What Are 2019'S Big Opportunities in Technology? We Asked 10 of the Top Private Equity Firms in the Sector for Their Perspecti

THEMIDDLEMARKET.COM FEBRUARY 2019 THIS

What are 2019’s big opportunities in technology? YEAR’SWe asked 10 of the top private equity fi rms in the sector for their perspectives and investment plans tech

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0C2_MAJ0219 2 1/8/2019 10:18:25 AM Contents February 2019 | VOL. 54 | NO. 2

Cover Story 20 This year’s tech model What are 2019’s big opportunities in technology? We asked 10 of the most active PE firms investing in the sector for their perspectives and investment plans.

THIS Private Equity Perspective 16 Confidence prevails Most companies in the U.S. middle market say they are optimistic about M&A in 2019, according to a recent YEAR’S survey. The Buyside 18 Streamlining construction Autodesk and Trimble are among the buyers in a fragmented construction tech data industry. model

Watercooler Guest Articles Q&A 6 26 30 Betting on software M&A Augmented infrastructure Private Equity PE fundraising is benefiting from a Digitalization is transforming the role “Investing in an education program, boost in M&A in the tech sector, and played by physical assets explain Ard- especially through scholarship, is the young PE firms such as Luminate ian’s Stefano Mion and Mark Voccola. very best ROI investment you can Capital and ParkerGale are raising 34 make philanthropically,” says GTCR’s second funds. Mitigating data risks Phil Canfield. 8 Conducting due diligence on data is Executives face tech challenges more important than ever in dealmak- Divergence and disruption were the ing, write Neil Coulson and Cynthia M&A Insights largest contributors to 2018’s M&A Cole of Baker Botts. 40 environment, according to EY. 38 Where is the middle market headed? 12 Teaming up Transaction pros Ramsey Goodrich, Ares raises debut direct lending fund Recent deal activity suggests a return Bharat Ramprasad and Mark Emrich Ares sees improving market condi- to private equity club deals and share their views. tions to invest in high-quality, senior collaborations, says Hugh Stacey of secured loans with attractive pricing Augentius. and terms.

TheMiddleMarket.com February 2019 Mergers & Acquisitions 1

001_MAJ0219 1 1/9/2019 10:09:12 AM Inside Word February 2019 | VOL. 54 | NO. 2

TheMiddleMarket.com 1 STATE STREET PLAZA, 27TH FLOOR NEW YORK, NY 10004-1505 • (212) 803-8200 EDITOR-IN-CHIEF Mary Kathleen Flynn MANAGING EDITOR Demitri Diakantonis All about the tech CONTRIBUTING EDITORS Keith Button, Danielle Fugazy GROUP EDITORIAL DIRECTOR, BANKING AND CAPITAL MARKETS To gain insights on what will drive tech deals in 2019, Richard Melville

we asked 10 PE firms active in the sector to share EXECUTIVE DIRECTOR, CONTENT OPERATIONS AND CREATIVE SERVICES their investment approaches Michael Chu SR. ART DIRECTOR Nick Perkins

Tech M&A is enjoying a boom, and private equity VICE PRESIDENT, CAPITAL MARKETS Harry Nikpour (212) 803-8638 firms are excited by the potential of many innova- ASSOCIATE MARKETING MANAGER tions. Among the most notable are: artificial intelli- Leatha Jones gence, data management, data virtualization, digital marketing, healthcare IT, industrial automation, the Internet of Things, machine-to-machine learning, payment processing and Software-as-a-Service. CHIEF EXECUTIVE OFFICER �� Gemma Postlethwaite CHIEF FINANCIAL OFFICER ��Sean Kron To gain insights into the types of tech deals ex- EVP & CHIEF CONTENT OFFICER �� David Longobardi pected to make a splash in 2019, here in the Febru- CHIEF STRATEGY OFFICER...... Jeff Mancini ary issue, we profile 10 PE firms that are actively investing in technology. We CHIEF DATA OFFICER...... Christian Ward SVP, CONFERENCES & EVENTS ��John DelMauro asked them to share their investment approaches, recent and representative deals and thoughts about some of the technologies they are keen on. Beyond the gee whiz factors, PE investors are laser focused on the REPRINTS AND LICENSING CONTENT impact that technology is having For more information about reprints and licensing content from Mergers & Acquisitions, please visit sourcemediareprints. on their portfolio companies. PE com or contact pars international at (212) 221-9595.

buyers seek developments that will CUSTOMER SERVICE drive sustainable value to custom- [email protected] or (212) 803-8500

ers and make companies more Mergers & Acquisitions Vol. 54/No. 2 (ISSN 0026-0010) is published monthly with combined issues in July/August efficient, more effective and less and November/December by SourceMedia, One State Street Plaza, 27th Floor, New York, NY 10004-1505. Yearly expensive to run. subscription is $1,995; $2035 for one year in all other “Technology, in and of itself, is invading every end market, and it is driving countries. Periodical postage paid at New York, NY and U.S. additional mailing offices. POSTMASTER: Send address companies to be more competitive than their peers,” points out Richard Law- changes to Mergers & Acquisitions / SourceMedia, One State Street Plaza, New York, NY 10004. For subscriptions, son, CEO of tech-focused PE firm HGGC. renewals, address changes and delivery service issues contact our Customer Service department at (212) 803- One piece of advice for dealmakers: Don’t forget the Amazon Effect. “End 8500 or email: [email protected]. This publication is designed to provide accurate and authoritative information markets everywhere are being changed by Amazon,” Lawson points out. “As regarding the subject matter covered. It is sold with Amazon scales, it will challenge all kinds of industries and it will have a cas- the understanding that the publisher is not engaged in rendering financial, legal, accounting, tax, or other cading effect across all sectors.” M&A professional service. Mergers & Acquisitions is a registered trademark used herein under license. © 2019 Mergers & – Mary Kathleen Flynn Acquisitions and SourceMedia, Inc. All rights reserved.

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PE fundraising scorecard Dealmaker profiles Conversations with deal pros Bregal Sagemount Credit Opportunities, Mergers & Acquisitions has named It is a seller’s market and deal activity CMC Capital, North Castle and Volpi the 2019 Most Influential Women in is expected to remain steady. Ramsey Capital are raising funds, according to Mid-Market M&A. Pelham S2K’s Venita Goodrich of Carter Morse & Goodrich, SEC filings, as fundraising activity in the Fields, Kayne Anderson’s Nishita Cum- talks about his M&A outlook for the middle market remains robust. mings and Kainos Capital’s Sarah Brad- next 18 to 24 months, in a video inter- ley are among 36 featured dealmakers. view shot at M&A East.

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005_MAJ0219_001 5 1/8/2019 10:33:04 AM Watercooler ADOBE STOCK Betting on software M&A

PE fundraising is benefiting from a boost in M&A in the tech sector, and young PE firms are raising second funds

By Demitri Diakantonis and Mary Kathleen Flynn

Luminate Capital Partners has raised institutional support from investors its second fund at $425 million. The PE who understand our emphasis on the firm, founded by Hollie Moore Haynes software sector.” (pictured), focuses on the software PE fundraising is benefiting from a sector. In 2018, Luminate invested in boost in M&A in the tech sector, and AutoQuotes, a technology provider for young PE firms, including those that the foodservice equipment industry. focus on tech and software, are raising “We are very pleased with the second funds. ParkerGale, co-founded investor response to Fund II which by Kristina Heinze, Devin Mathews, exceeded our expectations,” says Jim Milbery and Ryan Milligan, has Haynes, who is a former managing recently raised its second fund at director at Silver Lake Partners. “As $375 million. Moelis & Co. (NYSE: MC) we have demonstrated our ability served as Luminate’s placement agent to generate attractive returns, we and Kirkland & Ellis provided legal

have continued to build additional advice. PARTNERS CAPITAL LUMINATE

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Packaging growth strategies

CPPIB is increasingly active in the middle market

Canada Pension Plan Investment Board is investing $500 million in packaging company Berlin Packaging. Oak Hill Capital Partners and the target’s CEO, Andrew Berlin, are investing alongside CPPIB. Berlin Packaging offers compa-

nies a “one-stop shop” for glass, plastic, metal containers and BERLIN PACKAGING closures. The target has $1.4 billion in annual sales. commerce capabilities,” says Andrew Berlin. CPPIB has been “This transaction allows us to take our business to an even increasingly active in the middle market. higher level as we pursue multiple strategic initiatives, includ- In perhaps its most notable deal, CPPIB bought mid-mar- ing acquisitions in North America and Europe, additions to ket lending powerhouse Antares Capital from GE Capital in our sales and service teams, and more investment in our e- 2015. Oak Hill began investing in 1986 as the family office for

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Robert Bass, one of four brothers who founded Bass Brothers Enterprise. The firm invests in companies in the consumer, PE investments soar Why PE firms love industrial, media and retail sectors. construction data The number of PE-backed companies will Biting healthy food deals grow, reducing the amount of investment The deal comes on the opportunities heels of MidOcean raising its fifth fund at $1.2 billion Food conglomerates are diversifying their Valuations for North American middle-market private product lines to appeal to consumers who equity firms are expected to remain robust heading into want healthier snacks 2019, according to Quarton International. This is mainly MidOcean Partners has acquired due to the abundance of capital and the growing number construction data providers Hanley Kraft Heinz Co. (Nasdaq; KHC) is buying Primal Nutrition of PE-backed businesses. The first three quarters of 2018 Wood and Meyers Research. The lat- LLC, a better-for-you brand that makes mayonnaise, salad yielded 8,283 PE-backed companies, compared with 7,988 ter is being bought from real estate dressing and avocado oil under the Primal Kitchen brand, for all of 2017, according to Pitchbook and Quarton. Private development company Kennedy Wilson for $200 million. “My mission has always been to change the equity investments are outpacing exits at over 2.1 to 1. With (NYSE: KW). The two targets offer data way the world eats,” says Primal Kitchen co-founder Mark this pace of investment, the total number of U.S. PE-backed on land acquisition, property develop- Sisson. companies will continue to grow and reduce the amount of ment, new home sales and marketing. “Our partnership with an industry leader like Kraft Heinz available investment opportunities, according to the two now offers an unrivaled opportunity to reach millions more firms. of the consumers who have been seeking products like ours for years.” Paul, Weiss, Rifkind, Wharton & Garrison LLP is Executives face emerging advising Kraft. Food conglomerates are diversifying their product lines to tech challenges appeal to consumers who are opting for healthier snacks. For example, in 2018, Hershey Co. (NYSE: HSY) paid $420 million Divergence and disruption were the for Pirate Brands. largest contributors to 2018’s M&A environment, according to EY

Sector convergence will drive M&A 2019, allowing com- ADOBE STOCK panies to adapt to pressure from technologically savvy The combined company will be led by competitors and increasing activity from activist investors, Meyers Research founder Jeff Meyers. according to a EY report: Transformative M&A in a Chang- Kennedy Wilson will own a minority ing World. Divergence and disruption were the largest stake in the combined company. contributors to 2018’s M&A environment. EY anticipates an “We are excited to bring together active dealmaking climate to persist into 2019, supported two of the premier players in the by portfolio rationalization, deconglomeration, divestitures residential construction data industry.” and the pickup in private capital available to absorb these This transformational merger creates assets. a significantly expanded offering for “Executives are facing a chessboard of challenges — customers and provides for greater including emerging technology, volatile equity markets benefits and growth opportunities than and changing geopolitics — that are adding unparalleled either company could have achieved complexity to their organizations’ transformation strategies,” alone,” says MidOcean managing says EY Americas vice chair Bill Casey. director Barrett Gilmer. The deal comes on the heels of MidOcean raising its

PRIMAL NUTRITION fifth fund at $1.2 billion.

8 Mergers & Acquisitions February 2019 TheMiddleMarket.com

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Gibson Dunn & Crutcher is repre- gher & Flom are advising Hanley Wood. PE investments soar Why PE firms love senting MidOcean. Evercore (NYSE: Vaquero Capital and Latham & Wat- construction data EVR) and Skadden, Arps, Slate Mea- kins are advising Meyers Research. The number of PE-backed companies will grow, reducing the amount of investment The deal comes on the opportunities heels of MidOcean raising its fifth fund at $1.2 billion Valuations for North American middle-market private equity firms are expected to remain robust heading into 2019, according to Quarton International. This is mainly MidOcean Partners has acquired due to the abundance of capital and the growing number construction data providers Hanley of PE-backed businesses. The first three quarters of 2018 Wood and Meyers Research. The lat- yielded 8,283 PE-backed companies, compared with 7,988 ter is being bought from real estate for all of 2017, according to Pitchbook and Quarton. Private development company Kennedy Wilson equity investments are outpacing exits at over 2.1 to 1. With (NYSE: KW). The two targets offer data this pace of investment, the total number of U.S. PE-backed on land acquisition, property develop- companies will continue to grow and reduce the amount of ment, new home sales and marketing. available investment opportunities, according to the two firms. Executives face emerging tech challenges

Divergence and disruption were the largest contributors to 2018’s M&A environment, according to EY

TheMiddleMarket.com February 2019 Mergers & Acquisitions 9

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Businesses give back

“We understand that business success today is more than finances”

Blackbaud Inc. (Nasdaq: BLKB) has acquired YourCause for $157 million. YourCause is a software company that helps businesses and their employees make and track do- nations, and signup for volunteering. “We understand that business success today is more than finances; it’s also critical to engage on social issues,” says Blackbaud CEO Mike Gianoni. “In a time where 84 percent of Americans believe businesses shoulder a responsibility to bring social change, providing those businesses with the

right tools not only helps attract and retain customers and YALLA employees, but it helps to build a better world.” Fat Brands adds PE firms like corporate Mediterranean flavors carveouts Demand for authentic, healthy cuisine is one of the drivers in restaurant M&A The divestiture is part of Regal’s strategy to focus on core businesses Fat Brands Inc. (Nasdaq: FAT) has acquired Yalla Medi- terranean, a restaurant chain that offers authentic, health- Sun Capital Partners is buying industrial machine parts ful Mediterranean cuisine that is served in “environmentally- maker Regal Beloit Corp.’s (NYSE: RBC) drive technologies friendly operations.” The target’s menu features Greek business. The target designs and manufactures engineered wraps, power greens salads, and basmati rice platters, and controls, voltage starters and drives that are used in motor has around seven locations mainly in California. Yalla joins control systems, and is estimated to generate $131 million in Fat Brands’ portfolio of brands, including: Fatburger, Buf- revenue in 2018. falo’s Café, Buffalo’s Express, Hurricane Grill Wings, Pon- “The acquired motor control solutions platform is a great derosa and Bonanza Steakhouses. fit in our portfolio, and in line with Sun Capital’s experi- “Yalla Mediterranean’s commitment to authentic, healthy ence investing in both corporate carve-outs and industrial and responsibly sourced products aligns strongly with Fat companies,” says Sun Capital co-CEO Marc Leder. “We see Brands’ commitment to providing guests with high-quality, enormous potential in these businesses, and will provide made-to-order meals,” says Fat Brands CEO Andy Wieder- the support and resources needed to grow them into a horn. “By bringing Yalla Mediterranean into the Fat Brands successful, stand-alone company.” The divestiture is part of family, we’ll be able to help the brand grow its footprint in Regal’s strategy to focus on core businesses. Baird and Foley & its existing markets and expand to new markets through our Lardner are advising Regal. extensive network of franchise partners.” Fat Brands franchises more than 300 restaurants worldwide and has over 300 additional restaurants under development in 32 countries. Demand for authentic, healthy cuisine is one of the drivers in restaurant M&A.

10 Mergers & Acquisitions February 2019

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Lending a hand The future of retail Firms are raising lending funds to invest in loans with attractive pricing and terms JD.com and Intel are jointly developing • Antares algorithms that analyze customer traffic and in-store purchasing habits • Ares Management JD.com, China’s largest retailer, and Intel have launched a • Audax Private Debt joint lab that will explore retail applications for the Internet of Things (IoT). The Digitized Retail Joint Lab will develop • Madison Capital Funding next-generation vending machines, media and advertising • Monroe Capital solutions, and technologies to be used in the stores of the future, based on Intel architecture. Source: Mergers & Acquisitions The new lab marks the extension of the existing partnership between Intel and China’s largest retailer. The compa- Ares raises debut U.S. senior nies are jointly developing algorithms that analyze customer traffic and in-store purchasing habits to help store owners direct lending fund provide a more personalized and convenient experience to their customers. Ares sees improving market conditions to “As China’s most influential retailer and a leader in data- invest in high-quality, senior secured loans driven offline retail innovation, JD is an important partner for with attractive pricing and terms us to continue to develop a wide range of use cases for our latest technology developments,” said Wei Chen, vice president of Intel and general manager of Intel IOTG China. In Ares Management Corp. (NYSE: ARES) has closed its first June, JD announced a $550 million investment from Google, U.S. senior direct lending fund at $3 billion. With anticipated owned by Alphabet Inc. (Nasdaq: GOOGL). leverage, total capital is for the fund is expected to be around $5 billion. The fund has already committed to more than 20 companies representing more than $700 million. “Based on recent volatility, we are seeing improving market conditions to invest in high-quality, senior secured loans with attractive pricing and terms,” says Ares U.S. direct lending co-head Mark Affolter. “Our significant capital avail- ability, deep and longstanding relationships and market- leading position with middle market sponsors and management teams provides significant advantages during times of market uncertainty.” The Ares credit group manages $60.4 billion in global direct lending, with $39.2 billion in the U.S. and $21.2 billion in Europe, as of Sept. 30, 2018. Other firms that have raised new lending funds include: The Carlyle Group LP (Nasdaq: CG) closing its third CLO fund; Madison Capital Funding closing a new fund; and Monroe Capital raising its third private credit fund. ADOBE STOCK

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Pets draw investors

The pet sector is attractive to buyers because people treat pets as part of their families

Sentinel Capital Partners has acquired pet supply store chain Pet Supplies Plus. In addition to selling pet supplies and food, PSP also offers services such as dog grooming, PETS SUPPLIES PLUS bathing and flea treatment. The target operates 448 stores across 33 states. segment and a very loyal customer base.” “The pet industry is very attractive due to its stability, The pet sector is attractive to buyers because people treat growth, and passionate consumer base,” says Sentinel Prin- pets as part of their families. Arbor Investments is buying the cipal Marc Buan. “PSP has a strong position in the pet retail Pedigree, Iams, Greenies brands from Mars Inc. and Waud

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Capital Partners has created pet care services platform ers attracting buyers in healthcare data. For example, in 2018, Heart + Paw. Medidata (Nasdaq: MDSO) agreed to buy the stake it did not Sentinel is a lower middle-market private equity firm that already own of Shyft Analytics for $195 million, and Inovalon invests in businesses that have up to $65 million in Ebitda (Nasdaq: INOV) agreed to buy Ability Network for $1.2 billion. across the business services, consumer, industrials and Houlihan Lokey Inc. (NYSE: HLI) and McDermott Will & Em- restaurant sectors. In 2018, the PE firm raised around $2.5 bil- ery are advising Q-Centrix and Sterling Partners. Gibson, Dunn lion across two funds, and acquired auto parts maker Holley & Crutcher is advising TPG Growth. Varagon Capital Partners Performance Products from Lincolnshire Management. is providing financing. The new age of healthcare Louis Vuitton owner adds luxury hotel chain Medical professionals are looking to reduce costs while improving patient results Belmond operates 46 luxury hotels mainly

TPG Growth is buying health data company Q-Centrix under the Belmond brand, river cruises, from Sterling Partners. Q-Centrix offers technology-enabled along with the 21 Club restaurant in New data management services for more than 500 healthcare York providers. The company processes more than 2 million data transactions annually related to regulatory matters, clinical French Luxury goods maker LVMH Moët Hennessy Louis registries and infection screenings. Vuitton is buying high-end hotel chain Belmond Ltd. for $3.2 “As the trend toward value-based care continues, more and billion. Belmond operates 46 luxury hotels mainly under the more health systems are relying on quality data to measure Belmond brand, river cruises, along with the 21 Club restaurant clinical outcomes,” says TPG Growth partner Matthew Hobart. in New York. “We provide our partners with smart, technology-enabled data management solutions that help streamline operations and improve the safety and quality of care,” adds Q-Centrix CEO Milton Silva-Craig. In today’s climate, medical professionals are looking to reduce costs while improving patient results. That is one of driv- Bloomberg News Bloomberg

LVHM owns the Louis Vuitton brand. The deal comes as as consumers shift spending toward trips, health clubs, restaurants and entertainment and interest in shopping malls dwindles, reports Bloomberg News. The acquisition addresses another challenge facing LVMH and rivals Kering SA and Richemont. They’ve snapped up so many of the world’s leading brands that there are few prominent leather and couture labels left to buy, according to Bloomberg. In 2016, LVMH backed middle-market private equity firm L Catterton, by combining its PE arm L Capital with consumer-fo-

ADOBE STOCK cused investment firm Catterton. L Catterton is majority owned

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by the partners of the firm, with the remainder being held by investments between $50 million and $250 million across the LVMH and Groupe Arnault, the family holding company of business, industrials, energy, healthcare, technology and tele- LVMH Chairman and CEO Bernard Arnault. In 2018, L Catterton communications sectors. Ridgemont has raised more than $4 announced plans to buy hot sauce distributor Cholula. billion across five funds since the firm was founded in 2010. “Our limited partners have been pleased with our ability Fundraising in the mid to drive attractive returns by being the partner of choice for management teams building leading and distinctive compa- market is robust nies in their respective industries,” says Ridgemont partner Walker Poole. Ridgemont focuses on the business, “The confidence and continued support from our inves- industrials, energy, healthcare, technology tor base are gratifying as we look forward to the opportuni- and telecommunications sectors ties and challenges of today’s market.” PE fundraising in the middle market is robust. Audax Group recently raised $3.5 billion, Center Rock Capital raised $580 million and JMI Eq- Middle-market private equity firm Ridgemont Equity Part- uity raised $1.2 billion. Credit Suisse Securities and Proskauer ners has raised a new fund at $1.65 billion. The fund will target Rose advised Ridgemont. M&A

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2015, according to information collected by Bureau van Dijk, a Moody’s Analyt- ics company. Deal value increased 10 percent over the previous year, although volume declined 7 percent, according to the company’s report. For transactions backed by private equity and venture capital, the volume and value of announced deals increased year over year, with total deal value representing the second-best result on record, surpassed only by 2007, according to Bureau van Dijk.

ADOBE STOCK The year yielded a bum- per crop for private equity buyout deals, found Preqin. Feeling confident The research house reported that 5,106 PE deals were Buoyed by a great 2018, most middle-market companies say announced in 2018, making they are optimistic the M&A activity will continue in 2019 it the most active year the industry has ever recorded, By Mary Kathleen Flynn as measured by deal volume. The activity built from the previous record of 4,829 Most companies in the U.S. middle while 46 percent said interest rate hikes will deals announced in 2017. The market say they are optimistic about M&A have a negative impact. The challenges to total value of these deals in 2019. The confidence comes following business operations most frequently cited rose to $456 billion – close to a record year for private equity-backed include: domestic competition, interest rate the $460 billion seen in 2015 transactions. increases, global competition and trade – based on preliminary data. Sixty-eight percent of the 350 U.S. middle policies. Preqin expects these figures market companies surveyed by TD Bank say “Middle market executives are also keenly to rise by up to 5 percent, as they plan to engage in M&A activity within watching the tight labor market,” says TD more information becomes the next six to 24 months, and 85 percent Bank’s Chris Giamo. “Although companies available. Nonetheless, 2018 said there are no barriers to M&A activity. now have capital for expansion and want remains some way off the The survey included companies generating to grow staff, they are having trouble filling all-time record in deal value between $50 million and $500 million in an- both skilled and unskilled positions, due to a seen in 2007 , immediately nual revenues. persistently low unemployment rate.” prior to the global financial Weighing in on macro-economic issues, M&A thrived in 2018, with the aggregate crisis, when 3,877 PE deals 71 percent of respondents said tax reform value of announced global mergers and valued at $700 billion were will have a positive impact on their business, acquisitions reaching the highest level since recorded. M&A

16 Mergers & Acquisitions February 2019

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017_MAJ0219 17 1/8/2019 10:18:28 AM The Buyside

Streamlining construction BuildingConnected offers TradeTapp, a subcontractor risk analysis software program, and Bid Board Pro, which helps The construction data industry is fragmented, and there is a subcontractors manage and win more growing demand for technology that will help contractors bids. BuildingConnected claims that it is the only bid-management platform that By Demitri Diakantonis provides general contractors and owners with project-specific risk mitigation rec- Autodesk benefit from real-time access to project ommendations based on subcontractor Inc. (Nasdaq: plans, punch lists, project tasks, progress qualification data. This helps contractors ADSK) bought photos, daily field reports and submit- efficiently vet and make more informed PlanGrid, a tals. decisions when selecting subcontractors. provider of Autodesk also has a deal to buy construction BuildingConnected for $275 million. Digital transformation productivity BuildingConnected has a network of Autodesk is not the only company software, for more than 700,000 construction profes- seeking acquisitions in the construction $875 million. sionals, helping real estate owners and data sector. In 2018, Trimble (Nasdaq: PlanGrid’s general contractors find contractors TRMB) bought construction software software allows for their projects. BuildingConnected’s company Viewpoint from Bain Capital contractors to access in real-time project customers include Turner Construction, for $1.2 billion. Viewpoint’s technology plans, punch lists, project tasks, progress McCarthy, Mortenson, StructureTone, helps contractors with finances and photos and daily field reports. “There Skanska, Clark Construction, Ryan project management. Trimble says the is a huge opportunity to streamline all Companies and Aecom. “Bid manage- acquisition complements the company’s aspects of construction through digitiza- ment is a critical step in preconstruction, e-builder business. “The construction tion and automation,” says Autodesk since bidding is the genesis of construc- industry is embarking on a major digital CEO Andrew Anagnost. tion projects,” says BuildingConnected transformation, and together with Trim- “At PlanGrid, we have a relentless CEO Dustin Devan. “We are investing in ble we will further accelerate technology focus on empowering construction work- digitizing and automating construction innovation and adoption to deliver even ers to build as productively as possible,” workflows,” adds Anagnost. more value to our customers,” says View- adds PlanGrid CEO Tracy Young. “One of Along with bid management, point CEO Manolis Kotzabasakis. M&A the first steps to improving construction productivity is the adoption of digital workflows with centralized data. Plan- Grid has excelled at building beautiful, simple field collaboration software, while Autodesk has focused on connecting design to construction.” Autodesk and PlanGrid have comple- mentary construction software. Au- todesk’s BIM 360 construction management program connects people, data and workflows on construction projects. PlanGrid’s technology lets general contractors, subcontractors and owners

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18 Mergers & Acquisitions February 2019

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019_MAJ0219 19 1/8/2019 10:18:29 AM By Keith Button and Mary Kathleen Flynn

What are 2019’s big opportunities in technology? We asked 10 of the most active PE firms investing in the sector for their perspectives and investment plans

020_MAJ0219 20 1/9/2019 10:04:33 AM By Keith Button and Mary Kathleen Flynn

What are 2019’s big opportunities in technology? We asked 10 of the most active PE firms investing in the sector for their perspectives and investment plans

021_MAJ0219 21 1/9/2019 10:04:34 AM Cover Story

Technology permeates many of petitive than their peers,” points out by Amazon. As Amazon scales, it will today’s private equity deals, and PE Richard Lawson, CEO of tech-focused challenge all kinds of industries and it Genstar Capital firms are hot on the trail of innova- PE firm HGGC. “PE firms will continue will have a cascading effect across all Founded in 1988 and tions that will drive sustainable value to to look to invest in companies involved sectors. You are already seeing more headquartered in San customers and make companies more in updating end markets that are still companies trying to connect their Francisco, the firm manages about $10 efficient, more effective and less expen- steeped in outdated technology, such brands with consumers in new ways.” billion. sive to run. Among the developments as retail stores, car dealerships, market To gain more insights into what appealing to PE investors are: artifi- research, insurance providers and the kinds of tech deals will dominate the cial intelligence, data management, legal/patent market.” field in 2019, Mergers & Acquisitions Leadership: Jean- data virtualization, digital marketing, As PE firms consider the tech reached out to 10 private equity firms Pierre Conte, chairman healthcare IT, industrial automation, landscape, they are watching Amazon. that are active investors in technology. and managing director; the Internet of Things, machine-to- com Inc. (Nasdaq: AMZN) closely. “We These include a mix of generalist and Ryan Clark, president and managing director; Rob Rutledge, machine learning, payment processing are always thinking about how we specialist firms. Here are profiles of managing director; Tony Salewski, managing director; and and Software-as-a-Service. can help companies that are going the firms, outlining their strategies and Eli Weiss, managing director. “Technology, in and of itself, is to get dislocated and disintermedi- investments in tech. invading every end market, and it is ated by Amazon,” says Lawson. “End Investment thesis: The firm invests in vertically-oriented soft- driving companies to be more com- markets everywhere are being changed ware businesses considered market leaders that often can serve as consolidation platforms.

Deals: Recently acquired DrillingInfo, a Software-as-a- ruptive growth technology companies Service data provider for the energy industry, from Insight Francisco Partners to helping operationally intensive situa- Venture Partners. Acquired Bullhorn, a SaaS provider to tions. Invests across technology sector, the staffing industry, in partnership with Insight, from Vista including communications, edtech, Equity Partners, in 2017. Bought a stake in PDI, a provider of fintech, healthcare IT, Internet, security, software for convenience stores, from TA Associates, in 2017. software and semiconductors. Technologies: Excited about businesses that provide a com- Deals: GoodRx, a healthcare consumer bination of software and data or payment processing. app that gathers real-time pricing and coupon information from U.S. pharmacies. Recently sold a portion of the HGGC firm’s stake to Silver Lake in a company recapitalization. Sold Paymetric, which automates business-to-business payment workflows, for $550 million to Vantiv in 2017, after acquiring the company for approximately $90 million in 2013. Acquired Dell Software group as a division carveout for approximately Founded in 1999 and headquartered Partners Consulting. $2.5 billion in 2016. The firm later sepa- in San Francisco, the firm manages $12.3 billion. rated it into two operating companies: Investment thesis: “Complexity Arbi- Sonicwall (security) and Quest (infra- trage.” The firm buys “complexity at structure software). Founded in 2007 and headquartered in Palo Alto, California, the firm has Leadership: Dipanjan “DJ” Deb, discount and sells clarity at premium.” $4.3 billion in cumulative capital com- co-founder and CEO; Ezra Perlman Accomplishes this by partnering with Technologies: Excited by technolo- mitments. and Deep Shah, co-presidents; David management teams to unlock growth gies that drive sustainable value for Golob, chief investment officer; Tom potential, simplify operational com- a customer base, make companies or Leadership: Rich Lawson, co-founder Ludwig, chief operations officer; and plexity and clarify strategic positioning. industries more efficient and help save and CEO; Steve Young, co-founder and Mike Kohlsdorf, president, Francisco Opportunities extend from backing dis- time or money.

22 Mergers & Acquisitions February 2019 TheMiddleMarket.com

022_MAJ0219 22 1/9/2019 10:04:39 AM by Amazon. As Amazon scales, it will challenge all kinds of industries and it Genstar Capital Great Hill Partners will have a cascading effect across all Founded in 1988 and Founded in 1998 and sectors. You are already seeing more headquartered in San headquartered in Bos- companies trying to connect their Francisco, the firm ton, the firm manages manages about $10 $3.92 billion. brands with consumers in new ways.” billion. To gain more insights into what kinds of tech deals will dominate the Leadership: Christo- field in 2019, Mergers & Acquisitions Leadership: Jean- pher Gaffney, co- reached out to 10 private equity firms Pierre Conte, chairman founder and manag- that are active investors in technology. and managing director; ing partner; Michael These include a mix of generalist and Ryan Clark, president and managing director; Rob Rutledge, Kumin, Matthew Vettel and Mark Taber, managing partners. specialist firms. Here are profiles of managing director; Tony Salewski, managing director; and the firms, outlining their strategies and Eli Weiss, managing director. Investment thesis: The firm deploys a middle-market growth investments in tech. buyout strategy based on rigorous sector research, proactive Investment thesis: The firm invests in vertically-oriented soft- origination, value-added company-building tactics, con- ware businesses considered market leaders that often can servative use of leverage and an emphasis on exits to large, serve as consolidation platforms. strategic buyers.

Deals: Recently acquired DrillingInfo, a Software-as-a- Deals: Sold Ascenty, a provider of data center services in ruptive growth technology companies Service data provider for the energy industry, from Insight Brazil, to Digital Realty for $1.8 billion. Invested in a majority to helping operationally intensive situa- Venture Partners. Acquired Bullhorn, a SaaS provider to recapitalization of Vatica Health, a provider of software to tions. Invests across technology sector, the staffing industry, in partnership with Insight, from Vista health plans. Invested $65 million in Paytronix Systems Inc., a including communications, edtech, Equity Partners, in 2017. Bought a stake in PDI, a provider of provider of customer engagement software for restaurants. fintech, healthcare IT, Internet, security, software for convenience stores, from TA Associates, in 2017. software and semiconductors. Technologies: Excited about innovations that reduce health- Technologies: Excited about businesses that provide a com- care costs, enable payments and move companies into the Deals: GoodRx, a healthcare consumer bination of software and data or payment processing. public cloud. app that gathers real-time pricing and coupon information from U.S. pharmacies. Recently sold a portion of the HGGC retailers’ operations from inventory firm’s stake to Silver Lake in a com- management to payment systems, and pany recapitalization. Sold Paymetric, merged it with portfolio company My- which automates business-to-business managing partner (former quarterback WebGrocer. Bought a controlling stake payment workflows, for $550 million to for the San Francisco 49ers). in HelpSystems, a global provider of IT Vantiv in 2017, after acquiring the com- operations management, security and pany for approximately $90 million in Investment thesis: “Advantaged Invest- analytics, for an undisclosed amount. 2013. Acquired Dell Software group as ing.” The firm partners with founder- a division carveout for approximately owners, management teams and spon- Technologies: Invests in companies $2.5 billion in 2016. The firm later sepa- sors early in the value creation lifecycle that are using technology to trans- rated it into two operating companies: to build differentiated middle-market form traditional industries. The firm Sonicwall (security) and Quest (infra- businesses. is excited about data virtualization, structure software). Founded in 2007 and headquartered or technology that integrates data in Palo Alto, California, the firm has Recent Deals: Paid RPX Corp. share- from disparate sources, locations and $4.3 billion in cumulative capital com- Technologies: Excited by technolo- mitments. holders about $555 million in cash to formats to create a single “virtual” data gies that drive sustainable value for take private the patent acquirer and layer, resulting in faster data access, a customer base, make companies or Leadership: Rich Lawson, co-founder patent risk manager. Invested in Mi9 less replication, lower costs and greater industries more efficient and help save and CEO; Steve Young, co-founder and Retail, which provides software for agility for change. time or money.

TheMiddleMarket.com February 2019 Mergers & Acquisitions 23

023_MAJ0219 23 1/9/2019 10:04:42 AM Cover Story

Insight Venture Partners LLR Partners Silver Lake

Founded in 1995 and Founded in 1999 and Founded in 1999 and headquartered in New headquartered in headquartered in York, the firm manages Philadelphia, the firm Menlo Park, California, more than $20 billion. has more than $3.5 and New York, the firm billion in cumulative manages about $45.5 capital commitments. billion. Leadership: Jeff Hor- ing, co-founder and Leadership: Mitchell Leadership: Mike managing director; Hollin, Scott Perricelli, Bingle, Egon Durban, Deven Parekh, managing director David Reuter, Jack Slye and David Stienes, partners. Ken Hao and Greg Mondre, managing partners/managing . directors. Investment thesis: With an approach the firm describes as Investment thesis: The firm makes minority and majority in- “straightforward and results-driven,” it deploys “core pillars” vestments in growing companies with minimum revenues of Investment thesis: The firm invests in what it considers to be of scale, focus, and experience to help software companies $10 million and equity capital requirements of $20 million to the world’s leading technology companies and tech-enabled capture value and generate long-term business success. $100 million in education, healthcare, fintech, industrial tech, businesses. Seeks to cultivate proprietary or specialized security (cyber/physical) and software industries. investment opportunities not typically available to generalist Recent deals: Acquired Episerver, a provider of digital investors and to partner with “premier” management teams. content, commerce and marketing cloud software, for $1.16 Deals: Partnered with Kevin Jones to form Celero Commerce, billion from Accel-KKR. Led a $165 million Series D funding an e-commerce software provider, and made an investment Deals: Acquired a majority stake in ServiceMax, a provider of round in JFrog, which offers a software release platform for in UMS Banking, Made a growth capital investment in Edlio, cloud-based productivity tools for field service technicians, continual updates. a provider of software for K-12 schools. Invested in Edmunds from GE Digital. Acquired ZPG Plc, which develops property & Assoc., a software provider for government agencies. listing websites, for about $2.8 billion. Bought a stake in Technologies: Excited about artificial intelligence and ma- GoodRx, which gathers real-time pricing and coupon infor- chine learning, healthcare technologies and cybersecurity. Technologies: Excited about technologies in the test and mation from U.S. pharmacies, from Francisco Partners. measurement, electronic components and Internet of Things/machine-to-machine sectors, as well as payments, Technologies: Invests strategically and selectively across the wealth management, lending and hospitality technologies. broad value chain of the technology industry.

tion and non-degree programs more The Riverside Co. effectively and efficiently. Invested in Vista Equity Partners Spirion, a provider of IT security and data privacy software. Sold Grace Hill, Investment thesis: The firm is focused a provider of online training, creden- exclusively on the smaller end of the tialing and performance assessment middle market, and makes control tools for managers of multifamily prop- and non-control investments in grow- erties, for an undisclosed price to Stone ing businesses valued at up to $400 Point Capital, after more than doubling million. For 30 years, and more than Grace Hill’s sales since it acquired the 560 investments, Riverside has honed target in 2014. its approach to sourcing and growing Founded in 2000 and headquartered Founded in 1988 and headquartered “little leading” companies. Technologies: Excited about analytical in Austin, Texas, the firm currently has more than $46 billion in cumulative in New York and Cleveland, the firm software; Software-as-a-Service; and capital commitments. manages about $8.4 billion. Deals: Invested an undisclosed amount enterprise systems that offer mission- in Destiny Solutions, which makes critical tools, data aggregation and Leadership: Béla Szigethy and Stewart software that helps higher education business intelligence. Leadership: Robert F. Smith, founder, Kohl, co-CEOs. institutions manage continuing educa- chairman and CEO; Brian Sheth, co-

24 Mergers & Acquisitions February 2019 TheMiddleMarket.com

024_MAJ0219 24 1/9/2019 10:04:53 AM LLR Partners Silver Lake TA Associates

Founded in 1999 and Founded in 1999 and Founded in 1968 and headquartered in headquartered in headquartered in Bos- Philadelphia, the firm Menlo Park, California, ton, the firm manages has more than $3.5 and New York, the firm about $13 billion. billion in cumulative manages about $45.5 capital commitments. billion. Leadership: Brian Leadership: Mitchell Leadership: Mike Conway, chairman and Hollin, Scott Perricelli, Bingle, Egon Durban, managing partner; Ajit David Reuter, Jack Slye and David Stienes, partners. Ken Hao and Greg Mondre, managing partners/managing Nedungadi, managing partner. directors. Investment thesis: The firm makes minority and majority in- Investment thesis: The firm invests in profitable, high-growth vestments in growing companies with minimum revenues of Investment thesis: The firm invests in what it considers to be companies with high-quality business models. Aims to help $10 million and equity capital requirements of $20 million to the world’s leading technology companies and tech-enabled management accelerate organic growth by identifying $100 million in education, healthcare, fintech, industrial tech, businesses. Seeks to cultivate proprietary or specialized accretive acquisition opportunities and accelerate perfor- security (cyber/physical) and software industries. investment opportunities not typically available to generalist mance with consulting and operating experience. investors and to partner with “premier” management teams. Deals: Partnered with Kevin Jones to form Celero Commerce, Recent deals: Invested in Datix, a provider of healthcare an e-commerce software provider, and made an investment Deals: Acquired a majority stake in ServiceMax, a provider of software. Invested in Flexera, a provider of software as- in UMS Banking, Made a growth capital investment in Edlio, cloud-based productivity tools for field service technicians, set management solutions. Acquired Insightsoftware.com a provider of software for K-12 schools. Invested in Edmunds from GE Digital. Acquired ZPG Plc, which develops property International, an enterprise software provier, from Thompson & Assoc., a software provider for government agencies. listing websites, for about $2.8 billion. Bought a stake in Street Capital Partners. GoodRx, which gathers real-time pricing and coupon infor- Technologies: Excited about technologies in the test and mation from U.S. pharmacies, from Francisco Partners. Technologies: Excited about vertical market software ap- measurement, electronic components and Internet of plications, healthcare information technology and financial Things/machine-to-machine sectors, as well as payments, Technologies: Invests strategically and selectively across the technology products that serve the capital markets, pay- wealth management, lending and hospitality technologies. broad value chain of the technology industry. ment and buyside sectors.

tion and non-degree programs more effectively and efficiently. Invested in Vista Equity Partners $4.75 billion, after having bought the Spirion, a provider of IT security and target for $1.8 billion in 2016. Acquired data privacy software. Sold Grace Hill, founder and president. Dispatch, a field service and customer a provider of online training, creden- experience logistics provider, for undis- tialing and performance assessment Investment thesis: The firm invests closed terms. tools for managers of multifamily prop- exclusively in software, data and erties, for an undisclosed price to Stone technology-enabled organizations Technologies: Invested in artificial Point Capital, after more than doubling led by management teams the firm intelligence and machine learning Grace Hill’s sales since it acquired the considers “world-class.” Vista takes a technologies across its portfolio and- target in 2014. value-added investment approach with developing blockchain technologies in Founded in 2000 and headquartered a long-term perspective that leverages strategic areas to add value to its com- Technologies: Excited about analytical in Austin, Texas, the firm currently has the firm’s deep operational expertise panies and their products. Vista says it more than $46 billion in cumulative software; Software-as-a-Service; and capital commitments. to help companies realize their full is committed to investing in technolo- enterprise systems that offer mission- potential. gies that leverage data in a responsible critical tools, data aggregation and and secure way that produces insights business intelligence. Leadership: Robert F. Smith, founder, Recent deals: Sold marketing soft- and unlocks value for Vista companies chairman and CEO; Brian Sheth, co- ware developer Marketo to Adobe for and their customers. M&A

TheMiddleMarket.com February 2019 Mergers & Acquisitions 25

025_MAJ0219 25 1/9/2019 10:04:56 AM SBIA+AM&AA = the singularly best event for senior-level M&A advisors and lower middle market funds in the country. the SBIA and AM&AA Deal Summit

We are pleased to announce, that SBIA and the Alliance of Merger & Acquisition Advisors (AM&AA) are joining forces and combining SBIA’s Southern Private Equity Conference and AM&AA’s Winter Conference to create a new conference, the SBIA and AM&AA Deal Summit. This joint event will be the singularly best event for senior-level M&A advisors and lower middle market funds in the country.

Scheduled for Wednesday, February 20 – Friday, February 22, 2019 at The Doral in Miami, the SBIA and AM&AA Deal Summit off ers the perfect opportunity to kick-off the New Year with incomparable networking, compelling content, and captivating speakers all at a fi rst-class venue.

SBIA and AM&AA Deal Summit www.eiseverywhere.com/2019dealsummit February 20-22, 2019 The Doral | Miami, FL

026_MAJ0219 26 1/8/2019 10:18:29 AM

3407-NB SBIA-AM&AA Summit spread ad.indd 1-2 12/20/18 11:53 AM SBIA+AM&AA = the singularly best event for senior-level M&A advisors and lower middle market funds in the country. the SBIA and AM&AA Deal Summit

SBIA and AM&AA Deal Summit www.eiseverywhere.com/2019dealsummit February 20-22, 2019 The Doral | Miami, FL

027_MAJ0219 27 1/8/2019 10:18:29 AM

3407-NB SBIA-AM&AA Summit spread ad.indd 1-2 12/20/18 11:53 AM Guest Article Guest article

nance in online mapping.

Faced with this new environment, on the U.S. networks’ capac- how should we rethink our ity, and initially publicly valuation methodology? criticized Verizon, accusing We have identified five critical at- of reducing the bandwidth tributes, which form the foundation of allowed to its users. Eventu- a new approach to value creation. Aug- ally the two agreed on a mented Infrastructure assets should be: partnership to secure faster Intelligent: capable of monitoring speeds from its major car- their operational performance and ca- riers. pacity in real time and maximizing their Other digital services, efficiency of the best level of service however, are becom- they can deliver. Our portfolio company ing infrastructure own- Ascendi, a motorway operator, created ers themselves, investing SustIMS, a system developed with two

ADOBE STOCK heavily in cloud comput- Portuguese universities, to monitor the ing and renewable energy condition of its assets, schedule inspec- capacity. Google now owns tions, assess risks and model deteriora- Augmented infrastructure 8.5% of the world’s subma- tion and maintenance costs. rine cables, signaling the Open: forming part of an ecosystem Investors can’t afford to think about only glass and steel. emergence of a vertically that is open to other players and can Digitalization is transforming the role played by physical assets integrated business that support additional services. Amster- claims to be able to support dam’s Schiphol Airport has opened its By Stefano Mion and Mark Voccola a quarter of global inter- API platform to give external develop- net traffic. Questions over ers access to its business data, enabling whether services like this them to create services that will benefit should be unbundled, as the their customers as well as airport users As the co-leads of the U.S. infrastructure with real assets can create new revenue European Union has done generally. activity at Ardian, a world leading private streams, generating huge flows of real-time with its energy market, have Prolific: able to support a growing investment house with $82 billion in assets data that can benefit owners and users alike. huge potential importance range of services and provide oppor- under management and headquartered in But as the infrastructure markets evolve, for the future value of these tunities to monetize them. 5G mobile Paris, our work gives us a unique vantage stakeholders need to understand what it infrastructure assets. services have the potential to become point into the shifting global infrastructure takes to succeed in that digitalized future. Similarly, our report high- “the platform of platforms”, providing landscape. Our firm has infrastructure invest- One of our major goals with Augmented lights developing competi- the basic infrastructure that will enable ments across the globe, and we have seen Infrastructure was to set out a new frame- tion issues with the emer- connectivity for everything, everywhere. that the days when infrastructure investors work for assessing the impact of digitaliza- gence of potential digital It will have 10 times the capacity of 4G, could afford to think only about concrete, tion on infrastructure assets. This is criti- infrastructure monopolies, one tenth of the latency and consume glass and steel are over. Digitalization is cal because the competitive landscape is such as Google Maps. In 100 times less power per unit of data spreading in all directions, transforming the changing quickly: infrastructure owners and July 2018, Google Maps transferred. role that these physical assets play in our digital service providers are both trying to reviewed the platform’s tariff Resilient: able to absorb shocks lives. own the relationship with the end-user, and policy to increase its cost and adapt to a changing environment. As a global leader in infrastructure invest- this is disrupting up the infrastructure value per request by 1400% - i.e In 2017, our portfolio company Indigo ment, we have been analyzing digital disrup- chain. the cost paid by a service converted 1600sqm of car parking in tion in our industry for several years and We’ve seen clear examples of this conver- using the API each time a the Paris district of La Défense into recently published Augmented Infrastructure, gence between infrastructure owners and new user executes a request co-working, events and exhibition a comprehensive study we undertook with digital service providers in Netflix’s evolving based on it. This opened a French digital consultancy Fabernovel. Our relationship with Verizon and Comcast. In new revenue opportunity for Stefano Mion and Mark Voccola co-lead Ardian’s U.S. infrastructure activities, where they evaluate potential investment opportunities. research shows how blending digital services 2014, Netflix’s user growth put heavy pressure Google thanks to its domi-

28 Mergers & Acquisitions February 2019 TheMiddleMarket.com

028_MAJ0219 28 1/9/2019 10:01:14 AM Guest Article Guest article

nance in online mapping. space. This met local demand for new think it will have defensive benefits, facilities, adjusted to reduced demand by helping infrastructure owners to Faced with this new environment, for parking space and protected the anticipate disruption that could reduce on the U.S. networks’ capac- how should we rethink our asset’s long-term cash flows. the visibility of the asset’s long-term ity, and initially publicly valuation methodology? Impactful: aiming to have a positive earnings potential. criticized Verizon, accusing We have identified five critical at- impact on society, and as a minimum Inevitably, in an economically critical of reducing the bandwidth tributes, which form the foundation of working to reduce negative externali- sector such as infrastructure, regulation allowed to its users. Eventu- a new approach to value creation. Aug- ties. Our renewable energy platform in remains a central concern. This is partly ally the two agreed on a mented Infrastructure assets should be: Italy, 3New, has multiplied its gen- because the digital service providers partnership to secure faster Intelligent: capable of monitoring eration capacity ten-fold since 2007, that are now becoming infrastructure speeds from its major car- their operational performance and ca- creating sustainable jobs and providing players come from a much more loose- riers. pacity in real time and maximizing their clean energy to thousands of custom- ly regulated world – technology – than Other digital services, efficiency of the best level of service ers. Its growth reinforces the ESG the asset owners and operators whose however, are becom- they can deliver. Our portfolio company principles that are central to Ardian’s markets they are moving into. ing infrastructure own- Ascendi, a motorway operator, created investment strategy. To meet this challenge, infrastructure ers themselves, investing SustIMS, a system developed with two Ardian Infrastructure now uses the owners and operators must innovate heavily in cloud comput- Portuguese universities, to monitor the Augmented Infrastructure scoring sys- and update their assets, and they ing and renewable energy condition of its assets, schedule inspec- tem for digital due diligence in all our need to be able earn a return on these capacity. Google now owns tions, assess risks and model deteriora- investment memos. We intend to review investments. But here again, regulation 8.5% of the world’s subma- tion and maintenance costs. our existing portfolio annually using this gets in the way. Current concession rine cables, signaling the Open: forming part of an ecosystem model. The goal is to score every asset agreements most often put greater emergence of a vertically that is open to other players and can or prospective transaction under each rewards on physical capex that will integrated business that support additional services. Amster- of the five headings to assess what the expand the capacity of an asset, rather claims to be able to support dam’s Schiphol Airport has opened its company is doing and benchmark it than on digital innovations that could a quarter of global inter- API platform to give external develop- against its peers to identify opportuni- improve its flexibility – even though net traffic. Questions over ers access to its business data, enabling ties and best practices. The scores give these could lead to end-users receiving whether services like this them to create services that will benefit us a map of the market opportunity a better service. should be unbundled, as the their customers as well as airport users under each criterion, indicating where The industry is therefore going to European Union has done generally. the major value creation opportunities require innovative thinking from public with its energy market, have Prolific: able to support a growing and obstacles lie. authorities and governments to frame huge potential importance range of services and provide oppor- These attributes apply to differ- new contracts that incentivize a wider for the future value of these tunities to monetize them. 5G mobile ing degrees depending on the asset range of investment. However, we infrastructure assets. services have the potential to become involved: an airport is likely to be far believe infrastructure investors cannot Similarly, our report high- “the platform of platforms”, providing more prolific than a windfarm, for afford to wait for that shift to happen. lights developing competi- the basic infrastructure that will enable instance. But using the Augmented The cost of standing still and failing to tion issues with the emer- connectivity for everything, everywhere. Infrastructure framework should allow invest in digital innovation is rising. gence of potential digital It will have 10 times the capacity of 4G, all stakeholders – from infrastructure We are convinced that investors infrastructure monopolies, one tenth of the latency and consume owners and operators, to digital service that are not actively working on the such as Google Maps. In 100 times less power per unit of data providers, public authorities and private sustainable transformation of their July 2018, Google Maps transferred. investors – to gain a better understand- infrastructure assets could be destroy- reviewed the platform’s tariff Resilient: able to absorb shocks ing of how their assets are likely to ing value without realizing it because policy to increase its cost and adapt to a changing environment. perform in the future. the risk of obsolescence is increasing. per request by 1400% - i.e In 2017, our portfolio company Indigo We firmly believe that using our The GPs that emerge as leaders in Aug- the cost paid by a service converted 1600sqm of car parking in framework to assess and value infra- mented Infrastructure will create more using the API each time a the Paris district of La Défense into structure assets will open up new value value than their peers and enjoy a true new user executes a request co-working, events and exhibition creation opportunities. Equally, we competitive advantage. M&A based on it. This opened a new revenue opportunity for Stefano Mion and Mark Voccola co-lead Ardian’s U.S. infrastructure activities, where they evaluate potential investment opportunities. Google thanks to its domi-

TheMiddleMarket.com February 2019 Mergers & Acquisitions 29

029_MAJ0219 29 1/9/2019 10:01:15 AM Q&A THE UNIVERSITY OF TEXAS Giving back to b-school “Investing in an education program, especially through scholarship, is the very best ROI investment you can make philanthropically,” says GTCR’s Phil Canfield.

By Mary Kathleen Flynn

GTCR managing director Phil Canfield serves as director of Cision, Inteliquent, Lytx for the University of Chi- learned the fundamentals of private equity and Mega Broadband Investments. He has cago. In addition, Canfield investing at the Business Honors Program played a leadership role in a number of past is a member of the board of at The University of Texas at Austin. Now investments including AppNet, CellNet, Digi- trustees for Rush University he and his wife Mary Beth are giving back talNet, Rural Broadband Investments, Solera, Medical Center and a mem- to UT’s McCombs School of Business. In Sorenson Communications, Transaction Net- ber of the board of gov- recognition of the gift, the program has work Services and Zayo. Previously, Canfield ernors for Rush University. been renamed the Canfield Business Honors worked in the corporate finance department He is also a member of the Program. of Kidder, Peabody & Co. He holds an MBA United States Olympic and Canfield joined Chicago’s GTCR in 1992 from the University of Chicago and a BBA in Paralympic Foundation’s and is currently a managing director of finance with high honors from the Business Trustee Council. the firm. He serves as the co-head of the Honors Program at the University of Texas. Mergers & Acquisitions technology, media and telecommunications He is a member of the council at the Uni- asked Canfield about his group and has been focused on building this versity of Chicago Booth School of Business donation to UT. area for GTCR since 1996. Canfield currently and serves on the Polsky Center PE Council

30 Mergers & Acquisitions February 2019

030_MAJ0219 30 1/9/2019 10:08:33 AM LEADING FIGURES IN MERGERS & ACQUISITIONS

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031_MAJ0219d30734_MA_RRD_HouseAd_REV.indd 31 1 1/8/20196/28/17 10:18:30 11:47 AM Q&A THE UNIVERSITY OF TEXAS

How did your experience at UT Investing in an education program, bination with prior scholarship funds prepare you to be a private equity especially through scholarship, is the will allow the Canfield Business Honors investor? very best ROI investment you can make Program to offer scholarship to every At the Business Honors Program philanthropically. If you help someone single student in the program. Finally, at The University of Texas, I learned attain a world-class education through the last $3 million is available for im- the fundamentals of investing and scholarship, that investment will com- mediate use for branding, marketing, private equity: accounting, finance, pound over that person’s entire lifetime. student outreach, etc. and integrated financial modeling It’s just like a private equity investment, with scenario analysis. I learned these except you’re investing in people, not What do you hope will be the fundamentals in a setting that was deals. legacy of the Canfield Business rigorous, but also collaborative - differ- Honors Program? ent ideas or perspectives were debated How will the gift be used? I think the Business Honors Pro- in the classroom and in study groups. Overall, it is a $20 million gift. The gram at UT is the best undergraduate That’s exactly how it works in private gift is divided into three components. business program in the country. If equity, including at GTCR - you use $10 million of the gift supports the you talk to potential students in and the business fundamentals to analyze Canfield Business Honors Program at around Texas, it has that perception. and assess and then you overlay with the general and programmatic level. However, when you look at it from a a qualitative discussion about differ- That money can be used for anything national reputation perspective, it is ent potential outcomes and scenarios. from hiring a professor, to developing less well known. There are many high So, the Business Honors Program at UT a student program for getting Business school students in places like New York, was the perfect place to learn how to Honors students in front of employers Chicago, Denver and Los Angeles that be a private equity investor. in a specific geographic area like New don’t know much about it. I am hope- York or Los Angeles, or a specific in- ful that by attracting more students What do investing in this program dustry like, technology, energy, private from across the nation, we’ll be able and investing in private equity equity, etc. $7 million of the gift is for to elevate the national status of and deals have in common? scholarship. This gift is paired with a reputation of the program. I’d like the Private equity investors are wired to $7 million campaign that the school is Canfield Business Honors Program to look for opportunities to get the very running to match my $7 million (they’ve be recognized across the U.S. as the best returns for their investment. In our raised over half of that already). Once best undergraduate business program business, our job is to maximize ROI. complete, this scholarship fund in com- in the country. M&A

32 Mergers & Acquisitions February 2019

032_MAJ0219 32 1/9/2019 10:08:35 AM Mergers & Acquisitions on Facebook for the latest news and trends in the middle-market industry.

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Newly emboldened watchdogs are going after data transgressors. Aggressive regulatory censure on data issues is now a fact of life in most jurisdictions. Rethinking the due diligence process It is against this backdrop that many companies looking to buy or sell assets through M&A have to rethink their approach to data. Data is fundamentally changing the ADOBE STOCK way deal making works. Companies now need Mitigating data risks to take the deepest of dives into the data security With the rising number of cyberattacks, conducting due credentials of any company diligence on data is more important than ever in dealmaking they target. Depending on deal structure, an acquirer By Neil Coulson and Cynthia Cole assumes the liabilities of the target and these liabilities are often difficult to unearth, particularly when Data has changed the world and the challenges of data risk, to new legislation it comes to data. Such promise of the fruits of large-scale data such as the European Union’s flagship risks may be lying dormant manipulation have changed the way General Data Protection Regulation (GDPR) in a subsidiary business companies do business. The transformative oversight of data and the rules that govern or regional division. The power of data has left very few areas of its use are getting tougher. true extent of any risks modern life untouched. But with promise The penalties for badly managing or associated with data may comes risk, which is increasingly significant. handling data are increasingly pernicious. simply not have been found Barely a day passes without news of a Businesses failing to comply with GDPR, for or spoken about openly. corporate data breach or cybersecurity example, face the threat of fines of up to But ignorance is not incident. From individuals, Fortune 500 four per cent of their annual turnover. a plea that absolves an companies to the smallest mom and pop GDPR is a game-changer affecting the organization of wrongdoing. enterprises, mitigating the risks in handling vast majority of cross-border corporate Whereas in the past, often very sensitive data, is now a daily transactions that take place around the data risk was largely a challenge from which few are excused. world. Conceived in Europe, GDPR has secondary consideration This proliferation of data is being global implications, while it has also in deal due diligence, it is matched by a marked increase in loosened the traditional reticence local and now a question, or series regulatory scrutiny. Whether it be a local U.S. regulators have displayed with regard of questions, that should state authority getting to grips with the to data be posed early on in

34 Mergers & Acquisitions February 2019

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negotiations. Robust buyer scrutiny acquirer with three options: what the issues are and how they can should ascertain the extent of poor 1. A buyer can walk away. be fixed. processes, legacy or historical issues, 2. A buyer can push for the target to Sellers need to be open and laying deep within an organizational take on a much greater liability risk if transparent with an acquirer around structure. anything is uncovered after a purchase data. This not only helps with data Previously, many data risks were has been made. issues but securing wider trust and never unearthed. Warranties were 3. The target company can try to ultimately the final sale. viewed as the medicine to cure secure a lower purchase price. · Data is now everywhere but it’s any data disorder. Acquirers simply None of these options are alarming to note that some industries factored in the cost of a data warranty palatable for the parties involved in still do not believe it impacts them. as a cost of doing a deal. But the cost a deal making process. Targets will Cries of, “We aren’t a social media of warranties has recently increased rarely willfully withhold information company, so that’s not us,” can still exponentially, while the cover pertaining to data risk, rather, they be heard in boardrooms around the associated with those same warranties simply won’t know. world. is now typically capped at levels much While the onus typically falls on Every company is now a data lower than the potential risks and the shoulders of an acquirer to assess company, with most firms buying, costs. This leaves the full risk firmly in the data risks inherent in a target selling or bartering personal the hands of an acquiring company. firm, there is an increasing demand information in one form or another. But risk is complicated to assess. for sellers to show their understanding The problem remains a lack of awareness, so it is incumbent on corporate leadership to drive a culture of understanding around data into every single part of the organizations they run. Be you a buyer or seller, failure to undertake comprehensive assessments of your data ultimately leads to issues in the dealmaking process. Data management is a dynamic process that should be undertaken by both buyers and sellers: promoting internal disclosure, risk assessment and practical application of changing rules and regulations. The task is not insurmountable but the prospect of deal failure, early in the process or later Neil Coulson Cynthia Cole when a latent breach is discovered, is real and has a discernable, measurable How to tackle the data due of any potential issues within their impact beyond the parties involved in diligence conundrum business: the transaction. One of the biggest challenges · As part of any pre-sale process, a The investment in your company’s facing acquirers is what to do when seller should have a comprehensive data assets, and the processes and there is an absence of detail around understanding of its entire data procedures around those assets is key data management, handling and handling abilities and the extent of to a healthy company and healthy mitigation. This essentially leaves an any shortfalls. A seller should identify M&A. M&A

Neil Coulson is a partner and department chair of the intellectual property practice at Baker Botts. Cynthia Cole is special counsel in the corporate practice at Baker Botts.

36 Mergers & Acquisitions February 2019

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(the long-term nature of private equity investments in general are unlike the timeframes some new investors will be investors, disabused of used to). this wrongheaded notion, Many operational questions also should just steam ahead. arise – who will be responsible for As the evidence shows the what, where will the team be? Who will commercial side of club do the reporting? Not everything will deals has never really been be obvious – for instance if investors the issue. What the worst have different sets of tax implications, examples do show (along how will this be handled? Expectation with many others that ex- management becomes that much more perienced problems without important and difficult in any group going bankrupt) is that the collaboration, especially in cases where governance and logistics the investment hits stumbling blocks. of collaboration pose real The concern is these particular and unique challenges that, operational and governance challenges handled badly, can cause are far bigger and complex now than ADOBE STOCK disastrous fallout. they were during the previous era of As Blackstone’s own CIO club deals (and they caused enough Teaming up said earlier this year, “gover- problems then), back when private eq- nance is very difficult when uity was still a relatively informal niche The Blackstone-led purchase of Thomson Reuters suggests a you have six sponsors”. in the financial landscape. Current Many of the high profile high share prices aside, there are some return to private equity club deals and collaborations fallouts can be traced back deeper structural forces at play that not so much to financial fun- are likely to drive an increase in club By Hugh Stacey damentals, but to a lack of deals going forward. More and more communication and control, institutions with little to no prior experi- with peers often falling out ence with the asset class, from the big and some unfortunate cases pension funds down to the new wave of The success of the Blackstone-led con- es is testament to the mixed reputation club of recriminatory lawsuits. family offices, are looking to increase sortium’s bid for Thomson Reuters Corp. has deals acquired in the years since their golden Private equity firms and allocations. Combine this with skepti- gotten people talking about a potential re- age. While firms and investors are well aware their investors are very used cism over traditional fund fee structures turn to club deals and collaborations, which of the theoretical financial risk-spreading to doing things their own and performance, and a growing desire were popoular in the pre-crisis era. benefits involved, a number of high profile way, with sole control. Work- to “cut out the middle man,” and it Reuters’ price tag of $20 billion, making it and messy bankruptcies, including the recent ing together immediately seems inevitable that we will see more the largest leveraged buyout since the crash, Toys R Us, have created a tainted associa- adds a layer of complexity collaborations of various types going suggests an obvious reason why – inflated tion, a perception that collaborations are and decision-making that forward. share prices are simply putting many good more likely to result in financial failure. In most will be unfamiliar with. But this also means more diverse opportunities beyond the reasonable reach light of this, many feel that the challenges Being on the same page aims and interests, among less ex- of even the largest firms. Combine with and risks from a governance perspective from the start is critical: perienced participants, making the this the paucity of yield elsewhere and the simply aren’t worth it. different parties are likely to already-thorny challenge of expec- abundance of cheap credit, and the idea of Nonetheless a recent research note from have different aims, interests tation management even trickier. teaming up for private deals suddenly looks Pitchbook suggests that this reputation is and expectations and this To compound the challenge further, very attractive. The boom-levels build up of largely unfair, at least from the bankruptcy needs to be as transparent increased regulation alongside the dry powder can only go on so long and col- point of view. Collaborations in general are as possible. There will be a desire for transparency on the part of laboration provides an obvious outlet. far less likely to go under than their sole- lack of standard structures That this is only starting to happen now sponsor brethren, to the tune of 50pc. to overcome, and time Hugh Stacey is the managing director of the America’s and head of Augentius investor solutions. amid such favorable economic circumstanc- This doesn’t quite mean firms and horizons are likely to vary

38 Mergers & Acquisitions February 2019 TheMiddleMarket.com

038_MAJ0219 38 1/9/2019 10:02:05 AM Guest Article Guest article

(the long-term nature of private equity investors has significantly increased the fact, outsourcing some of the opera- investments in general are unlike the reporting burden. Investors now both tional functions of the deal in general timeframes some new investors will be want and need granular and regular in- to third parties, such as administrators investors, disabused of used to). formation on their investments, tailored and platform-providers, rather than this wrongheaded notion, Many operational questions also to their own needs and profiles. Club having one of the involved parties should just steam ahead. arise – who will be responsible for deals, by their very nature, multiply this run the show, can be a good basis for As the evidence shows the what, where will the team be? Who will challenge. The ability to provide timely ensuring good governance and rela- commercial side of club do the reporting? Not everything will and relevant information is key to tions. Having an impartial third party deals has never really been be obvious – for instance if investors expectation management, which is that as an operational partner can provide the issue. What the worst have different sets of tax implications, much more crucial in a group venture. confidence, especially during difficult examples do show (along how will this be handled? Expectation All of these problems are quite periods when parties’ interests are at with many others that ex- management becomes that much more solvable, and for those firms that can stake. perienced problems without important and difficult in any group solve them collaborations can work going bankrupt) is that the collaboration, especially in cases where very well indeed. But the problems governance and logistics the investment hits stumbling blocks. require significant thought, planning of collaboration pose real The concern is these particular and – especially on the reporting side – and unique challenges that, operational and governance challenges adequate technological infrastructure. handled badly, can cause are far bigger and complex now than Any group collaboration that relies on disastrous fallout. they were during the previous era of ‘old style’ private equity communication As Blackstone’s own CIO club deals (and they caused enough such as the occasional PDF is asking said earlier this year, “gover- problems then), back when private eq- for trouble in the modern environment, nance is very difficult when uity was still a relatively informal niche especially where non-traditional play- you have six sponsors”. in the financial landscape. Current ers are involved. Many of the high profile high share prices aside, there are some This is less of an issue for the big fallouts can be traced back deeper structural forces at play that fund houses like Blackstone, which not so much to financial fun- are likely to drive an increase in club have adapted well to the digital era damentals, but to a lack of deals going forward. More and more and have their own in-house software communication and control, institutions with little to no prior experi- designed specifically for tracking pri- with peers often falling out ence with the asset class, from the big vate equity investments. But investors and some unfortunate cases pension funds down to the new wave of are far less likely to have these tools, of recriminatory lawsuits. family offices, are looking to increase and building them in-house for the

Private equity firms and allocations. Combine this with skepti- purposes of individual collaborations BLOOMBERG NEWS their investors are very used cism over traditional fund fee structures would be commercially prohibitive and to doing things their own and performance, and a growing desire counterproductive time-wise. A return to club deals could well be way, with sole control. Work- to “cut out the middle man,” and it Service-based third-party inves- here. Given the long-term trajectory of ing together immediately seems inevitable that we will see more tor portals may well come into their the industry this was possibly inevi- adds a layer of complexity collaborations of various types going own here, being far cheaper and also table. And there’s no reason why this and decision-making that forward. particularly suited to the club deal type of investment shouldn’t be able most will be unfamiliar with. But this also means more diverse world in so far as they are designed to flourish. But only if firms go in with Being on the same page aims and interests, among less ex- for easy tailoring across users, and can eyes open to the nature, scale and the from the start is critical: perienced participants, making the readily be amalgamated with a parties’ challenges involved. Unless governance different parties are likely to already-thorny challenge of expec- other investments for the bigger picture lessons are learned, and unless partici- have different aims, interests tation management even trickier. perspective. For those running the club pants make full use of the tools at their and expectations and this To compound the challenge further, deal on the operational side, it also disposal to ensure operational excel- needs to be as transparent increased regulation alongside the makes the critical job of expectation lence, the grim headlines could also as possible. There will be a desire for transparency on the part of management that much simpler. In make a comeback. M&A lack of standard structures to overcome, and time Hugh Stacey is the managing director of the America’s and head of Augentius investor solutions. horizons are likely to vary

TheMiddleMarket.com February 2019 Mergers & Acquisitions 39

039_MAJ0219 39 1/9/2019 10:02:07 AM M&A Insights

Where is the middle market heading in 2019?

Leading dealmakers weigh in on a range of topics, from the current exit climate to the state of interest rates

Ramsey Goodrich Bharat Ramprasad Mark Emrich Carter Morse & Goodrich Stifel Nicolaus Murray Devine

Why now is a great time Excess capital will Keep an eye on to sell fuel M&A interest rates

“There will be no shortage of de- “You’ve got a lot of corporations “I think you’re going to see increas- mand, there’s no question about that,” that are sitting on cash struggling for ing fundraising activity and robust deal says Ramsey Goodrich of Carter Morse growth and trying to use M&A as an activity,” says Mark Emrich of Murray & Goodrich in a video interview. “I think accelerated means to fuel growth,” Devine. we will still be in a great dealmaking says Stifel Nicolaus’ Bharat Ramprasad. “I think you’ve got to keep an eye on environment.” “I don’t necessarily see that chang- different sectors that might be subject Mergers & Acquisitions conducted ing, even if there is weakness in the to some of the regulatory changes a series of video conversations with economy.” that might be forthcoming.Sectors dealmakers about their outlooks for “I think ultimately what’s been driv- like healthcare where you have a lot 2019 at ACG Philadelphia’s M&A East. ing the strength of this market has of banter since 2016 about replacing “We’re still saying it’s a great time to been an imbalance between supply repeal. That will subside. So what does sell. I hope we’re not the Boy Who Cried and demand. You’ve got a lot of private that mean for sectors like healthcare? Wolf. I think this is a different market. equity funds out there with a lot of The insurers, rural hospitals, that sort of It doesn’t feel like where we were in capital that are looking to deploy it to thing?” 2006-2007.” buy good companies.” “Then you also have rising inter- “This is one where we may not “Certainly, the weakness in the equi- est rates, which we all know has been expand as fast as we have been, but I ties markets recently is worth watching. going on for quite some time now. We don’t think we’re going to contract off There are a lot of economists predict- think that’s going to continue.” a cliff either. We might contract a little ing that we may be in for a correction “What type of volatility does that bit. We said that a couple of years ago of some sort of the broader economy, introduce into the private equity as well in our annual letter to our cli- but I don’t know that all of that runs markets? Those are the types of things ents. 2018 was deja vu all over again.” perfectly in correlation with the lower on the margin that I think that private M&A middle market in terms of M&A.” M&A equity managers have to keep an eye on within their portfolios.” M&A

Visit www.TheMiddleMarket.com to watch the video interviews

40 Mergers & Acquisitions February 2019

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