus and sense of urgency surrounding sustainability emerged. As companies revisit their supply chain strategies and move past the pandemic, a sustainability-focused approach is vital in order for them to remain competitive in the market and help protect our planet. According to The World Bank, small and medium-sized enterprises (SMEs) represent about 90% of businesses and more than 50% of employment worldwide. “Small and medium” is an understatement in the context of their collective impact and contribution to the global economy and supply chain. With this, it’s important to recognize the immense power that this group has surrounding sustainability; decarbonization is impossible without their efforts. Beyond the moral imperative for sustainability, there is also a business imperative gaining traction in the market, and companies need to operate responsibly to compete for the support of lenders and other stakeholders who now consider sustainability initiatives in their decision-making processes. SMEs contribute to every stage of the supply chain, and their collective efforts will initiate exponential progress unachievable by large corporations alone. Amazon – the third largest corporation in the world – is challenging its small and medium-sized suppliers to compete not only on pricing, but emissions reduction. This corporate push will help businesses of all sizes align on sustainability initiatives, reducing the carbon footprint

of the world’s largest corporations. A Climate Pledge Friendly badge can now be found on products sold on Amazon that meet third-party sustainability certifications, encouraging responsible business practices and giving consumers more control over their carbon footprint. The Climate Pledge, signed by Siemens, calls on companies across their businesses to be net zero by 2040. This phenomenon is applicable across every industry. Consider an operational renewable wind energy farm. On the surface, its wind turbines produce green energy and reduce the use of traditional energy sources largely responsible for the climate crisis. But what processes were involved in getting the wind farm to its operative state? Where did the materials, energy, and other resources required to build the farm come from, and how were they transported to the site? At every stage of the supply chain, were sustainable practices in place? The SMEs involved in the earlier stages of the project have a hand in its overall efficiency. One obstacle to sustainability initiatives for SMEs is knowing where to start and then obtaining the right financing to make their strategy happen. Siemens takes an approach that can help SMEs innovate their business – including consulting to establish a strategy with baselines, implementing the technology to improve operations, and obtaining the financing solution that complements and works with the strategy. Siemens Financial Services tailors financing solutions to meet specific needs of businesses of all sizes and at any stage of their lifecycle. SMEs collectively hold the power to solve the global climate crisis. The collapse of our supply chain caused by the pandemic provides the perfect opportunity to reimagine and integrate a supply chain strategy focused on sustainability. Siemens can work with SMEs to help them realize their emissions output and eliminate the supply chain’s carbon footprint with benchmarking tools and end-to-end, practical solutions. Everything that SMEs need to help save the planet is available; now we must work together to harness the potential. // Anthony Casciano is president and CEO of Siemens Financial Services, Inc.

Content Provided by ACG Partners and Featured Firms

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SECTORS TO WATCH

Spon sore d by

XX XX

Four Sectors Primed for Growth

WRITTEN BY MEGHAN DANIELS | ILLUSTRATED BY EVA VÁZQUEZ

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SECTORS TO WATCH

The pandemic threw some niche subsectors, including home health, e-commerce and gaming, into the spotlight. We explore the attractiveness of these businesses with the help of Grata.

Investors are acclimating to a new normal almost two years after the start of the coronavirus pandemic. COVID-19 has shifted some investment trends and sped up many others. With the help of company intelligence engine Grata, Middle Market Growth has identified trends within four distinct sectors—healthcare, e-commerce, personal care and beauty, and gaming—that have been impacted by COVID. Each holds exciting opportunities for private equity investors and strategic acquirers in the middle market.

HOME HEALTH

Private equity investment in home healthcare and hospice was already on the upswing before the pandemic, with PE investment in the space reaching an all-time high in 2019. “This trend stemmed not only from patients becoming less reliant on visiting higher-acuity sites, but also on favorable reimbursement changes, especially in the U.S.,” notes Bain and Company in its Global Healthcare Private Equity and M&A 2021 report.

“The pandemic really accelerated this trend,” says Brad Smith, managing director at healthcare investment banking firm VERTESS. “We had a brief slowdown from March to May 2020 while everything was shut down, but since then we’ve been bursting at the seams. In many ways the pandemic was the best thing to happen to the healthcare market in decades. It moved us 10 years into the future, if not 15.” As remote monitoring and visits become more mainstream, investors are increasingly looking for home care practices “that can be integrated with traditional providers” as well as “supporting technologies that enable coordination across traditional and nontraditional care settings, such as acute care in the home,” notes Bain. There are a number of factors driving interest in the home healthcare market, both independent of and related to the pandemic. By 2030 approximately 12% of the world population will be over 65, according to the U.S. Census Bureau, increasing the need for home health and hospice companies. Meanwhile, the baby

Investors are looking for safe havens for their dollar. Brad Smith Managing Director, VERTESS

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Home Healthcare Sector

50%

According to Grata,

90%

are mid-size with 51-5,000 employees

of the 305 home healthcare companies in North America remain independently owned

Other

93%

have received no funding

30%

Florida, California and New York have the highest concentrations of these companies, in that order

boomer owners of these companies are aging too. Many were formulating exit plans before the pandemic but are even more eager to transition now, as COVID has forced many to reassess priorities. Furthermore, private equity’s welldocumented interest in nursing homes has come under increased scrutiny since the pandemic, with federal lawmakers excoriating PE-owned care facilities for low-quality care, declines in patient outcomes and increased mortality rates. Home health provides an attractive alternative area of focus. “Investors are looking for safe havens for their dollar,” says VERTESS’s Smith. There were 15 transactions in the

are small with fewer than 50 employees

home health and hospice space in Q2 2021, according to a report from Provident Healthcare Partners. Many recent private equity deals in the home care space have been in the form of PE-backed platform companies acquiring addons. For example, Charter Health Care Group, a platform of Pharos Capital Group, acquired Houstonbased Providence Home Health & Hospice. Despite the flurry of activity over the past few years, there remain huge opportunities for middle-market investors. According to Grata, there are 305 home healthcare companies in North America and 50 percent of the companies are mid-size (with

51-5,000 employees). Ninety percent of these companies remain independently owned.

E-COMMERCE: AMAZON SELLERS AND CONSULTANTS

The quarantine era was an undeniable boon for e-commerce and delivery services, and no player benefited more than retail giant Amazon. Amazon is projected to end 2021 with more than $468 billion in worldwide e-commerce revenue, according to Jungle Scout. It is the world’s fourth-most valuable company behind only Apple, Microsoft and Saudi Aramco. Last spring, the company reported that it earned

MIDDLE MARKET TRENDS REPORT // 2022

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SECTORS TO WATCH

more profit from April 2020 - April 2021 than in the previous three years combined. COVID and the necessity of at-home shopping certainly played a role in this, though perhaps it only accelerated the inevitable. “COVID didn’t create anything new in e-commerce. It just made newer things happen faster,” says Richard Kestenbaum, co-founder and partner at Triangle Capital. With this uptick has come a new focus among investors on thirdparty Amazon sellers. There are 1.5 million active Amazon sellers, and 504,000 new sellers have joined this year, according to Marketplace Pulse. Sensing a big opportunity, a growing number of investors have emerged to capitalize on these sellers’ successes by rolling up their businesses. Initially, many of these roll-ups were executed by venture-backed investment firms expressly created to be Amazon aggregators like Thrasius, which raised a $1 billion Series D financing round led by Silver Lake in October 2021. Today, private equity is also getting in on the trend. PE brings not only the potential for bigger check sizes, but also “the expectation that they’re purchasing very established companies with long-term brand health,” reports Modern Retail. A new category of entrepreneurs is also sensing opportunity in the seller space: retail training and consulting firms specifically targeted to Amazon sellers. Selling on Amazon can seem like a path to get rich quick, but sellers who try it out find it can be hard to stand out from the competition and drive traffic to their stores. That’s where consultants come in. According to Grata, there are 146 companies across the U.S. and Canada focused on Amazon training and

We expect diverse and inclusive brands to continue to be a focus for investors in 2022 and beyond, across all sectors of beauty, including hair care, color cosmetics and skin care. Lauren Leibrandt Director, Baird

consulting. Just one among them has received outside capital; the others are independent and have received no funding. “These companies very clearly serve an important purpose because they have a very specific channel of expertise. The question is whether they will continue to be effective or if their service will become a commodity. We’re starting to see artificial intelligence rise in importance, and that is a possible replacement, but it’s going to take a lot of time, so I think these consultants have a good number of years ahead of them for the foreseeable future,” says Triangle Capital’s Kestenbaum. While Amazon claims to simplify the e-commerce process for sellers, the reality is that there are many complexities around driving traffic, handling returns and communicating with Amazon about any issues. “Having somebody with expertise about how to expedite these processes can often be very helpful,” says Kestenbaum.

PERSONAL CARE AND BEAUTY: PRODUCTS FOR BIPOC

Following the Black Lives Matter protests in the United States in 2020, brands focused on Black, Indigenous and people of color (BIPOC) consumers in particular have seen ongoing support. This social energy is translating into investor interest as well. Within the beauty and personal care sector, there is an increasing move away from a one-size-fits-all approach and toward more specific, authentic representation of BIPOC customers. “Historically, this has been an area that has been very underrepresented from an investment perspective, but recently that has started to change,” says Lauren Leibrandt, director at investment bank Baird. For example, in 2018, Rihanna’s Fenty Beauty launched with 40 shades of foundation, which was a turning point in the world of beauty and challenged competitors to expand their limited lines to match more skin tones.

middlemarketgrowth.org

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Unlock the middle market with Grata With unparalleled information and access to the private economy, Grata unlocks opportunities and gives dealmakers the competitive edge.

GRATA.COM

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SECTORS TO WATCH

Personal Care and Beauty Sector According to Grata,

98%

of textured hair care brands across the U.S. and Canada are independently owned, providing ample opportunity for future deals.

7 2

M&A events for textured hair care brands in 2021. This is the highest number recorded (starting in 2007). M&A events for textured hair care brands in 2020.

COVID didn’t create anything new in e-commerce. It just made newer things happen faster. Richard Kestenbaum Co-Founder and Partner, Triangle Capital

Fueled by consumer demand, the beauty industry has increasingly focused on diversity and inclusivity. Sephora and Ulta are among the companies to commit to diversity initiatives like dedicating 15% of shelf space to Black-owned, Black-founded and Black-led brands as part of the Fifteen Percent Pledge. COVID has also accelerated a shift to e-commerce for many beauty brands, forcing customers to become comfortable with buy-beforeyou-try (utilizing virtual try-ons, product reviews and ratings) as opposed to testing in a store. This, combined with the advent of social media and the ability to reach potential consumers directly online, “has eliminated many barriers to entry for independent brands, including those focused on inclusive beauty,” says Leibrandt.

Multicultural hair care is one of the fastest growing segments within beauty. Investors have taken note and started investing in founder-led and/or mission-driven brands. “We expect diverse and inclusive brands to continue to be a focus for investors in 2022 and beyond, across all sectors of beauty, including hair care, color cosmetics and skin care,” says Leibrandt. According to Grata, there were seven M&A events for textured hair care brands in 2021 and two in 2020, with the former being the highest number recorded since data for the subsector became available in 2007. Today, 98% of textured hair care brands across the U.S. and Canada are independently owned, according to Grata, providing ample opportunity for future deals. Two recent transactions of note were Beauty by Imagination’s investment in Black-owned multicultural hair brand Curls and Berkshire Partners’ investment in Black-owned natural hair company Mielle Organics. In both transactions, the company founders remained majority owners and maintained control of their respective businesses. “The focus for many investors in this space has been on acquiring a minority stake and keeping founders on as board members or significant members of the team. Investors don’t want to lose the sense of authenticity that comes from having the brand’s founder speaking to the consumer,” says Leibrandt.

FEMALE INTIMATE CARE PRODUCTS Within the beauty and personal care space, another area of investment interest on the rise is female intimate care products. According to Grand View Research, the global feminine intimate care

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SECTORS TO WATCH

market is expected to reach $1.5 billion by 2025, growing at a compound annual growth rate of 3.4%. Intimate wash and wipes are two fast-growing sectors. In North America, this market is predominantly driven by Latina and AfricanAmerican women, according to Grand View Research. Recently the market has seen a proliferation of companies addressing an array of previously taboo topics. Many companies are still small entities—according to Grata, only five of the nearly 100 female intimate care companies identified by their search engine have more than 51 employees. Of these companies, 98% remain independently owned. “The concept of women’s wellness brands has really come to the forefront over the past 10 years,” says Leibrandt. “However, these companies need to scale before they can become interesting investment opportunities, particularly for the middle market and private equity community.” When it comes to investment in the space, venture funds are leading the way. VC firms have recently made investments in sexual wellness companies like Maude, Foria and Dame Products, as well as period care companies like The Flex Company and Rael. Private equity is also beginning to take notice. In May 2021, private equity firm TPZ Group led the Series B round for Knix Wear, a direct-to-consumer intimate apparel brand specializing in leakproof underwear.

GAMING

It comes as no surprise that gaming had a banner year in 2020; with lockdown orders came a whole new audience for gaming. While growth was slowing a bit in 2021 as the world gradually makes its way toward a new

Gaming will increasingly be at the forefront of our lives as we head into a future of more remote work, distributed teams and people having more digital experiences that they’re immersed in across their lives. Chris Chaney Founder and Managing Partner, C4 Plus

normal, experts expect 2022 to be a phenomenal year for the industry. Nearly 227 million Americans play video games, which includes 67% of American adults and 76% of American children, according to the Entertainment Software Association. The global games market is set to earn $175.8 billion in 2021 and to generate more than $204 billion in 2023, according to Newzoo. Through the third quarter of 2021, there had been 228 M&A deals closed and $32 billion in disclosed deal activity, according to a report by Drake Star Partners. While much of the overall investment interest in so-called “esports” to date has come from venture capital, traditional private equity players are showing increasing interest. For example, in September 2021, Texasbased private equity firm LKCM Headwater Investments led a $200 million fundraising round for video-game developer ProbablyMonsters and Baring Private Equity Asia

invested $150 million in game development company Virtuous. What middle-market buyers want to know is whether the surge in interest and investment will last. “The industry will continue to grow at a really attractive rate, albeit not at the same rate we’ve seen in 2020,” says Chris Chaney, founder and managing partner of C4 Plus, a merchant bank exclusively focused on esports. “We can see over a multi-year period that this industry is sustainably growing. Gaming will increasingly be at the forefront of our lives as we head into a future of more remote work, distributed teams, and people having more digital experiences that they’re immersed in across their lives.” Chaney points to Facebook’s “metaverse” as a clear signal of this broader trend. The audience for gaming is also widely distributed across age brackets, with the average gamer being 31 years old. “The future is that everyone is a gamer,” says Chaney.

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SECTORS TO WATCH

Esports Sector According to Grata,

86%

of game development companies in the U.S. and Canada are independently owned

Funding for game companies with an interest in blockchain spiked from $6 million in 2020 to

$636

95% of game companies with an interest in blockchain are independently owned

million in 2021 Even so, some middle-market investors are still wary of a flash in the pan. For these reasons private equity is more likely to look for segments of the industry that offer familiarity, like hardware and software. It is easy to find models for these transactions in the public market, including PC peripheral maker Corsair’s 2021 acquisition of Elgato Gaming and game engine Unity’s 2021 acquisition

of remote desktop and streaming technology company Parsec. Investors are also interested in gaming studios and games themselves. The opportunities here are significant: Grata identified more than 2,700 companies worldwide focused on game development, with 940 of those companies headquartered in North America, indicating high levels of global competition.

If you’re a middle-market buyer, this segment may not be relevant today, but it will certainly be relevant in the next three to five years as this crop of companies that is being spawned today will be interesting from an acquisition or debt perspective. Chris Chaney Founder and Managing Partner, C4 Plus 68

Of these companies, 86% are independently owned. Funding for these companies grew from $2 billion in 2019 to $5 billion in 2020, according to Grata. One hot segment of the industry is blockchain games, which allow players to own game assets both in and outside the game universe. This segment has attracted $1.8 billion in private financings this year to date, according to Drake Star Partners. Grata identified 190 gaming companies across 43 countries (including 21 in the U.S.) with an interest in blockchain, 95% of which are independently owned and 76% of which have received no outside funding. Funding for these companies spiked massively in 2021, from $6 million in 2020 to $636 million in 2021, according to Grata. “If you’re a middle-market buyer, this segment may not be relevant today, but it will certainly be relevant in the next three to five years as this crop of companies that is being spawned today will be interesting from an acquisition or debt perspective,” says Chaney. //

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SAP M&A Ambassadors Unlock the Value to Your Digital Transformation

Announcing: The ACG Private Equity Operators Council, in Partnership with SAP ACG is launching an exclusive Private Equity Operators Council in collaboration with SAP, designed to provide valuable insights to operating partners within the M&A landscape. If you are interested in becoming a member, please scan the QR code below and complete the brief questionnaire. We will evaluate responses to create a best-in-class operating council.

Private Equity Operators Council Proudly supported by

Guiding Principles • Operating Partner series of think tank events where participants can share best practices while developing lasting relationships in a convenient, enjoyable setting. • Seasoned & emerging Private Equity Operating Partners along with key service providers will share content to leverage across the investment life-cycle. • Local Chapters with National Convergence

Scan this QR code with your camera app on your phone and click the link to take the questionnaire.

SAP M&A Ambassadors Unlock the Value to Your Digital Transformation Dear Reader,

THOMAS BOHN, CAE, MBA President and CEO ACG

CG is always looking for new ways to help our members streamline and maximize each deal. In this report, you will learn more about the SAP M&A Ambassadors Program, a partnership that we launched with SAP in 2021. The goal is to bring innovative and coordinated technology solutions to operating partners in the ACG community that can create value throughout the entire lifecycle of an investment. The companies and advisors that are part of the SAP M&A ambassador program can offer services for any aspect of an investment, giving you a single source for all your needs. This is particularly important as deal volume increases and timelines shorten. That increase in deal flow can expand a portfolio quickly, and the partnership with SAP has also brought greater focus to how ACG can better serve operating partners. With that goal in mind, we are launching an exclusive Private Equity Operators Council in collaboration with SAP. It is designed to bring valuable insights tailored specifically for operating partners in the form of targeted think tank events and exclusive content and networking opportunities that will facilitate the sharing of best practices and expert insights among this valuable group of members. If you are interested in joining the council, scan the QR code on the advertisement on the facing page and complete the brief questionnaire. We value your opinion, and will use the responses to create the most valuable experiences for you. I have heard from many members that the partnerships that ACG has forged are more valuable than ever as uncertain conditions in the market, from inflation to taxes and supply chain challenges, continue to cloud the deal landscape. It is my hope that bringing seasoned professionals like the companies and advisors that are part of the SAP M&A Ambassadors program into the ACG community makes navigating the current market easier for members. Happy Reading!

Tom Bohn Presient and CEO Association for Corporate Growth

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SAP M&A Ambassadors 6

THE SAP M&A AMBASSADOR PROGRAM By Nick Maglaris, Vice President of Midmarket Strategic Innovations, SAP SAP needed to find a way to force multiply its efforts in the M&A middle market space. To achieve this, in 2021 SAP partnered with ACG to create the SAP Mergers & Acquisitions Ambassador Program. The SAP M&A Ambassador Program is a consortium of SAP and SAP Partners servicing the Private Equity Operating Partner throughout the investment lifecycle, from the due diligence process to the exit. Read on to learn more.

VALUE CREATION IN MIDMARKET M&A: AN IT PERSPECTIVE Thomas C. Fountain, Operating Partner, IT & Digital Transformation at One Rock Partners breaks down how to position your company for a true digital transformation, which will ultimately create value. Read on to learn more.

15 SAP’S PREMIER LIFESCIENCE PARTNER A division of The Hackett Group and member of United VARs, Answerthink develops and offers qualified SAP Business All-in-One partner solutions – industry-specific software, analytics, mobility, cloud offerings, SAP HANA, hosting, support, services and training. We have helped hundreds of growing companies make the move to SAP, and we bring this cumulative experience and knowledge to each new project. Answerthink targets value, mitigates risk and optimizes capabilities.

16 M&A AS A CATALYST FOR HCM TRANSFORMATION AspireHR brings 23 years of HCM insight, experience, and innovation, delivering world-class HR systems in the least amount of time. We successfully guide corporate and private equity investors through complex HR transformations by providing clear strategies and solutions. We advise our clients on key considerations and digital transformation investments to optimize business outcomes while minimizing risk, deliver best practices when integrating digital capabilities, and equip clients with the tools and services needed to ensure efficient operations once deals have been inked.

17 TRUSTED ADVISOR FOR ACQUISITIONS, CARVE-OUTS, AND OPTIMIZATIONS Dickinson + Associates guides you through the decision-making process by analyzing your current challenges and goals, suggesting SAP solutions and other services to supercharge your business processes, and working with you post-deployment to ensure your business has the tools it needs to succeed. Whether you’re looking to improve efficiencies or reduce operational costs, we’re with you every step of the way to provide consultative services and value-driven solutions

18 BUILDING A BETTER WORKING WORLD At EY, our purpose is Building a better working world. The insights and quality services we provide help build trust and confidence in the capital markets and in economies all over the world. We develop outstanding leaders who team to deliver on our promises to all our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

4 | SA4 P I|NSPA E RR STHNI PE R WSI T A PR ITNNPA HH I P AC W IG T H AC G

Unlock the Value to Your Digital Transformation 19 ENABLING GROWTH IN AN INDUSTRY REQUIRING TRANSFORMATION AND STANDARDIZATION At Fulcrum GT, our sole focus is helping professional services firms run at their best. As SAP’s Trusted Go-To-Market Partner for the Professional Services Industries we combine leading technologies, knowledge-based tools, deep industry expertise, and best practices to create strategic, measurable results for our clients.

20 SAP PARTNER THAT CAN GROW WITH YOU Illumiti is a modern SAP systems integration and management consultancy. We’re committed to delivering strategy, technology, and business transformation to ambitious clients. How do we do this with confidence and conviction? We run on optimism. It’s worthwhile. And considering how drastically change can happen, it’s a necessity.

21 D IGITAL TRANSFORMATION AS-A-SERVICE MODEL OFFERS HOLISTIC OPTION FOR M&A MARKET NTT DATA Business Solutions is your trusted, long-term SAP Platinum Partner. Our clear focus on SAP consulting, combined with our own products, services and solutions make our value proposition unique. We support your digital transformation end-to-end and around the world to empower you to become an intelligent enterprise. We know how to generate unprecedented results by using SAP.

22 HAVING TROUBLE KEEPING YOUR DUCKS IN A ROW? Premikati is a procurement and supply chain management consulting firm. We help our clients, both buyers and sellers, with all facets of procurement strategy.

23 PWC TAKES A BUSINESS-DRIVEN VIEW TO CREATE VALUE VIA SAP At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 156 countries with over 295,000 people who are committed to delivering quality in assurance, advisory and tax services.

24 SIMPLEFI SimpleFi is a firm of partners focused on business process design, business content, automation and implementation of Planning, Analytics and Consolidations solutions for the office of the CFO.

25 FOCUSING ON CONVERTING POTENTIAL INTO PERFORMANCE Smith is a digital commerce agency focused on creting unparalleled experiences and delivering better business outcomes for B2B, B2C, and B2B2C clients.

26 VISTAVU SOLUTIONS VistaVu provides Gartner ranked leading Cloud ERP SAP Business ByDesign, SAP Business One, iPaaS and Technology Solutions to help companies grow and optimize their business. No matter the size of your company, VistaVu is here to support you and we have been recognized for our dedication to Customer Experience.

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THE SAP M&A AMBASSADOR PROGRAM

t SAP, we define the middle market as organizations with up to $1 billion in revenue, of which one out of every three are either Private Equity or Venturebacked organizations. Technology is a key enabler to executing their business plans and scaling profitably as they grow organically and/or through M&A. We needed to find a way with our partners to force multiply our efforts in the M&A middle market space. To achieve this, in 2021 we partnered with ACG to create the SAP Mergers & Acquisitions Ambassador Program.

Ambassador has been selected to be part of this program because of their strengths across industry and solution sets. The SAP M&A ambassador program is composed of three pillars: Industry Best Practices, Portco Intent, and the SAP Install Base across the Private Equity Firm’s portfolio companies. These pillars all rest upon the foundational element of Relationship Capital,

SAP M&A Ambassador Program The SAP M&A Ambassador Program is a consortium of SAP and SAP Partners servicing the Private Equity Operating Partner throughout the investment lifecycle, from the due diligence process to the exit. The increased volume of M&A activity in recent years drove the need for an ecosystem of trusted partners that can execute across concurrent deals. Each SAP M&A

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Nick Maglaris Vice President of Midmarket Strategic Innovations SAP

which gets leveraged across all the activities we provide during the Investment Lifecycle of Pre-Close, 100-Day Plan, Holding and Exit.

Value to Operating Partner Often times, all technology items are not conveyed at close, which makes the execution of each of the activities across the investment lifecycle extremely difficult. Of course, technology is crucial to decision making and establishing the right plan for portfolio companies. Having a single point of contact from SAP with a wealth of resources and knowledge related to the right questions to ask and capability to provide an analysis at scale, without a constraint on other resources, is priceless for operators. With the Operating Partner, the SAP M&A Ambassador Program works collaboratively to: 1. Assess new investment opportunities 2. Work on existing portfolio companies to maximize the value from technology

3. Introduce the right partnerships to help accelerate value creation

Each M&A transaction has its own priorities and having the flexibility to work across the SAP M&A Ambassadors, to leverage each partners strength, is of great value to the Operating Partner.

Value from SAP M&A Ambassadors The SAP M&A Ambassadors provide a guided execution plan of the who, how, why, and what to expect during the technological transformation. SAP M&A Ambassadors will orchestrate and execute against: 1. Industry Best Practices 2. Complex Carve Outs 3. Transactional Service Agreements Timelines 4. Digital Value Roadmaps 5. Strategic Advisory Services

Operating Partner Vision to Value

Obviously, TSA’s can be very expensive and getting off of them is imperative. The SAP M&A Ambassador’s ability to execute swiftly is imperative to all parties involved. Additionally, not all M&A needs start from a finance perspective.

We’re extending our partnership with ACG to create the Operators Partners Council. The council will develop a series of events where Operating Partners can share best practices while developing lasting relationships in a convenient, enjoyable setting. Seasoned and emerging Private Equity Operating Partners, along with key service providers, will share industry and lines of business content to leverage across the investment lifecycle. The council will span four pillars: People, Operations, Technology and Go-to-Market.

Strategic Innovations The convergence of technology and business value is a journey and not just one implementation. This is why it’s critical to establish the technological foundation to allow for business growth and future value. “RISE with SAP” and “Grow by SAP” allow for that foundation to be established. “RISE with SAP” is a holistic offering, with a concierge service, for customers to move their business processes to the cloud. It allows for the launch of new business models and to profitably scale them in one contract with unmatched TCO. “Grow by SAP” is a select program for pre-IPO / hypergrowth companies where SAP invests in the software, implementation, and aligns a customer success manger to establish the technological foundation in four weeks.

Relationship Capital PRE CLOSE

100 DAY PLAN

HOLDING

EXIT

•

Due Diligence

•

Rapid carve outs & stand up services

•

Cross-Portco optimization

•

IPO and Exit readiness

•

Requirements & Cost estimates

•

IT strategy, blueprint and roadmap

•

Education and training

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Contract compliance assistance

•

Industry and Product expertise

•

Value creation benchmarking

•

SAP partner introduction

•

SAP strategic alliance

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TSA Right-Sizing

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ROI Analysis

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Relationship Capital through SAP Customer Network

•

ROI Review

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TRANSFORMATION YOUR TERMS YOUR TIMELINE ON

AND

Introducing RISE with SAP

If you want to succeed in today’s world, you have to constantly adapt your business. Planning for this continual evolution requires that you not only be ready for change, but that you change the way work gets done. This demands a redesign of your business plans and processes, and that demands new thinking and new technologies that unlock new ways of doing business.

Wherever You Are, Wherever You Want to Be RISE with SAP brings together the solutions and services you need for true business transformation – in one package – regardless of where your business stands now or where you want it to go. It is SAP and an entire ecosystem of partners helping you chart your change on your terms and your timeline.

SIMPLICITY BY THE BUNDLE

OUTCOMES WITHOUT MAJOR INVESTMENTS

HELP AT EVERY STEP

A single oﬀer on a single contract simpliﬁes procurement and makes it easier to manage your vendors.

Realize the value of your investment sooner, with up to 20% reduction in TCO over ﬁve years.*

SAP analyzes your processes against industry standards, oﬀering you tailored recommendations of where to focus your eﬀorts.

SAP S/4HANA Cloud – and integrated, extended solutions powering SAP Business Technology Platform – keep your organization agile and responsive. The world’s largest business network helps you collaborate across your company and across SAP’s supplier, logistics, and asset intelligence networks.

One platform breaks down silos and integrates data, intelligent technologies, and ERP software. Savings, speed, and decisionmaking are all improved, all across your company.

Tailored training and tools support you as you move from your current ERP environment. 22,000 SAP partners are ready to provide any additional support you need.

* RISE with SAP allows customers to realize the value of their investment sooner, with up to a 20% reduction in TCO over ﬁve years for SAP S/4HANA Cloud, private edition as compared to a traditional ERP deployment. TCO reductions and timelines are modeled estimates from interviewed company data taken from the following IDC studies: ECC and SAP S/4HANA TCO study (Nov. 2020) and IDC SAP S/4HANA Business Value Study (March 2020). Timelines and estimates are intended for illustrative purposes only, and SAP makes no guarantees as to actual results.

VALUE CREATION IN MIDMARKET M&A: AN IT PERSPECTIVE

n the last 10 years there has been an explosion of new and sophisticated technology that is enabling radical transformation in nearly every global industry. More and more we see the application of these tools in every corner of a business from better Sales predictions, to optimizing warehouse locations and inventory, to scheduling and deploying service technicians. Conventional wisdom says one of two conditions are typically precursors to successfully launching and realizing the fruits of such “Digital Transformation”. Either you are a (1) a start-up building from a clean sheet of paper and applying new tech at the core of your business model or (2) you have the existing scale, reach, and financial resources to figure it out

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on your own. For those of us in the Midmarket and active in the M&A space, where does that leave us? How can we participate in the promise of Digital Transformation amid the chaos and challenges of

Thomas C. Fountain Operating Partner, IT & Digital Transformation One Rock Capital Partners

ownership change, carve-outs and TSAs? Hint: we can’t do it alone.

High Expectations When our firm was founded 10 years ago a fundamental premise was established: we must drive operating improvements in the business to realize our investment goals. That simple notion has grown to embrace IT and Digital Transformation - areas that many corporate strategists would have downplayed or largely avoided just a few years ago. Fortunately, these disciplines are now on the map, given the high profile successes of early adopters. It is now incumbent upon IT Leadership in every industry to set and achieve ambitious goals, just like every other business function, to play its part in the

integrator and deploy a modern ERP system, SAP S/4HANA.

SAP’s M&A Ambassador Program is a consortium between SAP and their ecosystem partners, built to drive value for Private Equity funds and portfolio companies.

Enterprise Value creation formula. In our investment framework we set four strategic goals for IT at the front end of every investment. Each of these goals plays a specific role in Enterprise Value creation, faces their own set of challenges, and requires a tailored response that considers factors such as inherited IT staff/skills, timing of Transfer of Services Agreements (TSAs), the business growth and productivity strategies, and the anticipated hold period. In every instance we seek out partners from our proven ecosystem that possess the skills, experience, and urgency we require. Importantly, in the Midmarket we must be conscious of the traditional trade-offs between financial investments and derived value. This often leads to a headset of compromise between cost and suitability for a job. A promising development is the emergence of platform and services companies who are looking to credibly fill the more strategic roles that critically often define a direction and can lock in long term consequences. Having a trusted and experienced partner who is engaged very early in your lifecycle can help you avoid the risks lying around the corner. With our focus on chemicals/materials, manufacturing, and distribution we

often are naturally drawn to SAP as a platform company but are encouraged that their focus on the Midmarket is leading to the creation of a more engaged and integrated ecosystem who can more effectively participate in the higher level and more strategic elements of positioning and architecture. The integrated ecosystem referenced here is known as the SAP M&A Ambassador Program. SAP’s M&A Ambassador Program is a consortium between SAP and their ecosystem partners, built to drive value for Private Equity funds and portfolio companies. An example of how this program has created value during an M&A event was evidenced during a recent carve out of a chemical company, which had complicated processes that didn’t fit the new business operating model. Since no TSAs were offered for this investment, an aggressive SAP deployment was required to fit in the Sign to Close period of 5 months. To deliver this outcome, I relied on an extensive set of consultations and services offered by members of the Program. Additionally, I saw the benefit of incorporating a known data model and following SAP Best Practices for Chemicals. The SAP M&A Ambassador program gave me the ability to find and select a system

A. Position the Company as a Digital Innovation Leader From a top-down perspective there is nothing more attractive than to have your company viewed as an innovator. You attract great people, have partners begging to work with you, and often enjoy superior margins. Goal # 1 in our IT Transformation is to identify and deliver digital transformation, or targeted digital enablement, that positions our firms as digital leaders. Given these are central to the future of the business, IT must find ways to effectively introduce the potential of applying these new technologies. In the mid-market, and especially in carve-outs where senior IT leadership may not convey with the deal, we leverage partners like PwC and EY who bring the industry knowledge, executive presence, and credibility we need to open those doors. Their strategic engagement with SAP through the M&A Ambassador program is a strong plus since they can help vet the realism for such advanced, tech-centric strategies. SAP will at times also call on internal strategic consulting resources who are an integrated part of the M&A Ambassador program offering. B. Position IT as a ValueCreation Engine in the Business A second crucial component in successfully delivering on the promise of digital is to effectively position IT as a value creation engine. IT has been chasing this elusive goal for years and to be sure there are many success stories. Figure 1 depicts the journey many IT organizations have started. Intentionally migrating their

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Re-Positioning IT for Value Creation Figure 1 Business Model / Strategy

Outside-In Value Creation

Inside-Out Value Creation

Stable Operations

BUSINESS LIFECYLE “Use Digital Technology to strategically impact the Business and Operating Model”

Re-imagine and re-create the Customer Experience and Value Creation

“Digitize operations for Productivity, Quality, and Safety”

“Reliably, Securely Keep the Lights On”

D I G I TA L T H I N K I N G / I T P O S I T I O N I N G

focus from a Tech-based service provider to a value creator creates new opportunities for business, customer, and industry-based opportunities. The biggest challenge in this space is to get IT to see itself through a lens of value creation then build the disciplines of measuring and realizing customer value. In these scenarios we often look to our own IT service providers including SAP and NTT Data Business Solutions for inspiration and best practices at quantifying and delivering business value. C. Establish an Enterprise Architecture that can support a Dynamic Operating Model A third key objective for IT is to design and deploy an Enterprise Architecture that empowers today’s highly dynamic Operating Models. Our reference approach, titled “Smart Operations”, leverages core transactional, analytical, planning, execution, and process management platforms in a highly integrated architecture. Our biggest challenge here is simply the breadth and depth of expertise and experience required across multiple disciplines. In many mid-market scenarios, we don’t inherit the IT experience base to lead such a complex program and it is critical to leverage a network of leading partners. Here we routinely engage

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best-in-class players like NTT Data Business Solutions and AspireHR, both part of the M&A Ambassador program, who bring a rich experience base along with the partnering attitudes that lead to added focus on strategic elements of the IT journey. Critically, our network of leading practitioners routinely work with us to identify and realize opportunities to optimize the IT operating model and cost structure. D. Select and Deploy Platforms and Services that Scale Finally, IT must build out, operate, and optimize the platforms and capabilities necessary to deliver robust digital services. As we all know security, reliability, and cost effectiveness are the calling cards of today’s operations. Well beyond those qualifiers, we also look deeper into the “how” our potential partners deliver continuous improvement, implement outcome-based contracting, and respond to the urgency our programs require. Of special note the speed factor is especially important to (1) exit expensive TSAs and (2) accelerate the focus on value creation. Within the context of building out our intended solutions, we look hard at partners who offer rapidly tailorable methodologies and existing cross-partner relationships. We see those attributes as a strong

signal of their commitment to customer success. In several instances SAP itself, along with its Partners in the M&A Ambassador program, was invaluable in meeting very ambitious timelines.

Looking Forward IT has a nearly unbounded opportunity to step forward and play a major value creation role for its business. Recognizing that several mid-market dynamics are in play we believe IT must necessarily and proactively address each by defining and executing robust plans. We further believe that partnering is a critical competency. Engagement with leading practitioners, who each wear a bigger hat, will be a tremendous accelerator to realizing IT’s full potential as a value creator and improvement in overall business competitiveness. The SAP M&A Ambassador program was built with the PE investment lifecycle in mind beginning from due diligence, sign to close, close to strategy lock, TSA exit and eventual investment exit. This program is an exciting development in market that is anticipating needs and moving to create new capabilities, customer entry points, and competitive pricing for the ever more strategic needs of our businesses.

APRIL 25 – 27, 2022 | ARIA RESORT & CASINO | LAS VEGAS, NV InterGrowth is making its triumphant return, and we can’t wait to bring you a revamped experience that has been three years in the making. Here’s what’s new in 2022:

ACG Access goes in-person for a revolutionized dealmaking experience.

Highly searchable attendee profiles and 24/7 one-onone scheduling technology ensures that you’ll find and make deals with exactly the right people, with the utmost efficiency.

Introducing Industry Pavilions for a more focused networking environment. Healthcare. Manufacturing. Technology. CPG. Business Services. These spaces will direct you to others within your area of focus, while allowing for more intimate and collaborative speaking engagements.

Industry verticals take center stage for a customized learning atmosphere.

Centered around core industries, 75 subject-matter experts and thought leaders will cover every corner of the middle market.

A commitment to Health and Safety provides peace of mind. In addition to enhanced onsite health and safety protocols, ACG and InterGrowth will require proof of vaccination against COVID-19 for all attendees. Requests for medical and religious exemptions must be documented and will be handled on a case-by-case basis.

For more information about the conference and to register, go to intergrowth.org. We can’t wait to see you there.

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Simple engagement. Guided implementation. Faster results. Together in the cloud. Transform your business faster with cloud ERP from SAP. Learn more at sap.com/RISE

ANSWERTHINK: SAP M&A AMBASSADOR

SAP’S PREMIER LIFE SCIENCE PARTNER

he life science industry is one of the most active sectors for mergers and acquisitions, yet private equity firms are becoming more deliberate and even cautious when considering potential deals with growing biotech and pharmaceutical companies. With an increase in regulatory pressures and realization that few companies will get their product off the ground, institutional investors have reservations when it comes to life science M&A deals.

B:11.125" T:10.875" S:10.125"

Investors are attracted to life science organizations that have developed business models that allow them to scale easily improving their operational efficiency through technology. This efficiency is easily obtained through SAP & ANSWERTHINK with RISE with SAP. RISE is a comprehensive, intelligent, and customer-specific offering, which includes core elements to help companies achieve digital transformation.

Why Answerthink ANSWERTHINK, an SAP platinum partner and leader in deploying SAP S/4HANA, provides the business transformation services utilizing our EzLifeSciences™ solutions. These solutions, built on the HANA platform and best practices of life science companies, are preconfigured, rapidly deployable, and scalable for life science organizations - accommodating your business growth and acquisition strategy. With an end-to-end model that includes sales, services, consulting, support, hosting, and training.

Increase speed to market Fully compliant solutions that meet FDA’s traceability standards • Global implementations with United VARs • •

Global Services To further differentiate their expertise, ANSWERTHINK is a member of United VARs, a global alliance of SAP resellers. United VARs addresses the requirements of multinational implementation projects by offering one implementation team with global management responsibility. This powerful SAP partner network provides a comprehensive portfolio of SAP solutions, consulting, and services, as well as outstanding local support in more than 90 countries (www.united-vars.com). Divestitures often include transition service agreements (TSAs) provided after the deal by the vendor. These TSAs include operational services and/or support for an interim period after the transaction is closed. With EzLifeSciences™, an average implementation time is six to eight weeks. Allowing companies to adopt the

technology quickly while addresses common roadblocks in FDA regulations, production, and data management. As a one-stop shop for small and mid-sized fast-growing companies, ANSWERTHINK provides pre-configured solutions and expertise from our associates who average 18 years of industry experience with a focus on small- and mid-sized life science organizations.

Moving Forward Mergers and acquisitions are not easy. There are several ways it can go wrong, and IT business system integration is one of the biggest factors that can make an M&A deal a huge success or a terrible failure. Investors are looking for companies that embrace innovation while realizing the value of their investment. With RISE with SAP, along with ANSWERTHINK’s EzLifeScience™ solutions, your merged entity will make the appropriate business process improvements as an intelligent enterprise model.

SAP - the right solution ANSWERTHINK, the right solution partner!

For more information, visit www.answerthink.com or email at sapinfo@answerthink.com.

ANSWERTHINK addresses critical business challenges delivering: • Integrating business applications • Validated reporting

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ASPIREHR: SAP M&A AMBASSADOR

M&A AS A CATALYST FOR HCM TRANSFORMATION

spireHR is a certified, women-owned SAP Gold Partner and market leader in the HCM space with a record of success in the M&A domain. AspireHR brings 23 years of HCM insight, experience, and innovation, delivering worldclass HR systems in the least amount of time. We successfully guide corporate and private equity investors through complex HR transformations by providing clear strategies and solutions. We advise our clients on key considerations and digital transformation investments to optimize business outcomes and minimize risk, deliver best practices when integrating digital capabilities, and equip clients with the tools and services needed to ensure efficient operations once deals have been inked.

End-to-End Services for Client Success Our core solutions HCM solutions are organized across four key domains: 1) Systems Integration – Advisory and implementation delivery services that help our clients plan, enhance, and transform organizations

2) Strategic Services – Services that help clients realize ROI faster and prepare teams for their new systems 3) Managed Services – Scalable support that empowers clients to take advantage of expert-level HR support, with optimized cost and service levels 4) Software and Accelerators – Innovative products designed for HR that help simplify, accelerate, and reduce risk

Our People Our experienced HR specialists are focused on client success and to meeting the aggressive timelines that often occur within M&A. AspireHR consultants bring an average of 17 years of practical HR experience and 9 years of consulting / system integration experience to every engagement. 95% of our consultants are SAPCertified, and 65% have enhanced SAP Professional Certifications. Our full-time, 100% remote-delivery model ensures quality and offers our clients the flexibility they need to across any geography or time zone. For ongoing support or business process outsourcing, our consultants deliver the quality and results needed to propel business forward and to maximize the outcomes of HCM investments.

Our Accelerators The AspireHR Diamond Client™ is a pre-configured and pre-tested HCM solution that streamlines, accelerates, and reduces risk during

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implementations. It includes best practices and key features that align with industry experience and requirements. This solution helps our clients achieve a faster ROI, eliminating months of planning and can reduce implementation time up to 50%. It includes detailed process workflows modeled after the Diamond Client Configuration, as well as UAT test scripts, and training decks. The AspireHR SmartSuite™ is a suite of services included with the AspireHR Diamond Client™ that help to accelerate, simplify, and reduce risk. It makes easy work of some of the most challenging aspects of implementations, and allows for automated and accelerated data cleaning, data migration, data anonymization, interface creation, as well as high-volume, repetitive testing.

Our Software AspireHR offers a powerful benefits solution and SAP Qualified Partner Package, AspireHR Cloud Benefits™, that transforms the benefits experience and works seamless with SAP SuccessFactors. As a digital innovation leader focused on HCM transformations, our proprietary software, tools, and accelerators deliver industry-leading innovations that maximize value through operational performance and position our clients to quickly achieve a faster ROI. For more information on AspireHR, visit our website at www.aspirehr.com.

DICKINSON: SAP M&A AMBASSADOR

TRUSTED ADVISOR FOR ACQUISITIONS, CARVE-OUTS, AND OPTIMIZATIONS

o drive value to private equity owners as soon as possible, speed is critical. To help integrate acquisitions seamlessly, adopt rapid deployment solutions, optimize portfolio and ultimately meet growth goals, customers turn to Dickinson + Associates, a Navisite company.

Creating and Delivering Value As an SAP Gold Partner, Dickinson + Associates often helps clients analyze challenges and goals and then leverage innovative SAP solutions and other services to address those findings. In the world of Private Equity, Dickinson supports partners to create fund-level value by enhancing enterprise value of individual portfolio companies. Dickinson’s industry expertise along with specific assets and methodologies are instrumental in driving operational performance and return on invested capital.

• •

Planning carve-out approach How much, how long – satellite systems – Risk Clear on what seller needs to provide

Carve-out Solutions • Quick and Effective transition to buyer – Take control • Focus Team to get off TSA, quickly – Fixed Fee effort • Project Tools to mitigate risk • Visibility to post-TSA costs of AMS, as original company retains SAP talent Platform Methodology • Acquisition Play Book ensures alignment on the goals of entire organization • Strategy for 90-Day Acquisition absorption • Focus on Speed to Value for Acquisition Tuck-Ins

Cloud / Rapid Deployment • Eliminating capital expenses with Cloud Deployments on Public Hyperscalers (AWS/ Azure/GCP) • Providing Full IT Managed Infrastructure Services and Support • One Stop IT with Application, Security, Database, and Cloud Migration Services Portfolio Optimization • Execute Strategies for Permanent Cost Restructuring • Business Scenario Workshops to Review SAP Industry Best Practices • Right Size the business process and Software components • Supporting payback goals, low risk and less than 2 years

Value-Driven Results Delivering value often starts early in the planning between Dickinson + Associates, SAP, and advisory partners – covering the full scope of a transition life cycle from Due Diligence to Portfolio Optimization. Due Diligence • Rapid Assessments, Improvement Opportunities • Pre-Close Cost Estimates (SLA Leverage and defensible estimates)

Creating & Delivering Value Due Diligence | Carve-out Solutions | Platform Methodology Rapid Cloud Deployments | Portfolio Optimization

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See how EY Transforms business with SAP

Navigate the future with EY Strategy and Transactions

18 | S A P I N PA R T N E R S H I P W I T H AC G

FULCRUM GT: SAP M&A AMBASSADOR

ENABLING GROWTH IN AN INDUSTRY REQUIRING TRANSFORMATION AND STANDARDIZATION

he Professional Services industry (“ProServ”) is undergoing unprecedented change. Driven by faster-changing customer demands, ProServ which includes Legal, Accounting and other Consulting is poised for an industry redefining digital transformation. As recognized today, ProServ firms largely know they must change how their businesses are run, which is a good first step. How things have been done no longer dictates how they should be run. Rather, the solution lies within a particular firm’s business models and receptiveness to manage challenges that come and those already arrived: a real- time, mobile, automated, intelligent, data driven world, where clients mandate flexibility, responsiveness, and consistency. As ProServ firms look to the future, they must operate in the “business of professional services” instead of the services business. There will be opportunities to take advantage of cross-industry best practices and emerging technologies that have not yet been realized with this Industry. Additionally, opportunities to firms will likely present themselves to drive down operating costs by utilizing sourcing and procurement methods, and through partnerships that open new business opportunities and new markets. Emerging technologies and applications have begun to transform the Legal industry more rapidly than anticipated. Today’s technology can help firms run better, faster, smoother, and smarter. Unfortunately, many firms find themselves technologically behind, afraid to adopt newer technologies and

disruptions able to provide value in unimagined ways thus leaving them unable to support current and future growth requirements and strategies. While technology is a catalyst to change, it takes more than technology to make the right change a reality. At Fulcrum GT our sole focus is helping professional services firms run at their best. Our expertise covers leading technologies, knowledge-based tools and processes, and people, together to create strategic, measurable results. The ProServ industry is unique, with each firm bringing its own uniqueness. Listening, creativity, technology savvy, problem solving, and strong best practices are paramount to crafting a winning vision for success and are consistent with Fulcrum GT’s foundational belief that ProServ firms don’t need

another vendor -- they need a true partner and a solid platform to help them set and realize a vision to accelerate true transformation. Fulcrum GT products are built using SAP’s enterprise-grade technology. From New Business Intake to E-Billing and Management Reporting — Fulcrum GT products integrate seamlessly with each other, are fully supported, routinely upgraded, and cloud-deployed. In addition, from a first interaction through deployment and then through ongoing day-to-day operations post go-live, Fulcrum GT experts are on-hand to provide support, advice, and assistance. Fulcrum GT develops the solutions, deploys the solutions, supports the solutions, and can even run our solutions for you. In summary, Fulcrum GT delivers our products and services and importantly the trusted partnership clients deserve.

Contact info@fulcrumgt.com to see if Fulcrum can deliver for you what we have for many other Firms.

Because BecauseThings Things Because Things Have HaveChanged... Changed... Have Changed...

What What would would your your What would your computer computer look look like like ififititif it computer look like was was the the same same age age asasyour as your was the same age your enterprise enterprise software? software? enterprise software? Embrace Embrace the the benefits benefits Embrace the benefits ofofour of our time-tested, time-tested, our time-tested, future-ready future-ready solutions. solutions. future-ready solutions. www.fulcrumgt.com www.fulcrumgt.com www.fulcrumgt.com

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ILLUMITI: SAP M&A AMBASSADOR

SAP PARTNER THAT CAN GROW WITH YOU

llumiti helps you optimize your operations by implementing SAP® software solutions faster, at a lower cost, and with less risk. No two companies are alike. That’s why our approach puts the focus on you and your unique business challenges. Working together, we find the solution that makes the most sense for your organization to optimize your operations, and enable access to the information you need to make informed business decisions. You’ll see the difference in your bottom line. Illumiti brings the power of world-class SAP® software to small and mid-sized businesses through:

Lean, Business-Focused Approach to Implementation SAP® implementations can be complex. That’s why we use Geoffrey Moore’s Core/Context principles to focus on the areas of greatest importance and impact to our clients. Not only does this focused process result in a faster, more efficient implementation and customization process, but it also delivers a better return on investment.

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A Proven Team Our solutions exceed our clients’ expectations—and our proven team is a big reason why. With more than 300 senior consultants with an average of ten or more years of SAP® implementation experience, you can be confident in the support you receive from Illumiti. Industry Expertise and IP We speak your language. Our team has in-depth understanding of industry-specific solutions and insights, and leverages industry best practices, pre-built tools and templates, and proven solutions to help you get the most from your SAP® software. We have also built accelerator solutions for several industries, and have recently established the Illumiti Centre for Innovation & Enablement to drive new solutions in Business Intelligence, S/4HANA and mobility.

Track Record of Success Our team serves more than 200 customers across a multitude of industry sectors and locations and have completed more than 100 SAP software implementations at small,

midsized, and large enterprises. Whether it’s a first time Enterprise Resource Planning (ERP) & Information Technology initiative, a merger & acquisition related project, a drive to propel a business to bestin-class performance, or a system roll-out to other business divisions or countries, Illumiti does it faster, at a lower cost, and with a higher level of confidence.

SAP® Software Using SAP software solutions, we help you build robust business management, business intelligence (BI), information management, and performance management functionality. The result? Streamlined operations, improved visibility, and the power you need to drive your business forward. Key solutions include: • SAP S/4HANA delivers massive simplifications and innovations to drive instant value across industries and lines of business. Deployable in the cloud, on-premise or hybrid, SAP S/4HANA offers real choice and greater flexibility with a reduced total cost of ownership. • SAP Business ByDesign is an on-demand, fully integrated business management solution. Implement the full solution or begin with one of our starter packages for an easy fixed monthly fee. • SAP SuccessFactors provides organizations with a full range of HCM solutions to help support, train, reward and motive their people. As the leading cloud-based HCM Suite, SAP SuccessFactors helps more than 6,000+ customers, across more than 60 industries in over 177 countries.

NTT DATA: SAP M&A AMBASSADOR

DIGITAL TRANSFORMATION AS-A-SERVICE MODEL OFFERS HOLISTIC OPTION FOR M&A MARKET

TT DATA Business Solutions has developed an as-a-service approach to digital transformation that includes a flexible roadmap and delivery model tailored for your business in a value-based subscription model. Our holistic and flexible as-a-service model enables companies to consume technology services at a pace and price point that makes sense for their M&A carveouts or new acquisitions. By providing predictable, definable, and easy-to-consume services, we enable your business to continuously improve its technology to remain competitive within your industry. Our as-a-service model is comprised of these elements: • Advisory as a Service – Our experts help to identify business challenges/problems, and we deliver a technology roadmap that lays out the technologies to be consumed and best practices to be leveraged – at your pace, with predictable pricing. • Consulting as a Service – Services are delivered based on the consumption rate that fits the operator and the terms of their constraints/needs, and often as required by governing Technology Service Agreements (TSA). The pace can be adjusted (faster or slower), based on the price point and amount of technology you want, leveraging best practices to solve

business pains. • Application Management as a Service – Since digital transformation never ends, our services offer a broad portfolio to extend your team and bring knowledgeable experts in the areas that matter most to your business – no matter whether it’s e-commerce, supply chain, distribution, food safety, or pricing, promotions, and rebates. Mergers and acquisitions have become an important strategic means for keeping pace with the market and current trends, and many businesses are investing to drive growth, profitability and to gain synergies and economies of scale. However, acquiring or carving out a business can be an enormous undertaking that must be executed as efficiently as possible. Choosing the right partner will be

critical to the success of the initiative. As an SAP Platinum Partner, NTT DATA leverages SAP best practices along with our extensive industry knowledge to make sure technology works for the people who use it. In addition, if your business is looking for a managed cloud environment with a hyperscaler or wants to host systems in your data center, or one of ours, we bring our expertise and the power of our NTT family of companies (e.g., NTT Managed Services and NTT Limited) to offer a comprehensive range of managed services and ITO services. The depth and breadth of our portfolio includes a full range of services to ensure your business continues to run smoothly – until you ramp up internal resources, or for as long as you need.

QR Code: nttdata-solutions.com/us/services/merger-acquisition-services/

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If you’re not ﬁrst, If you’relast. not ﬁrst, you’re you’re last. Ricky Bobby Ricky Bobby

Having Keeping Having Trouble Trouble Keeping Your Row? YourDucks Ducks in in a a Row?

Current State: YouYou have multiple acquisitions, mergers, ability to totrack trackspend spend Current State: have multiple acquisitions, mergers,ororportfolio portfoliocompanies companies with with no no ability or leverage group purchasing to to save money. or leverage group purchasing save money. Desired Result: Increase in savings, EBITDA, and valuations transition. Desired Result: Increase in savings, EBITDA, and valuationswhile whileeasing easingthe the divestiture divestiture transition. Solution: Ariba® solutions and Premikati Inc.consulting consultingand andimplementation implementation expertise. expertise. Solution: SAPSAP Ariba® solutions and Premikati Inc. Case Study: nation’s largest dental support organizationwas waslooking lookingto to get get visibility into Case Study: TheThe nation’s largest dental support organization into its itssubsidiaries’ subsidiaries’ spend increase proﬁts quickly. Sound familiar? spend andand increase proﬁts quickly. Sound familiar? To start, Premikati able help them get onlineinternally internallyand andwith withtheir their suppliers suppliers in To start, Premikati waswas able to to help them get online in 12 12 weeks weeksusing usingSAP SAP Ariba‘s software. In less than 5 days after their go-live date, they had more than $1M in spend transacted Ariba‘s software. In less than 5 days after their go-live date, they had more than $1M in spend transacted across platform. In less than 2 months they’vetransacted transactedover over$8.4M. $8.4M. Not Not only only have have those across the the platform. In less than 2 months they’ve those transactions transactions allowed them to better manage their spend, but based on benchmarking data from SAP - they are on track to allowed them to better manage their spend, but based on benchmarking data from SAP - they are on track to save over 6% or about $3M annually. save over 6% or about $3M annually. Leveraging software in the M&A and PE space is nothing that hasn’t been done in the past. But, it hasn’t been Leveraging software in the M&A and PE space is nothing that hasn’t been done in the past. But, it hasn’t been done well. The right choice will increase your EBITDA and valuations while expediting divestiture time. Just done well. Thehear rightwhat choice will increase yourtoEBITDA valuations while expediting divestiture time. Just wait ‘til you Blackstone was able do withand Ariba®.... wait ‘til you hear what Blackstone was able to do with Ariba®....

22 | S A P I N PA R T N E R S H I P W I T H AC G

PwC takes a business-driven view to create value via SAP Leveraging PwC's industry knowledge and solutions for M&A powered by SAP Major opportunity drivers

PwC capabilities

Provide global visibility Centralize activities/functions Automate manual activities Reduce indirect expenses Better utilize outsourcing Simplify global processes Align global vs. regional roles Fully integrated pre-season and S&OP plans Reduce network complexity

Product life cycle management Operations strategy & transformation Product & systems technology Supply chain planning Procurement & sourcing Manufacturing & production Distribution & logistics Finance transformation Customer operations

IT strategy and implementation

Integration/carve-out excellence

We leverage PwC Digital Transformation accelerators and methodologies to help you achieve speed to value. Scan to learn S A P M & A A M B A S S A D O R S U N LO C K T H E VA LU E TO YO U R D I G I TA L T R A N S FO R M AT I O N © 2021 PwC. All rights reserved.

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SSIIM MPPLLEEFFII

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Focusing on converting potential into performance

Smith goes beyond the traditional digital agency. We focus on converting our clients’ potential into performance. And, with over 20 years of commerce experience at our core, we bring deep expertise, coupled with an unparalleled passion for results, to every engagement. Working hand-in-hand with our clients, we consistently produce commerce experiences that help brands and businesses do more than simply improve. We help them thrive. By combining our strategic, creative, analytical, and technical capabilities, we consistently enhance customer experiences, accelerate sales, and optimize operations, enabling over 500,000 transactions every day and driving over $38 billion in annual revenue for our clients. We are the performance commerce company. Learn more at www.smithcommerce.com.

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Grow by SAP

SAP invests in Hypergrowth Companies With change comes new challenges. Processes can become fragmented, visibility can become clouded, systems are no longer sustainable. This is where we can help. Up to 6 Months Free Subscription COMPREHENSIVE PACKAGE All-inclusive SaaS package, oﬀering the right tools for the right job

FAST SET UP

Up and running in 4 weeks

SUPPORT

Recieve a SAP Customer Success Manager as a dedicated consultant throughout the program

Your single point of contact for: Resources that supply strategic insights during M&A Providing tactical Analysis at scale without constraint Knowledge around technology and innovation for growth

GUIDE TO

HR Outsourcing How does a PEO work? Page 4

Advantages of a PEO Page 8

Take the quiz! Do I need to outsource my HR? Page 10

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Business can be like

a game of chess Successful chess players work backward – imagining their winning scenario, then strategically deploying their pieces to achieve their goal.

Business leaders should think in much the same way.

When you consider the many moving parts of running a business, this neat chess metaphor breaks it down. • You don’t have one competitor; there are many. • It’s not just about using your rook wisely; you must keep her engaged and invested in the game. • Add in the mental and monetary toll of managing various vendors to offer benefits and keep people paid. • All the while, you’re left navigating regulatory and compliance risks. • And outside of people-related matters, you’ve got a business to run.

If you could hire an outside firm to create a scalable system for keeping your queen, providing health benefits to everyone in the game and offering strategic guidance to keep you competitive, would you take it?

Let’s explore why so many businesses answer yes.

Introduction | HR outsourcing options

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Pick your player There’s nothing wrong with any of these options, as long as you’re ready to take on the challenges associated with each adventure. For those who would rather grow their business (and not their headcount), a PEO may be a good choice.

Pick and choose multiple vendors

Consider: You may spend extra time juggling various vendor relationships and lose efficiency.

Build a complex, in-house HR team Consider: This could be costly over time and require more oversight.

All-in-one, full-service professional employer organization Consider: One HR solution that delivers benefits, payroll, HR compliance and technology may seem pricey. (Skip ahead to pg. 12 for pricing transparency.)

Who do you choose to handle your HR?

insperity.com

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Play to your advantage WITH A

PEO

When you join forces with a PEO, you gain a powerful ally. A PEO will unleash its full suite of resources and assume responsibility for some of your most time-consuming HR tasks and assume or help you manage your employer obligations and risks. You, in turn, can focus on advancing your game forward.

How a PEO works

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Gain access to PEO-sponsored benefits • Employees have access to comprehensive medical, dental, 401(k) benefits and more • As the plan sponsor, the PEO handles carrier and vendor negotiations, benefits administration and legal compliance Ward off or manage risk • Workers’ compensation insurance coverage and employment practices liability insurance (EPLI) • Advice on best practices regarding safety hazards • Assistance with HR-related compliance and paperwork Level up employees • Ongoing performance improvement support • Online learning options, including leadership development Play it safe • HR best practices guidance to help you comply with HR laws, regulations, and rules, both state and national • Handbook development, onboarding, termination assistance and more – to help reduce employer liabilities Let the big boss skip a turn • Relief from the tedious tasks of HR administration, payroll processing and payroll tax filings • Free up your time to focus on strategy, employees and the bottom line Unify your forces • Service and technology to facilitate efficiency and compliance • One seamless technology platform to integrate payroll and time and attendance • Reduced manual data entry burden

insperity.com

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Rules of the game When you decide to work with a PEO, the business relationship called “co-employment” is created.

The co-employment relationship is a contractual agreement that allocates and divides up your employer responsibilities. Under this agreement, your company’s employees are co-employed by both your company and by the PEO.

Roles and responsibilities

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As a business owner, you’re still in full control of:

And, just for example, as a co-employer the PEO could be responsible for:

• All business decisions • Daily operations

• Providing employee benefits

• Employee core job functions and duties

• Payroll and HR administration • HR-related government compliance assistance • Providing HR advice

Test your knowledge! True or false quiz (answers at bottom of page)

1. A PEO does NOT take complete control of your business

A PEO will NOT replace your internal staff

A PEO does cause disruptions to your workplace

1. True. You maintain control of the business and all operational decisions. 2. True. PEOs align with your company’s existing HR staff to provide complementary expertise. 3. False. Your employees will experience little-to-no disruption. insperity.com

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A winning proposition PEOs commonly help client companies by: 1

Providing better benefits

Decreasing costs and increasing operational efficiency

With better employee benefits, you can attract and retain top talent and create a more engaged workforce.

Not only do PEOs help you and your company save time, but they can also help you save money through: • Better hiring practices that reduce turnover • Finding new ways to motivate employees

Reducing risks Mitigate the risks that are involved with being an employer, receiving workers’ compensation insurance coverage, EPLI, payroll processing and HR administration.

A PEO provides the infrastructure and resources you need, giving you back valuable time to focus on growing your business.

• Creating strategic plans for the future

Advantages of a PEO

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Perhaps that’s why, in a PEO arrangement, businesses have been shown to: Grow 7-9% faster*

EXPERIENCE

10-14%

LOWER TURNOVER*

less likely to go out of business*

*Source: Napeo.org; What is a PEO/ About the PEO Industry.

insperity.com

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Take the quiz Do I need to outsource

my HR? 2

Is your management style reactive instead of proactive?

it qu es e y o lo r d er? o mp r e otice rnov u u o t n y Do short high e on hav you

Quiz yourself on the different business scenarios below. Think it through and be completely honest. If you answer yes to more than five questions, you and your team may benefit from working with a reputable PEO.

Have you dealt with incomplete employee paperwork before?

Have you ever been fined for HR-related s? compliance violation

find Have employees quit to es kag pac efit ben ter bet with other companies?

5 you have

Do underperforming employees?

Have new employees missed their benefits enrollment period?

Where did you land? If your team could benefit from working with a PEO, it’s time to understand how to choose between PEOs.

Ha loc ve y do atin ou h cu g c ad me er i nt tai ssue s? n H s R

tedious Are you slammed with e to tim tasks and can’t find e? tur pic ger focus on the big

10payroll take

Does up a large chunk of your time?

Quiz | PEO partner must-haves

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Teams, not pieces, win Every PEO is unique in the way they structure, deliver and price their services. (Beware of extra fees!) To pick a PEO that’s going to give you a leg up, first identify your HR challenges. • Are you processing payroll properly? • Are you losing employees to competitors because they don’t have access to competitive benefits? • Or is your workforce disengaged and performing poorly?

Now, identify your PEO must-have features: • Employee benefits • Technology options • Assistance with HR-related government compliance • Performance management support • Employer liability management • Training and development • Payroll and employment administration • Recruiting support • Core and strategic HR services

insperity.com

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No Monopoly

money

Part of beating the competition is holding the most coins in the end. So, it’s important to understand PEO pricing to get the most bang for your buck. PEO cost and pricing breakdown The PEO’s fee will include the PEO’s direct cost allocations, which may include:

An administrative fee may include charges for:

• Wages and related payroll taxes (FICA, Social Security, Medicare, FUTA and SUI)

• Workers’ compensation administration and safety

• Workers’ compensation insurance • Employee benefits • Employment practices liability insurance (EPLI)

• Payroll administration

• Benefits administration • HR compliance • HR technology • HR services

Key differentiator: Administrative fees can be 1. Percentage based – The PEO’s administrative fees are calculated as a percentage of your employees’ gross payroll. 2. Flat charge – The PEO’s administrative fees are calculated as a fixed cost per employee. With the flat, per-head fee structure, it doesn’t matter if an employee makes $10 or $10 million. Your PEO administrative fee stays the same. 12

Understanding pricing | Strengths of a CPEO

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Pro tip It’s wise to conduct a break-even analysis to understand at what point a percentage-based fee is more expensive than a flat charge.

Weigh your options before making a move How to evaluate a PEO’s financial strength and security • Find their annual report, including audited financial statements online if they are publicly traded. • Look for the PEO’s annual financial statements that may be published on their website. • Check for company information on an investment research website.

What’s a CPEO? A CPEO is a PEO that has been designated as a certified professional employer organization by the IRS. A CPEO has to meet certain financial requirements, resulting in an extra layer of security for your business. • Easier to assess the financial strength and security of a CPEO • CPEO will have submitted audited financial statements to the IRS • Must provide evidence of positive working capital • CPEO takes on full liability for payroll taxes • The IRS will have conducted necessary background checks on certain persons responsible for employment tax payments

insperity.com

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Winner takes all

Would you rather have …

A PEO with a strong

A PEO with

local presence in your

resources

city or state?

nationwide?

If you’ve been in the game long enough, you’re not just looking to skate by, you want to win big. For a business owner, that could mean expanding your business – to another city, state or across the country.

Why not work with a national PEO with locally based service team members? Here are some of the benefits:

Will a PEO that’s strictly local be able to provide you with the national resources you need? Before you answer, pause! You don’t have to sacrifice one for the other.

• Proficiency in federal-level issues

• Knowledge of local regulatory compliance

• Convenience and accessibility • Market-specific awareness

Local and national PEO benefits | Questions to ask a PEO

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It’s your turn! Decisions, decisions. Finding the PEO that’s most suited for your company can be tricky – not all PEOs are created equal. Before you commit, ask each PEO these questions: • How experienced are your service team members? • How do you communicate with your clients? • Can I meet the people who would be servicing my account? • What is your “staff support ratio” or number of service team members compared to my employees? • May I see your service agreement? • Do you carry employment practices liability insurance (EPLI)? • What coverage would my company gain by joining your PEO? • How much should I expect my PEO service fee to increase each year? • How are employee benefits funded? • Are you a CPEO?

Play your cards right Be a savvy consumer. Before you sign on the dotted line, make sure you ask questions and read the fine print.

insperity.com

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See what’s possible with the right HR partner Insperity helps you tackle your HR hurdles so you can spend more time growing your business. With Insperity behind you, nothing seems impossible. FULL-SERVICE HR EMPLOYEE BENEFITS HR TECHNOLOGY Learn more at insperity.com or call 800.465.3800.

NSP_82-1769_0621 | DTL-P0221-9696

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Middle Market Growth - 2022 Guide to Dealmaking // Special Edition

Articles inside

How to Leverage Remote Hiring for Employee Retention

How to Up Your Operational Game to Stay Competitive and Profitable

Pioneering Life Science M&A with Cloud-Based Technology

What the REIT Market Must Know About Changes in Tax Law

Supply Chain Strain Hits the Middle Market

Dealmakers Look Forward to an Active but Slightly Cooler Market in 2022

SMEs Hold Vast Power in the Race to Sustainability