2020 Rising Stars of Private Equity These Emerging Leaders Are Forging New Paths for Their ﬁ Rms and Their Portfolio Companies

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Mute Video Invite Participants Share Screen Chat Record 2020 Rising Stars of Private Equity These emerging leaders are forging new paths for their ﬁ rms and their portfolio companies

0C1_MAJ_0720.indd 1 6/22/20 5:45 PM WHAT’S THE DEAL WITH DUANE MORRIS? THAT NAME KEEPS POPPING UP MORE AND MORE AS DEAL COUNSEL

Representative Private Equity, M&A and Financing Deals

$750 MILLION $110 MILLION $1.6 BILLION $292 MILLION Sale of leading private Acquisition of Memcor® All-stock merger - largest Secondary fundraise label oral care company, ultrafiltration and U.S. public cannabis for Europe’s most Ranir Global Holdings, to membrane biofiltration deal to date - with MPX valuable fintech startup, NYSE-listed Irish pharma technologies from Evoqua Bioceutical Corp. (CSE: TransferWise Ltd., representing growth manufacturer Perrigo for Water Technologies Corp. MPX) for Canadian-listed for capital investor

$447.5 MILLION $250 MILLION $361 MILLION $2.585 BILLION Senior secured PIK Reverse takeover of Investment into Covetrus, Senior secured revolving credit facility with toggle notes and Lineage Grow Company Inc., a combination of a Bank of America as Series A convertible (CSE: BUDD) for California spinout of Henry Schein, administrative agent preferred to Axar cannabis company FLRish, Inc. Inc. (NASDAQ: HSIC) and (dba Harborside) for NYSE-listed Capital for NYSE-listed Vets First Choice for cemetery leader

$285 MILLION $750 MILLION Debt restructuring and Syndicated financing equity transfer for Atlantic Sale to Midwest private Syndicated City’s Ocean Resort Casino equity firm for leading with JPMorgan Chase secured financing for first-lien lenders supply chain solutions Bank as administrative on behalf of Winthrop Capital Partners, provider to consumer agent for Administrative Agent the Witkoff Group and packaged goods industry

$87.5 MILLION $200 MILLION $150 MILLION $350+ MILLION Syndicated, agented Acquisition of Syndicated financing Agent in financings unitranche healthcare Singapore-listed to a major insurance to large auto dealer term and revolver global electronics brokerage for group – the first to use financing, secured by manufacturer PCI Ltd. this subsidiary of proprietary Duane Morris “syndication lite” different collateral for private equity firm Wintrust Financial packages, for structure for

For more information on how seriously

Seattle we take our deals, get in touch with BRIAN KERWIN, chair of our global corporate practice, at 312.499.6737 or [email protected].

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0C2_MAJ0720 2 6/23/2020 4:15:36 PM Contents July/August 2020 | VOL. 55 | NO. 7

Cover Story 14 2020 Rising Stars of Private Equity These emerging leaders are forging new paths for their firms and their portfolio companies, and have been excelling during a period of profound change.

Features

25 Justice doesn’t just happen “As stewards of capital we have an outsized role in determining which businesses to support.”

26 Switching gears Industry expertise and access to capital are among the ways PE firms are helping portfolio companies pivot during the pandemic.

Watercooler Private Equity Perspective 4 10 12 Giving back New age of business Call to action Siris Capital founder Frank Baker gives Carlyle-backed McDonald’s China of- Portfolia Rising America Fund invests in $1 million to Spelman College. fers customers safety protocols. companies led by people of color and/or LGBTQ founders, or products 6 10 and services that cater to these markets. PE on the court Betting on growing IT sector Increasing franchise valuations attract FP closes three funds, as businesses The Buyside a broader range of buyers. take on digital transformation. 13 Race for a vaccine 8 11 With the pandemic spreading, Instacart’s valuation rises Driving forward pharmaceutical manufacturers The company raised $225 million in a Used car seller KAR gets backing from are buying biotech companies to ramp new funding round. Apax to keep operations steady. up Covid-19 research.

TheMiddleMarket.com July/August 2020 Mergers & Acquisitions 1

001_MAJ0720 1 6/22/2020 5:24:21 PM July/August 2020 | VOL. 55 | NO. 7

Standard bearers

The bar has been raised in multiple arenas in 2020, TheMiddleMarket.com 1 STATE STREET PLAZA, 27TH FLOOR and new definitions of excellence are emerging NEW YORK, NY 10004-1505 • (212) 803-8200 EDITOR-IN-CHIEF Mary Kathleen Flynn MANAGING EDITOR Congratulations to Mergers & Acquisitions’ 2020 Demitri Diakantonis Rising Stars of Private Equity! CONTRIBUTING EDITORS Keith Button, Danielle Fugazy David Farsai, Principal, Mainsail Partners, who is EXECUTIVE DIRECTOR, BRAND STUDIO the first at the firm to rise from associate to principal Michael Chu Andrea McGuirt, Senior Associate, Palladium Eq- SENIOR DESIGNER Nick Perkins uity Partners, who established a strategy for sourcing and executing opportunities in the current deal VICE PRESIDENT, CAPITAL MARKETS Harry Nikpour (212) 803-8638 environment SENIOR MARKETING MANAGER Jamie Billington Molly Fitzpatrick, Vice President, Rallyday Part- 212-803-6099 ners, who led three investments and a divestment for the new PE firm Jenny Zhang, Vice President, Investments, Grain Management, who helps CHIEF EXECUTIVE OFFICER �� Gemma Postlethwaite portfolio companies in the telecom infrastructure sector find organic growth CHIEF FINANCIAL OFFICER �� Debra Mason opportunities CHIEF STRATEGY OFFICER �� Jeff Mancini Ross Stern, Principal, Summit Partners, who played a role in nearly $1.3 bil- CHIEF CUSTOMER OFFICER ��Dave Colford lion worth of healthcare company investments CHIEF CONTENT OFFICER �� David Evans CHIEF PEOPLE OFFICER ��Lee Gavin Arjun Mehta, Vice President, Bregal Sagemount, who has made eight platform investments and seven add-on acquisitions Miguel Tejeda, Vice President, Motive Partners, who stands out for his investment acumen and ability to distill complicated concepts and processes

Clara Jackson, Principal, TA Associates, who has become a trusted sup- LICENSING AND REUSE OF CONTENT: Contact our official partner, Wright’s Media, about available porter during the pandemic to help portfolio companies remain sustainable usages, license and reprint fees, and award seal artwork at [email protected] or (877) 652-5295 for more KJ McConnell, Principal, GTCR, who played a leading role in about 10 of information. Please note that Wright’s Media is the only authorized company that we’ve partnered with for Arizent the group’s last dozen deals materials. These outstanding up-and-coming investment professionals have been CUSTOMER SERVICE excelling during a period of profound change in the U.S. and in the world. The [email protected] or (212) 803-8500 bar has been raised in multiple arenas in 2020, and new standards for excel- Mergers & Acquisitions Vol. 55/No. 7 (ISSN 0026-0010) is lence are emerging. published monthly with combined issues in July/August and November/December by Arizent, One State Street Plaza, As we look to the Rising Stars for insights about the future of private 27th Floor, New York, NY 10004-1505. Yearly subscription is $1,995; $2035 for one year in all other countries. Periodical equity, this year, we asked three questions: 1. What is the biggest challenge postage paid at New York, NY and U.S. additional mailing offices. POSTMASTER: Send address changes to Mergers you’ve faced as a dealmaker in 2020, and how have you met it? 2. How are & Acquisitions / Arizent, One State Street Plaza, New York, NY 10004. For subscriptions, renewals, address changes you helping your portfolio companies pivot in the face of the pandemic? 3. and delivery service issues contact our Customer Service department at (212) 803-8500 or email: [email protected]. How are you helping to change the private equity industry when it comes to This publication is designed to provide accurate and authoritative information regarding the subject matter diversity, inclusion and anti-racism? covered. It is sold with the understanding that the publisher is not engaged in rendering financial, legal, accounting, tax, Read their answers and our profiles of the Rising Stars in this issue’s cover or other professional service. Mergers & Acquisitions is a registered trademark used herein under license. story. M&A ©2020 Arizent and Mergers & Acquisitions. All rights reserved. – Mary Kathleen Flynn

2 Mergers & Acquisitions July/August 2020

002_MAJ0720 2 6/22/2020 5:24:41 PM What’s going on @TheMiddleMarket.com

www.themiddlemarket.com

Special reports Viewpoints Data

11 factors for dealmakers Learning from history Weekly roundups Delayed deals are starting to pick up A look back at the M&A activity imme- Check our website every Friday for PE again, and investors should evalu- diately after the 2007-2008 financial fundraising scorecard and the Weekly ate a target’s performance. Paycheck crisis provides examples to learn from wrap. Recent deals mentioned include Protection Program, supply chain and as we contemplate acquisitions in the IBM’s purchase of Internet portal oper- employee matters are among the post Covid-19 world. Stanley Works’ ator Spanugo and Sirius XM’s acquisi- areas buyers need to be aware of while purchase of Black & Decker in 2009 is tion of podcast management company looking at potential acquisitions. one example. Audios Ventures.

TheMiddleMarket.com July/August 2020 Mergers & Acquisitions 3

003_MAJ0720 3 6/22/2020 9:52:00 AM Watercooler SIRIS CAPITAL Giving back

Siris Capital founder Frank Baker gives $1 million to Spelman College

By Demitri Diakantonis and Mary Kathleen Flynn

Frank Baker (pictured), founder for women in Atlanta that counts women - face in our country, the chal- and managing partner of Siris Capital Starbucks Group president and COO lenges of which are made even more Group LLC, a New York private equity Rosalind Brewer among its alumnae. apparent by the economic and health firm focused on investing in technol- Initially, the scholarship will pay for impact of the Covid-19 pandemic,” ogy and telecommunications compa- the existing spring tuition balances said the Bakers in a statement. “We nies, and his wife, Laura Day Baker, an of nearly 50 members of Spelman’s believe it is critical that talented interior designer and philanthropist 2020 graduating class. Thereafter, women finish college and confidently focused on empowering historically the scholarships will provide support enter – free of undue financial stress underserved communities, have an- to ensure that future high achieving – the initial stage of their professional nounced a $1 million gift toward the graduating seniors have the financial careers. We hope that this gift will establishment of a scholarship for resources to graduate. help lessen their financial burden as Spelman College graduates. Spel- “We are all aware of the head- they start this promising next chapter man is an historically black college winds that people of color - especially in their lives.”

4 Mergers & Acquisitions July/August 2020

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005_MAJ0720 5 6/23/2020 4:15:39 PM Watercooler BLOOMBERG NEWS BLOOMBERG NEWS PE on the court Common enemy

Rising franchise valuations attract a FedEx and Microsoft team to compete broader range of buyers with Amazon

Neuberger Berman’s Dyal Capital Partners is raising money FedEx Corp. (NYSE: FDX) and Microsoft Corp. (Nasdaq: for a fund that will invest in National Basketball Association MSFT) are teaming up to provide commercial shipping cus- teams, part of a growing effort by owners to capitalize on tomers with early warnings of delays from weather, traffic the soaring valuation of pro-sports organizations. and other mishaps, giving the courier and the software Dyal, known as the biggest business of its kind to take maker another weapon as each competes with Amazon. stakes in private equity firms, was tapped by the NBA to com Inc. (Nasdaq: AMZN). acquire interests in teams, according to people familiar with The service, using Microsoft’s cloud software, will give the matter who asked not to be identified because the ar- big and small companies real-time data to determine ways rangement is private. The firm plans to hire sports investing to improve how they move goods. professionals to aid the effort, but it’s unclear how much For example, a medical-device maker could find out money it will seek to raise. from the new FedEx Surround service that a snowstorm With franchise values skyrocketing in recent years, the threatens to delay the shipment of a heart-surgery kit to NBA wants to expand team ownership to include a broader a hospital. Based on the package’s high priority, the ship- array of investors. The high price of a typical team has ment could be rerouted to make sure it arrives on time. made it harder for current investors to unload their stakes, “A lot of insight, a lot of intelligence, hides in this data,” so the league is getting more flexible. The basketball as- Raj Subramaniam, FedEx’s chief operating officer, said in sociation told managers last year that it could create an an interview. “Our work together will dramatically improve investment vehicle that would buy such minority shares. our visibility and agility across the global supply chain.” The coronavirus pandemic -- and resulting blackout of FedEx, which pioneered package scanning and live sports -- also may have put pressure on some owners to tracking more than four decades ago, wants to attract sell stakes in teams. Dyal may eventually apply the strategy commercial customers by providing tools that many to different sports leagues globally. companies can’t develop themselves. In part because Dyal has invested in many private equity firms, including commercial deliveries often involve more than one pack- Silver Lake and Vista Equity Partners. age, that business is more profitable than residential service.

6 Mergers & Acquisitions July/August 2020

006_MAJ0720 6 6/22/2020 9:50:21 AM Mergers & Acquisitions covers all aspects of middle-market dealmaking Get access to exclusive news and analysis of deal sourcing, structures, restructuring, and exits. Professionals on all sides of the deal come here to exchange new ideas and develop winning strategies.

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M&A_2.0_HouseAd_Subscribe.indd007_MAJ0720 7 1 6/23/20201/27/20 4:15:39 5:09 PM Watercooler BLOOMBERG NEWS BLOOMBERG NEWS Buying into data centers Instacart’s valuation rises as Eating into U.S. meal sector across Europe a result of coronavirus Food delivery soars during quarantine More businesses are outsourcing their The company raised $225 million in a Europe’s Just Eat Takeaway.com NV agreed to acquire information services new funding round U.S.-based Grubhub Inc. (NYSE: GRUB) for $7.3 billion, in a deal that creates one of the world’s largest meal-delivery KKR & Co. (NYSE: KKR) said it will put $1 billion into a new Instacart Inc.’s valuation hit $13.7 billion in a funding round companies as the coronavirus pandemic drives a surge in data center venture in Europe, as private equity firms chase after the popularity of the grocery delivery service exploded orders. Amsterdam-based Just Eat Takeaway said it will pay returns in the growing market for digital infrastructure assets. in recent months from an influx of people staying at home $75.15 per share for Grubhub in an all-stock deal. The investment firm is teaming up with industry veteran under pandemic lockdowns. The deal sidelines Uber Technologies Inc., which had Franek Sodzawiczny to launch Global Technical Realty, The new value matches the price Amazon.com Inc. been in acquisition talks with Grubhub for months. Politi- which will develop and build data centers for large technol- (Nasdaq: AMZN) paid to acquire Whole Foods in 2017 and cal pressure raised questions about whether U.S. regulators ogy companies in Europe, it said in a press release Wednes- is a significant jump from Instacart’s valuation in late 2018, would approve such a deal. The two companies had nearly day, confirming an earlier Bloomberg News report. which was $7.9 billion. aligned on a price but remained at odds over other issues, Data centers are drawing increasing interest from private Instacart raised $225 million in the funding round. It will including terms of a breakup fee for Grubhub if the deal equity firms as more companies outsource the storage of use the infusion to support the surge of new customers, couldn’t be completed, according to Bloomberg News vast information sets to third-party providers. Macquarie workers and partners and fuel behind-the-scenes work in Grubhub will launch Just Eat Takeaway into the U.S. Group Ltd., Digital Colony and EQT AB are among investors advertising and business software it provides to grocery market, broadening its already-global reach that includes that have done deals in the sector. partners, Instacart said Thursday. DST Global and General Australia, Brazil and Canada, in addition to its home base in KKR is committing capital from its third global infrastruc- Catalyst joined existing investor D1 Capital Partners in the Europe. Jitse Groen, the Dutch billionaire who created Take- ture fund to GTR, which will be able to deploy more than round. away in 2000 in his university dorm room, has been looking $2.5 billion including debt financing towards building new The grocery delivery service, which is available to more to expand aggressively over the last year. data centers. than 85 percent of U.S. households and 70 percent in Cana- Food delivery was one of the few parts of the economy There were more than 100 mergers and acquisitions da, told Bloomberg News it’s on track to process more than to benefit from the spread of the virus this year, thanks to involving data centers in 2019, the highest tally on record, $35 billion in sales this year. Since the lockdowns began in people spending more time at home. according to Synergy Research Group. Private equity deal- the U.S. in March, demand for Instacart has risen to a level Profit margins are tight in food delivery due to stiff making in the industry increased 50 percent. Digital Colony investors didn’t expect to see before 2025. competition to sign the most popular restaurants and add and EQT agreed in 2019 to take Zayo Group Holdings Inc. “We’re proud to have Instacart continue to play an im- customers. Analysts have said the unprofitable model in private in a deal valuing the fiber network and data center portant role in people’s lives now and long after this crisis food delivery is unsustainable and expect consolidation. operator at about $8 billion. subsides,” says Instacart CEO Apoorva Mehta.

8 Mergers & Acquisitions July/August 2020 TheMiddleMarket.com

008_MAJ0720 8 6/22/2020 9:50:32 AM BLOOMBERG NEWS BLOOMBERG NEWS ADOBE STOCK Instacart’s valuation rises as Eating into U.S. meal sector Market disruptions a result of coronavirus Food delivery soars during quarantine Aquiline raises fourth PE fund The company raised $225 million in a Europe’s Just Eat Takeaway.com NV agreed to acquire Aquiline Capital Partners, a private investment firm that fo- new funding round U.S.-based Grubhub Inc. (NYSE: GRUB) for $7.3 billion, in a cuses financial services and technology, has closed its fourth deal that creates one of the world’s largest meal-delivery private equity fund at $2 billion. The fund represents the Instacart Inc.’s valuation hit $13.7 billion in a funding round companies as the coronavirus pandemic drives a surge in fourth private equity investment fund managed by Aquiline after the popularity of the grocery delivery service exploded orders. Amsterdam-based Just Eat Takeaway said it will pay and focused on the financial services sector. in recent months from an influx of people staying at home $75.15 per share for Grubhub in an all-stock deal. The fund has invested in three companies: CoAdvantage, under pandemic lockdowns. The deal sidelines Uber Technologies Inc., which had which offers insurance and human resources to small and The new value matches the price Amazon.com Inc. been in acquisition talks with Grubhub for months. Politi- mid-sized businesses; Ontellus, a medical records retrieval (Nasdaq: AMZN) paid to acquire Whole Foods in 2017 and cal pressure raised questions about whether U.S. regulators and claims evaluation services company for insurance car- is a significant jump from Instacart’s valuation in late 2018, would approve such a deal. The two companies had nearly riers and law firms; and Elm Street Technology, a real estate which was $7.9 billion. aligned on a price but remained at odds over other issues, technology and marketing services provider. Instacart raised $225 million in the funding round. It will including terms of a breakup fee for Grubhub if the deal “Today’s dynamic market conditions are creating sig- use the infusion to support the surge of new customers, couldn’t be completed, according to Bloomberg News nificant disruptions across financial services, technology workers and partners and fuel behind-the-scenes work in Grubhub will launch Just Eat Takeaway into the U.S. and healthcare that we believe will present compelling advertising and business software it provides to grocery market, broadening its already-global reach that includes investment opportunities for us,” says Jeff Greenberg, CEO partners, Instacart said Thursday. DST Global and General Australia, Brazil and Canada, in addition to its home base in of Aquiline. “We look forward to building on the global Catalyst joined existing investor D1 Capital Partners in the Europe. Jitse Groen, the Dutch billionaire who created Take- momentum we have established and continuing to serve as round. away in 2000 in his university dorm room, has been looking a trusted partner to our portfolio companies through our The grocery delivery service, which is available to more to expand aggressively over the last year. industry expertise, operating capabilities and technology than 85 percent of U.S. households and 70 percent in Cana- Food delivery was one of the few parts of the economy know-how.” da, told Bloomberg News it’s on track to process more than to benefit from the spread of the virus this year, thanks to Aquiline, founded in 2005, is based in New York and Lon- $35 billion in sales this year. Since the lockdowns began in people spending more time at home. don. The firm invests in financial services, financial technol- the U.S. in March, demand for Instacart has risen to a level Profit margins are tight in food delivery due to stiff ogy, insurance, investment management, business services, investors didn’t expect to see before 2025. competition to sign the most popular restaurants and add credit and healthcare. Aquiline has $5.3 billion in assets “We’re proud to have Instacart continue to play an im- customers. Analysts have said the unprofitable model in under management as of December 31, 2019. portant role in people’s lives now and long after this crisis food delivery is unsustainable and expect consolidation. subsides,” says Instacart CEO Apoorva Mehta.

TheMiddleMarket.com July/August 2020 Mergers & Acquisitions 9

009_MAJ0720 9 6/22/2020 9:50:38 AM Watercooler BLOOMBERG NEWS FRANCISCO PARTNERS New age of business Betting on growing IT sector Pandemic and gaming M&A

Carlyle-backed McDonald’s China FP closes three funds, as businesses Farmville maker Zynga makes its offers customers safety protocols take on digital transformation biggest acquisition

Carlyle Group, which has $3.25 billion invested in China, is Francisco Partners has raised $9.7 billion across three funds. Zynga Inc. (Nasdaq: ZNGA) agreed to buy Turkish mobile- wary of new deals in Asia’s largest economy as it primes its The technology-focused PE firm capped about $8.9 billion game maker Peak for $1.8 billion, making its biggest acqui- portfolio companies for a tepid recovery in a world still reel- combined across two equity funds and $750 million in an sition ever during an industry boom fueled by consumers ing from the coronavirus. opportunistic credit fund. staying at home with few live-entertainment options. Yang Xiangdong, a 19-year Carlyle veteran who leads the “The $3 trillion IT market continues to outgrow GDP, and The Peak deal will bring Zynga a popular lineup of puzzle $217 billion buyout giant in Asia, said there’s nothing to be it is no longer only a vertical market. Technology is now games called Toon Blast and Toy Blast. The company is gained from trying to be the “hero” who calls the bottom of pervasive across all sectors of the economy, impacting every making the acquisition at a time when video game compa- the ongoing churn. aspect of our lives,” says FP co-founder Dipanjan “DJ” Deb nies are thriving along with purveyors of video and audio “China ramped back up so fast and we were expecting (pictured). “Through our three pools of capital, our team has streaming, as the pandemic drives a search for diversions. business to be back to 100% normal by now or soon, but we the flexibility to pursue opportunities across the ¬-globe and Peak was founded in 2010 in Istanbul. Besides Earlybird, haven’t quite seen a return to that level yet across the whole help management teams and portfolio companies execute it’s backed by venture capital firms Endeavor Catalyst and portfolio,” Yang said in an interview in Hong Kong. operational and strategic transformation.” Hummingbird Ventures. The firm held off in the first five months on making any “The $3 trillion IT market continues to outgrow GDP, and Zynga’s acquisitions have been critical to its revenue fresh investments, part of Carlyle’s decision globally to tread it is no longer only a vertical market. Technology is now growth and its successful turnaround under Frank Gibeau carefully as rivals rushed in to snap up distressed assets. pervasive across all sectors of the economy, impacting every who took over as CEO in 2016. The idea is to create a mini- Its energies have been focused on ensuring its portfolio aspect of our lives,” adds Deb. “We are very grateful to our empire of successful game studios that can make franchises companies adapt quickly to business in the coronavirus era, limited partners, who have supported us during a global that remain popular for years. where McDonald’s China now offers customers the tempera- pandemic, and to our management teams, who continue to Video game companies have been taking advantage of ture details of the chefs flipping their burgers and lab opera- work tirelessly to help create value for shareholders.” the renewed interest in their products to do deals. AppLovin tor Adicon has pivoted to tapping the booming market for FP focuses investments in technology and technology- Corp. paid about $500 million for Machine Zone, Bloomberg Covid-19 testing among workers returning to the office. enabled businesses that are valued up to $5 billion. The firm News reported. Fortnite maker Epic Games Inc. has also Private equity investments involving a foreign buyer have has backed over 275 tech companies since it was founded, been in fundraising talks. amounted to just $600 million through May in China, about and has raised more than $24 billion. half of the same period last year, according to Prequin. — Bloomberg News contributed to these reports.

10 Mergers & Acquisitions July/August 2020 TheMiddleMarket.com

010_MAJ0720 10 6/22/2020 9:50:51 AM FRANCISCO PARTNERS BLOOMBERG NEWS ADOBE STOCK Betting on growing IT sector Pandemic and gaming M&A Driving forward

FP closes three funds, as businesses Farmville maker Zynga makes its Used car seller KAR gets backing from take on digital transformation biggest acquisition Apax to keep operations steady

Francisco Partners has raised $9.7 billion across three funds. Zynga Inc. (Nasdaq: ZNGA) agreed to buy Turkish mobile- Apax Partners is investing $550 million in KAR Global The technology-focused PE firm capped about $8.9 billion game maker Peak for $1.8 billion, making its biggest acqui- (NYSE: KAR). The target sells used cars through auctions. combined across two equity funds and $750 million in an sition ever during an industry boom fueled by consumers “KAR took early and decisive steps in response to Covid-19 opportunistic credit fund. staying at home with few live-entertainment options. to protect the safety of our employees and customers, pre- “The $3 trillion IT market continues to outgrow GDP, and The Peak deal will bring Zynga a popular lineup of puzzle serve our capital position and keep our operations moving it is no longer only a vertical market. Technology is now games called Toon Blast and Toy Blast. The company is forward,” says Jim Hallett, CEO of KAR. “This transaction pervasive across all sectors of the economy, impacting every making the acquisition at a time when video game compa- will help us continue to support our global customers and aspect of our lives,” says FP co-founder Dipanjan “DJ” Deb nies are thriving along with purveyors of video and audio further accelerate our digital transformation.” (pictured). “Through our three pools of capital, our team has streaming, as the pandemic drives a search for diversions. The proceeds of the transaction will be used to expe- the flexibility to pursue opportunities across the ¬-globe and Peak was founded in 2010 in Istanbul. Besides Earlybird, dite the resumption of operations, meet market demand, help management teams and portfolio companies execute it’s backed by venture capital firms Endeavor Catalyst and sustain the company’s technology platforms and develop- operational and strategic transformation.” Hummingbird Ventures. ment pipeline and navigate through industry recovery, “The $3 trillion IT market continues to outgrow GDP, and Zynga’s acquisitions have been critical to its revenue KAR said. it is no longer only a vertical market. Technology is now growth and its successful turnaround under Frank Gibeau “The company’s market leading digital platforms and pervasive across all sectors of the economy, impacting every who took over as CEO in 2016. The idea is to create a mini- investments in data analytics uniquely position them to aspect of our lives,” adds Deb. “We are very grateful to our empire of successful game studios that can make franchises thrive in the new digital normal,” adds Apax partner Roy limited partners, who have supported us during a global that remain popular for years. Mackenzie. pandemic, and to our management teams, who continue to Video game companies have been taking advantage of Apax focuses on backing software and digital busi- work tirelessly to help create value for shareholders.” the renewed interest in their products to do deals. AppLovin nesses. The firm previously invested in Dealer.com, Dealer- FP focuses investments in technology and technology- Corp. paid about $500 million for Machine Zone, Bloomberg Track, Trader Corporation and Auto Trader Group plc. enabled businesses that are valued up to $5 billion. The firm News reported. Fortnite maker Epic Games Inc. has also Goldman Sachs & Co., J.P. Morgan Securities LLC and has backed over 275 tech companies since it was founded, been in fundraising talks. Skadden, Arps, Slate, Meagher & Flom LLP advised KAR. and has raised more than $24 billion. Simpson Thacher & Bartlett LLP advised Apax. M&A

— Bloomberg News contributed to these reports.

TheMiddleMarket.com July/August 2020 Mergers & Acquisitions 11

011_MAJ0720 11 6/22/2020 9:51:01 AM Private Equity Perspective

partner of GenNx 360 Capital Partners, a private equity firm in Washington DC focused on investing in industrial and business services companies. She was a founding partner and managing director of RLJ Equity Partners, the private equity firm of Robert L Johnson, the billionaire founder of Black Entertainment Television (BET). Juliana Garaizar is a major angel investor, and has served as director of the Texas Medical Center Venture Fund, and as managing director of Houston

PORTFOLIO Angel Network and of the Sophia Busi- Lorine Pendleton ness Angels network in France. She also helped found Galata Business Angels Call to action in Istanbul, WeAngels in Chile and Crecer+ in Spain. Portfolia Rising America Fund invests in companies led Karen Kerr was most recently execu- by people of color and/or LGBTQ founders, or products tive managing director at GE Ventures, and services that cater to these markets and previously a managing director at Arch Venture Partners and a director By Mary Kathleen Flynn at Intellectual Ventures and helped to launch numerous startups as senior director of new ventures and alliances The Portfolia Rising America Fund lies in differences and seek out entre- at the University of Southern California. marks the first fund to be led by five preneurs and startups who are using Lorine Pendleton is the NY chair world-class investors who are also shifting demographics and their own at Tiger21, as well as a longtime and women of color. Mergers & Acquisi- diversity of experience and thought to active angel investor who invests in tions asked investment partner Lorine create innovation that offers outsized and advises women and diverse-led Pendleton about the fund, the founders opportunities for returns and impact. companies. She is on the board of di- and the investment thesis. rectors of the Angel Capital Association Who are the lead investors? (ACA) and ACA’s first African-American What is the Portfolia Rising Our fund is the first to be led by board member in its history, as well as America Fund’s investment five world class investors who are also an alumna and member of Pipeline thesis? women of color: Angels. The fund invests directly in early and Noramay Cadena is a co-founder growth-stage companies in the U.S. and managing partner of MiLA Capital, What companies is the fund led by people of color and/or LGBTQ an early stage venture fund in Los An- investing in? founders, or products and services geles created to advance next genera- Our first investment was in MoCaFi, that cater to these markets. These tion hardware platforms (IoT, robotics, a fintech startup founded by African- are founders, ecosystems, products industry 4.0, frontier tech, etc.). She is American entrepreneur and former and services historically overlooked also the founder and former execu- JPMorgan Chase commercial banking by traditional venture capitalists but tive director of the Latinas in STEM executive Wole Coaxum. Our second positioned for significant growth and Foundation. investment is in a women’s tele-medi- profitability. We believe that strength Daphne Dufresne is a managing cine network. M&A

12 Mergers & Acquisitions July/August 2020

012_MAJ0720 12 6/22/2020 9:48:18 AM The Buyside

manufacturing capabilities,” says Paul Stoffels, Johnson Race for a vaccine & John chief scientific officer. “Our goal is to ensure With the pandemic spreading, pharmaceutical manufacturers we can deliver a vaccine are buying biotech companies to ramp up Covid-19 research to the world and protect people everywhere from this By Demitri Diakantonis pandemic.” Pfizer Inc. (NYSE: PFE) says now is an ideal time to seek deal opportunities. The Merck (NYSE: turing facility and assets in Bohumil, Czech company has formed the MRK), like many Republic. Pfizer Breakthrough Growth other pharmaceuti- “Manufacturing capacity is a critical com- Initiative, where it will cal providers, wants ponent of our strategy to deliver a vaccine invest up to $500 million in to produce 1 billion for the Covid-19 pandemic,” says Stanley biotech firms. Businesses doses of coronavirus Erck, CEO of Novavax. “This acquisition will receive funding and vaccines and start provides the vital assets required to produce access to Pfizer’s scientific testing them on more than 1 billion doses per year.” resources to help them people later in 2020. Other pharmaceutical companies are grow their clinical develop- Merck completed accelerating their internal research. Johnson ment programs. its deal for vaccine maker Themis in June. & Johnson (NYSE: JNJ) is expecting to begin “There has never been a The deal for Themis speeds up those plans. clinical trials of its own vaccine by the end more important moment to Themis is working on developing a vaccine to of July. pursue new collaborations potentially treat the coronavirus. “We are continuing our efforts to build in our industry,” says John “We are eager to combine our strengths important global partnerships and invest Young, Pfizer’s chief busi- both to develop an effective Covid-19 vac- in our vaccine production technology and ness officer. M&A cine in the near term and to build a pandemic preparedness capability directed toward emerging agents that pose a future epidemic threat,” says Roger Perlmutter, president of Merck research laboratories. Themis is not the only company that Merck is working with to develop potential coronavirus treatments. Merck partnered with biotechnology firm Ridgeback Biothera- peutics to work on an experimental antiviral drug called EIDD-2801. The demand to get as many vaccines out as possible quickly is driving M&A in the sector. Novavax (Nasdaq: NVAX) is buying Czech Republic-based Praha Vaccines for $167 million. The two companies will work with vaccine producer Serum Institute of India to develop a coronavirus vaccine. The

acquisition includes a biologics manufac- BLOOMBERG NEWS

TheMiddleMarket.com July/August 2020 Mergers & Acquisitions 13

013_MAJ0720 13 6/22/2020 9:48:48 AM 2020 Rising Stars of Private Equity These emerging leaders are forging new paths for their firms and their portfolio companies

By Mary Kathleen Flynn, Demitri Diakantonis and Keith Button

14 Mergers & Acquisitions July/August 2020 TheMiddleMarket.com

014_MAJ0720 14 6/22/2020 5:22:53 PM 2020 Rising Stars of Private Equity These emerging leaders are forging new paths for their firms and their portfolio companies

By Mary Kathleen Flynn, Demitri Diakantonis and Keith Button

Mergers & Acquisitions is recognizing nine dealmakers as the 2020 Rising Stars of Private Equity. These outstanding up-and-coming investment professionals have been excelling during a period of profound change in the U.S. and in the world. The publication of this list comes at a pivotal moment in time. The country is beginning to open up after three months of quarantine from the coronavirus, while concerns about triggering a second wave remain. Dealmaking under quarantine while working from home has proved challenging, to say the least. Social justice issues have taken on fresh urgency. There is heightened awareness of systemic racial injustice and police brutality against Blacks after the deaths of George Floyd and many others. Meanwhile, the Supreme Court ruled recently that, “An employer who fires an individual merely for being gay or transgender defies the law.” On immigration policy, the Court recently put the brakes on dismantling the Deferred Action for Childhood Arrivals. In the realm of private equity, all of these issues are relevant, as they affect firms and the companies they invest in. The bar has been raised in multiple arenas in 2020, and new standards for excellence are emerging. As we look to the Rising Stars for insights about the future of private equity, this year, we asked three questions: 1. What is the biggest challenge you’ve faced as a dealmaker in 2020, and how have you met it? 2. How are you helping your portfolio companies pivot in the face of the pandemic? 3. How are you helping to change the private equity industry when it comes to diversity, inclusion and anti-racism? Read their answers and our profiles of the Rising Stars in the pages that follow.

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015_MAJ0720 15 6/22/2020 5:22:55 PM Cover Story: Rising Stars

Adaptation Once the coronavirus hit, Farsai focused on helping Mainsail’s portfolio companies adapt the operating plans that they had set in January and manage the people side of changes required by the pandemic. He helped the portfolio companies reevaluate their cost structures, prioritize growth initiatives and redefine what success would look like for 2020. In some cases, the reevaluation led to reducing func- tional budgets and deferring planned David Farsai, Principal, Mainsail Partners Andrea McGuirt, Senior Associate, Palladium Equity Partners hires. The changes help his companies Software specialist “endure the market,” he says, but they Value creator “need to be implemented in a way that Mainsail’s David Farsai is the first to rise from associate preserves culture and ensures we have Palladium’s Andrea McGuirt established a strategy for buy-in across the organization.” to principal at the firm sourcing and executing opportunities “The focus has been Passion for investing of the firm to be promoted to principal bilateral: How to adapt Results driven David Farsai, principal at Mainsail after starting as an associate. Before the 2020 operating Andrea McGuirt joined Palladium Partners, “creates an environment of fun Mainsail, Farsai focused on M&A as an in 2018 and serves as a senior associ- and enjoyment wherever he goes,” says investment banker at Wells Fargo Se- plans set in January and ate. She has “a unique skill set that has Chris Cassidy, operating partner at the curities and Houlihan Lokey. He earned how to help our teams allowed her to contribute meaningfully San Francisco growth equity firm. Farsai a bachelor’s degree from the Marshall manage the people side as a results-driven, dynamic investment joined Mainsail in 2012. He is responsible School of Business at the University of of these changes.” professional at Palladium,” says partner for originating, executing and support- Southern California. Leon Brujis. “She is strategic-oriented, ing new investments for the firm, which disciplined, and most importantly, ex- focuses on software companies. He Creative connecting Uncomfortable conversations tremely passionate about creating value manages three associates and works In 2020, Farsai has helped his team When asked what he’s doing to make in private investments through building closely with Mainsail portfolio com- of associates find creative ways to the private equity industry more inclu- partnerships with multiple stakeholders.” panies SourceScrub, FairWarning and connect with company founders and sive, Farsai says he wants to do more, Bio-Optronics, which includes serving build relationships, Cassidy says. He starting “with learning and encourag- Career track on their boards. As a key member of the advised CEOs and leadership teams ing a more open dialogue about racial Previously, McGuirt was an associate investment team, Farsai “has shown a on navigating the remote workforce injustice in the workplace.” Mainsail at Winona Capital, where she sourced, passion for investing,” Cassidy says, and environment, reforecasting and chang- embraces diversity and racial equality, analyzed and invested in opportunities “compassion, thoughtfulness and integ- ing strategies. Farsai says he’s put his he says, and nearly half of the firm’s in the retail, food, pet, and health and rity” in connecting with people. investing experience to work to “cut employees are women. But “not being beauty industries. Earlier in her career, through the noise to identify oppor- racist is not good enough,” he says, and McGuirt was an investment banking Thrice promoted tunities and overcome the challenges the firm’s leaders are focused on “having analyst in the financial services group Farsai joined Mainsail as an associ- of social distancing.” Prior to 2020, uncomfortable conversations” to better at William Blair. McGuirt earned a BS in ate and was promoted to senior as- Farsai worked on three majority-stake understand and address challenges of accounting and MS in accounting from sociate in 2014 after helping originate acquisitions: in 2019 in SourceScrub, a racism. Current initiatives at the firm Indiana University and an MBA from three platform investments: NCourt, financial services software company; in include setting up and reading through Harvard Business School. Zen Planner and PlayMaker Health. In 2018 in FairWarning, a security software recommended book lists, setting up 2016, he was promoted to vice presi- company; and in 2018 in Bio-Optronics, small discussion groups, implementing This year’s deals dent, and in January 2020 he became a software provider to healthcare orga- unconscious bias training and donating McGuirt played a vital part in the the first person in the 17-year history nizations. to the fight against racial inequality. acquisition of Accupac from financial

16 Mergers & Acquisitions July/August 2020 TheMiddleMarket.com

016_MAJ0720 16 6/22/2020 5:22:56 PM Adaptation tools and resources to be fully produc- Once the coronavirus hit, Farsai tive in a work from home environment, focused on helping Mainsail’s port- I have worked with my team and firm folio companies adapt the operating to prioritize the safety of our portfolio plans that they had set in January and companies, liquidity, as well as business manage the people side of changes continuity and the preservation of jobs. required by the pandemic. He helped As it relates to sourcing in the cur- the portfolio companies reevaluate rent environment and the constraints their cost structures, prioritize growth around travel, I have helped our firm initiatives and redefine what success shift its sourcing strategy to a model would look like for 2020. In some cases, adapted to maximize current market the reevaluation led to reducing func- dynamics, while canvassing our network tional budgets and deferring planned of intermediaries, structured capital Andrea McGuirt, Senior Associate, Palladium Equity Partners hires. The changes help his companies providers, sponsors, lenders, lawyers “endure the market,” he says, but they Value creator and restructuring advisors in addition “need to be implemented in a way that to participating in virtual roundtables, preserves culture and ensures we have Palladium’s Andrea McGuirt established a strategy for industry-specific conferences and buy-in across the organization.” PE-to-PE forums to identify investment sourcing and executing opportunities themes and opportunities emerging “The focus has been from the Covid-19 crisis. I have also bilateral: How to adapt Results driven sponsor J.H. Whitney, a deal that closed assisted our firm’s partnership with an the 2020 operating Andrea McGuirt joined Palladium in January 2020, says Brujis. She also industry trade association to establish in 2018 and serves as a senior associ- led the sale of Cannella, the final plat- a ‘deal network,’ allowing member plans set in January and ate. She has “a unique skill set that has form investment in Palladium’s oldest companies to interact directly regarding how to help our teams allowed her to contribute meaningfully active fund, which was completed in potential investment opportunities.” manage the people side as a results-driven, dynamic investment March 2020. She also worked exten- of these changes.” professional at Palladium,” says partner sively on portfolio company TransForce, Grassroots Leon Brujis. “She is strategic-oriented, a tech-enabled workforce company McGuirt has helped cultivate Palla- disciplined, and most importantly, ex- that provides recruiting, safety, and dium’s partnerships with a wide variety Uncomfortable conversations tremely passionate about creating value education/training services to the trans- of diversity-focused industry trade When asked what he’s doing to make in private investments through building portation and logistics industry. “I have organizations, including Toigo, SEO, the private equity industry more inclu- partnerships with multiple stakeholders.” helped the company bolster and man- WAVE, NAIC, and the Thirty Percent sive, Farsai says he wants to do more, age liquidity, actively evaluate opportu- Coalition. “I have also supported Pal- starting “with learning and encourag- Career track nistic M&A targets, as well as develop a ladium’s efforts to increase gender and ing a more open dialogue about racial Previously, McGuirt was an associate strategic roadmap and macro pivots in racial representation among portfolio injustice in the workplace.” Mainsail at Winona Capital, where she sourced, light of the current environment. I have companies and boards. I have worked embraces diversity and racial equality, analyzed and invested in opportunities also been working to implement and with three of my Harvard Business he says, and nearly half of the firm’s in the retail, food, pet, and health and execute an Objectives & Key Results, or School classmates to launch a cam- employees are women. But “not being beauty industries. Earlier in her career, OKR, process and framework at Trans- paign to raise money and awareness racist is not good enough,” he says, and McGuirt was an investment banking Force to help guide the strategic plan for local grassroot organizations fight- the firm’s leaders are focused on “having analyst in the financial services group and maximize value creation.” ing on the frontlines for social justice. uncomfortable conversations” to better at William Blair. McGuirt earned a BS in We have raised over $50,000 from understand and address challenges of accounting and MS in accounting from Prioritizing safety friends and family and are working to racism. Current initiatives at the firm Indiana University and an MBA from “The health, economic and psycho- enact even further change by harness- include setting up and reading through Harvard Business School. logical uncertainty that surrounded the ing the collective power of our network recommended book lists, setting up initial onset of the national pandemic as well as business leaders across small discussion groups, implementing This year’s deals has been a key challenge in 2020,” industries and academia to execute on unconscious bias training and donating McGuirt played a vital part in the explains McGuirt. “Recognizing how initiatives within our communities and to the fight against racial inequality. acquisition of Accupac from financial fortunate I am to have the available firms across the world.”

TheMiddleMarket.com July/August 2020 Mergers & Acquisitions 17

017_MAJ0720 17 6/22/2020 5:22:57 PM Cover Story: Rising Stars

thetic Dentistry by Design for Rally- day’s Espire Dental platform company.

Staying the course Because dental practices were required to close for the coronavirus shutdown, Fitzpatrick says, she helped Rallyday’s Espire Dental platform company prioritize costs, retain all team members and pay them during the shutdown, and provide training and preparation for the reopening in May. In addition to the two dental Molly Fitzpatrick, Vice President, Rallyday Partners Jenny Zhang, Vice President, Investments, Grain Management add-on acquisitions, Fitzpatrick made Tenacious investor a divestment for Espire to set it up for Telecom investor better performance upon reopening. Rallyday’s Molly Fitzpatrick led three investments and a She also amended a credit agree- Grain’s Jenny Zhang is helping portfolio companies in ment for principal payment relief and divestment for the new PE firm covenant cushions, and she invested the telecommunications infrastructure sector find organic growth capital to support the acquisi- growth opportunities Making an impact care, business services and franchise tions and investments in the business. Molly Fitzpatrick joined Rallyday industries. Prior to that, she worked at Effective communicator Partners in September 2019 as a vice Robert W. Baird & Co. in Milwaukee “I have focused on Jenny Zhang, a vice president on president, and she is as much a part of and Wachovia Securities in Charlotte, investing in magical the investment team at Grain Manage- the firm’s mission to “reinvent private North Carolina. She graduated magna businesses founded ment, has impressed the limited part- equity” for the lower middle market cum laude from the University of Notre ners of the PE firm for “the engaging as Rallyday’s founders, says Ryan Dame with a bachelor’s degree in busi- or led by women and way she presents investment informa- Heckman, managing partner at the ness and finance, and she earned her minorities.” tion” and she’s won the confidence of Denver firm, which formed in 2019. MBA from Harvard Business School. company executives for her “disciplined, Fitzpatrick “works tirelessly to serve Circle of diversity measured approach,” says Chad Crank, others and make an impact,” he says. Coping with uncertainty Since 2011, Fitzpatrick says, half managing director, investments, at the “Her smile and unassuming demeanor As uncertainty about the corona- of her portfolio companies have had Washington, D.C., firm. Zhang joined hides her tenacity which is distinctive virus pandemic increased, Rallyday women or minority founders and Grain, which focuses on communica- in our industry that is full of aggressive made the strategic decision to close a CEOs. “I prioritize recruiting diverse tions companies, in the second quarter types that have confused success with deal on Feb. 28 and guide the com- talent to both portfolio companies of 2019. She is responsible for deal significance to others.” Fitzpatrick’s pany through Rallyday’s foundation- – through acquisitions, independent origination, investment underwriting, experience at the Halifax Group and building program virtually rather than directors and senior leaders – and portfolio performance tracking and Mountaingate Capital PE firms has wait for normal travel to resume, Fitz- to Rallyday,” which has four women analytical support. In addition to being helped build best practices at Rally- patrick says. “Since the pandemic shut on the seven-member team, she “an extremely effective communicator,” day, Heckman says. down travel and in-person meetings, it says. “I have focused on investing in she has “the analytical ability needed has been more challenging to collabo- magical businesses founded or led by to inform decision making,” Crank says. Prior experience rate and build my relationships and women and minorities.” She also leads Before joining Rallyday, Fitzpatrick trust with the founders and manage- Rallyday’s vice president recruiting, Prior experience worked at Mountaingate Capital in ment team,” she says, but she’s held focusing on organizations supporting Zhang joined Grain as a vice presi- Denver, where she focused on mid- regular one-on-one videoconferences women and minorities to find can- dent and is on track for promotion to dle-market marketing and business with leaders. Fitzgerald led a growth didates with new perspectives and principal. Before Grain, she worked services companies, and the Halifax investment in Genesis Research, a experiences. “A diverse team attracts seven years at Morgan Stanley, where Group in Washington, D.C., where she data analytics company, and add-on more diverse candidates, becoming she was a vice president in the financial focused on PE investments in health- investments of Lowry Dental and Aes- circular,” she says. institutions group advising clients on

18 Mergers & Acquisitions July/August 2020 TheMiddleMarket.com

018_MAJ0720 18 6/22/2020 5:22:59 PM thetic Dentistry by Design for Rally- ter Communication, a family-owned day’s Espire Dental platform company. telecommunications company based in Arkansas, Crank points out. Staying the course Because dental practices were Stress test required to close for the coronavi- For Grain and its portfolio compa- rus shutdown, Fitzpatrick says, she nies, the pandemic has been “a true helped Rallyday’s Espire Dental plat- test of our ability to jointly navigate form company prioritize costs, retain uncertain situations,” Zhang says. For all team members and pay them dur- one portfolio company, she developed ing the shutdown, and provide training stress tests to identify at-risk revenues, and preparation for the reopening project cash flows and key financial in May. In addition to the two dental metrics, and create a playbook to man- Jenny Zhang, Vice President, Investments, Grain Management add-on acquisitions, Fitzpatrick made age situation-dependent liquidity and a divestment for Espire to set it up for Telecom investor financial covenants. The results were better performance upon reopening. used to adjust the company’s capital She also amended a credit agree- Grain’s Jenny Zhang is helping portfolio companies in plan and to communicate clearly to ex- ment for principal payment relief and ternal stakeholders about the status of covenant cushions, and she invested the telecommunications infrastructure sector find organic the business, Zhang says. Zhang helped growth capital to support the acquisi- growth opportunities Ritter structure an interest rate swap tions and investments in the business. after the pandemic drove interest rates Effective communicator M&A and strategic transactions. She to historic lows. “I have focused on Jenny Zhang, a vice president on also advised clients on esoteric solu- investing in magical the investment team at Grain Manage- tions in the company’s capital markets “We have a uniquely businesses founded ment, has impressed the limited part- division and helped manage its capital diverse team already, ners of the PE firm for “the engaging and liquidity in the corporate treasury and as we grow the firm or led by women and way she presents investment informa- division. Zhang graduated magna cum minorities.” tion” and she’s won the confidence of laude from Cornell University with a we want to not only company executives for her “disciplined, bachelor’s degree in hotel administra- maintain that diversity Circle of diversity measured approach,” says Chad Crank, tion. She serves on the boards of Ritter but further enhance it.” Since 2011, Fitzpatrick says, half managing director, investments, at the Communications and CE Workforce. of her portfolio companies have had Washington, D.C., firm. Zhang joined Enhancing diversity women or minority founders and Grain, which focuses on communica- Digital connectivity Zhang says she has taken an active CEOs. “I prioritize recruiting diverse tions companies, in the second quarter This year, the coronavirus pandemic role in recruiting diverse team mem- talent to both portfolio companies of 2019. She is responsible for deal has boosted competition in the tele- bers at Grain, and Crank says she has – through acquisitions, independent origination, investment underwriting, communication infrastructure space by played an instrumental role with the directors and senior leaders – and portfolio performance tracking and spotlighting the importance of digital firm’s junior banking staffing. “We have to Rallyday,” which has four women analytical support. In addition to being connectivity and broadband, Zhang a uniquely diverse team already, and on the seven-member team, she “an extremely effective communicator,” says. To help meet the challenge, she as we grow the firm we want to not says. “I have focused on investing in she has “the analytical ability needed says, she looked for organic growth op- only maintain that diversity but further magical businesses founded or led by to inform decision making,” Crank says. portunities at Grain’s portfolio compa- enhance it,” she says. Zhang, the most women and minorities.” She also leads nies that compared favorably to deals. senior female dealmaker on the team, Rallyday’s vice president recruiting, Prior experience “Staying on top of both internal and ex- says she is committed to adding more focusing on organizations supporting Zhang joined Grain as a vice presi- ternal opportunities has allowed us to female talent. She manages Grain’s se- women and minorities to find can- dent and is on track for promotion to remain disciplined and make informed nior associate and associate recruiting didates with new perspectives and principal. Before Grain, she worked decisions in the face of a competi- and helps recruit for other roles, seek- experiences. “A diverse team attracts seven years at Morgan Stanley, where tive environment,” she says. Last year, ing strong candidates from a variety more diverse candidates, becoming she was a vice president in the financial Zhang provided critical deal guidance of backgrounds, including diversity of circular,” she says. institutions group advising clients on for Grain’s majority acquisition of Rit- race, ethnicity and gender.

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019_MAJ0720 19 6/22/2020 5:23:00 PM Cover Story: Rising Stars

Virtual care delivery The pandemic forced many of Sum- mit’s healthcare portfolio companies to redefine their business models, recon- sider service delivery and think about new product offerings that will be relevant in a post-Covid-19 world, Stern says. He has helped companies with the rapid shift from in-person to virtual care delivery, return-to-work safety and managing remote clinical workforces. Stern also helped source and distrib- Ross Stern, Principal, Summit Partners Arjun Mehta, Vice President, Bregal Sagemount ute personal protective equipment for Healthcare investor frontline workers and helped identify Payments pro acquisition opportunities, Black says. Summit’s Ross Stern played a role in nearly $1.3 billion The companies Stern has worked with Bregal Sagemount’s Arjun Mehta has made eight during the pandemic include Abode worth of healthcare company investments Healthcare, Paradigm, PharmScript, platform investments and seven add-on acquisitions Sound Inpatient Physicians and U.S. Integral team member earn his MBA from the Wharton School Renal Care. Major driver Ross Stern, principal at Summit Part- at the University of Pennsylvania Arjun Mehta, a vice president at ners, has played a role in sourcing and while also working for the Centers for Bregal Sagemount, has been “a major structuring investments of nearly $1.3 Medicare & Medicaid Services Innova- “Covid-19 has added driver of our activity” and “a talented billion across nine portfolio companies tion Center. He then rejoined Summit significant complexity source of deal flow” for the New York for the Boston PE firm, says Darren as a vice president in 2014 and was in assessing the risk- PE firm, says Pavan Tripathi, a partner Black, managing director at Summit. promoted to principal in 2018. He has at Sagemount who was named one Stern has focused on the healthcare a bachelor’s degree in economics and reward profile of new of Mergers & Acquisitions’ 2019 Rising and life sciences sector, co-leading history from Bowdoin College. investments.” Stars of Private Equity. Mehta identi- investments in Abode Healthcare; fied key themes in payment technolo- DuPage Medical Group, which was ac- More unknown than known Widen the candidate pool gies that evolved into a core focus for quired by Ares Management; Paradigm Covid-19 added significant complex- Stern says he is focused on hav- Sagemount and led the firm’s invest- Outcomes, acquired by OMERS Private ity to assessing potential investments in ing a positive impact on the industry ments in Corcentric, provider of busi- Equity; Sound Physicians and U.S. Renal 2020, Stern says: “Unfortunately there beyond investing, starting with building ness payments software; TrustArc; Keg Care. Stern is an “integral member” is still far more ‘unknown’ than ‘known.’” a culture at Summit that emphasizes Logistics, which was sold to Seaport of the healthcare team and someone To address near-term unpredictability, differing voices and perspectives, and Capital; and Discovery Data, which whom “entrepreneurs seek out op- he focuses on healthcare companies continuing that conversation as a was sold to Northlane Capital. He also portunities to work with,” Black says. with durable business models and that board member at portfolio companies. played critical roles in investments in He has also “built a deep knowledge are well-aligned with macro trends— He says he is also involved in recruit- Procurement Advisors; Steele Compli- of provider-led practice management those that are improving patient out- ing for Summit’s healthcare team ance Solutions; Yapstone; Network businesses, value-based care models comes and reducing costs. “Businesses and executive and director hires at Merchants, sold to Francisco Partners; and the reimbursement landscape.” that benefit multiple constituents in our healthcare portfolio companies. and TradeGlobal, sold to Singapore the healthcare ecosystem have proven “Through these efforts, I am focused on Post, Tripathi says. So nice, he joined twice to be resilient throughout economic recruiting exceptional, diverse talent to Stern joined Summit as an associate cycles,” he says. In 2019, he co-led Sum- Summit and our portfolio, and fostering Fast track in 2009 from the healthcare invest- mit’s investments in Abode Healthcare, initiatives across these organizations Mehta joined Sagemount in 2013 ment banking group at Cowen and Co., provider of home health and hospice that promote equality and inclusion, as an associate, and his work on craft where he focused on M&A and public services, and U.S. Renal Care, one of including widening the candidate pool beer led to the firm’s proprietary and private offerings. He left Summit to the largest dialysis operators in the U.S. and mentorship programs,” Stern says. control buyout of Keg Logistics in 2015

20 Mergers & Acquisitions July/August 2020 TheMiddleMarket.com

020_MAJ0720 20 6/22/2020 5:23:02 PM Sounding board Virtual care delivery As the pandemic cast businesses The pandemic forced many of Sum- into uncharted waters, Mehta says, mit’s healthcare portfolio companies to he supported the three companies redefine their business models, recon- he is involved in with resources, best sider service delivery and think about practices and as a sounding board. new product offerings that will be That included scenario and liquid- relevant in a post-Covid-19 world, Stern ity planning and discussions with says. He has helped companies with their lending partners. With the the rapid shift from in-person to virtual economy beginning to reopen, he care delivery, return-to-work safety and says he helped the companies plan managing remote clinical workforces. for bringing employees back to the Stern also helped source and distrib- office, evaluating long-term coro- Arjun Mehta, Vice President, Bregal Sagemount ute personal protective equipment for navirus implications and examining frontline workers and helped identify Payments pro potential strategies for strengthening acquisition opportunities, Black says. the companies after the pandemic. The companies Stern has worked with Bregal Sagemount’s Arjun Mehta has made eight And besides closing the Corcentric during the pandemic include Abode platform investment, he managed to Healthcare, Paradigm, PharmScript, platform investments and seven add-on acquisitions source a new investment opportunity Sound Inpatient Physicians and U.S. while working from home. Renal Care. Major driver and his promotion to senior associate Arjun Mehta, a vice president at in 2015, Tripathi says. He was pro- “The pain of recent Bregal Sagemount, has been “a major moted to vice president in 2017 after events has made it “Covid-19 has added driver of our activity” and “a talented his third exit deal. Before Sagemount, clear that this isn’t significant complexity source of deal flow” for the New York he worked at Credit Suisse, focused enough. ” in assessing the risk- PE firm, says Pavan Tripathi, a partner on underwriting of debt to support at Sagemount who was named one PE-backed leveraged buyouts and re- reward profile of new of Mergers & Acquisitions’ 2019 Rising capitalizations. Before that, he served Social justice investments.” Stars of Private Equity. Mehta identi- as the CEO of GUASFCU, a $15 million Sagemount has always empha- fied key themes in payment technolo- credit union in Washington, D.C. He sized diversity in its due diligence and Widen the candidate pool gies that evolved into a core focus for earned his bachelor’s degree in foreign initiatives at companies, Mehta says, Stern says he is focused on hav- Sagemount and led the firm’s invest- service from Georgetown University. but “the pain of recent events has ing a positive impact on the industry ments in Corcentric, provider of busi- made it clear that this isn’t enough.” beyond investing, starting with building ness payments software; TrustArc; Keg Lasting partnership He says the firm and he as an indi- a culture at Summit that emphasizes Logistics, which was sold to Seaport Mehta says his biggest challenge vidual have reexamined how they differing voices and perspectives, and Capital; and Discovery Data, which in 2020 was closing Sagemount’s conduct business “with the goal of continuing that conversation as a was sold to Northlane Capital. He also minority growth equity investment promoting inclusion and diversity as board member at portfolio companies. played critical roles in investments in in Corcentric. “The transaction was well as using our influence to support He says he is also involved in recruit- Procurement Advisors; Steele Compli- the product of studying the sector for social justice reforms.” The PE indus- ing for Summit’s healthcare team ance Solutions; Yapstone; Network five-plus years, evaluating dozens of try “has been too slow to embrace the and executive and director hires at Merchants, sold to Francisco Partners; opportunities and patiently waiting for inclusionary approach that generates our healthcare portfolio companies. and TradeGlobal, sold to Singapore the right partnership to arise,” Mehta those diverse opinions,” he says. “I’ve “Through these efforts, I am focused on Post, Tripathi says. says, and with the pandemic crisis, the taken great pride in backing entre- recruiting exceptional, diverse talent to final stages of negotiations became preneurs of all sexes, races, sexual Summit and our portfolio, and fostering Fast track “exponentially more precarious.” But orientations and backgrounds – not initiatives across these organizations Mehta joined Sagemount in 2013 the deal closed May 1, and “the way just because it was the right thing that promote equality and inclusion, as an associate, and his work on craft both parties navigated the uncertainty to do, but because those individu- including widening the candidate pool beer led to the firm’s proprietary has cemented a strong and lasting als were the best leaders for those and mentorship programs,” Stern says. control buyout of Keg Logistics in 2015 partnership,” Mehta says. companies.”

TheMiddleMarket.com July/August 2020 Mergers & Acquisitions 21

021_MAJ0720 21 6/22/2020 5:23:03 PM Cover Story: Rising Stars

Creative workarounds “The biggest challenge I’ve faced as a dealmaker in 2020 has been managing a full deal process remotely, from start to close,” says Tejeda. “I led Tegra118’s add-on acquisition of RetireUp, announced on June 10, which was completed without having a single in-person meeting. Performing high- quality diligence and managing multiple buyside advisors remotely had its challenges. Key work streams that are normally done on-site required creative Miguel Tejeda, Vice President, Motive Partners Clara Jackson, Principal, TA Associates workarounds. For example, we per- Growth driver formed a manual code review via an Fintech expert online staging environment with remote Motive Partners’ Miguel Tejeda stands out for his monitoring capabilities. Ultimately, with TA Associates’ Clara Jackson has become a trusted the help of a great team, active process investment acumen and ability to distill complicated management and Zoom, we were able supporter during the pandemic to help portfolio concepts and processes to close the acquisition seamlessly. It’s companies remain sustainable great to prove that as a team we can Investment acumen Prior experience maintain our high standards through Trusted resource Miguel Tejeda joined Motive Tejeda was an associate at Park such an unusual situation.” Clara Jackson, principal at TA Partners in 2018 and is a vice presi- Square Capital, a multi-strategy credit Associates, has proved herself as a dent on the investment team. He is fund, where he was involved in a num- Champion of diversity consistent top performer on com- responsible for sourcing, analyzing ber of successful investments across “As a Hispanic American working plex transactions, according to TA and executing investments across the capital structure. He led diligence in the private equity industry, I have chair Brian Conway. “The current all sub-sectors of financial technol- for several credit and preferred equity always embraced my responsibility to economic crisis has only highlighted ogy. He serves as a board observer investments in the software and finan- be a champion of diversity, inclusion Clara’s role as a trusted resource, of Tegra118, which is led by CEO cial technology space. and anti-racism,” says Tejeda. “For- assisting portfolio companies with Cheryl Nash. Tejeda stands out for Tejeda began his career at Goldman tunately, Motive has empowered me strategic and tactical support as they his “investment acumen and ability Sachs, within the financial institutions to do so in multiple ways. Last year I navigate a unique and challenging to distill complicated concepts and group, where he focused on M&A advi- was able to help shape our interview market,” says Conway. “Jackson soon processes into tangible actions and sory for financial technology and asset process for the inaugural class of asso- earned a reputation for a prodigious outputs,” says founding principal Sam management clients. While at Goldman, ciates, ensuring the pool of candidates work ethic and analytical capability, Tidswell-Norrish. “While financial he worked on a variety of transactions interviewed was as diverse as pos- and increasingly for her thoughtful, technology businesses typically have within the financial technology space, in- sible, from both a racial and gender unique opinions and perspectives; relatively simple business models, the cluding Visa’s acquisition of Visa Europe perspective. I’ve also participated judgment is the coin of the private customers they serve can be ex- and TSYS’s acquisition of TransFirst. in mentorship programs at Motive, equity realm. Besides analytical tremely complex due to the intricate including the Pencil School Partner- insight, Clara is known for her even- macroeconomic, sociopolitical and Remote management ship Program, where I mentor students tempered personality, unflappable regulatory trends that govern the Tejeda has led add-on M&A activi- from New York City’s public schools patience and humility, and calm financial services ecosystem. Miguel ties for his three portfolio companies, and Project Basta, where I participated under pressure.” has excelled at identifying the true reports Tidswell-Norrish. “Since the on a finance panel for first-generation growth drivers of businesses and the beginning of the pandemic, he has students. I am on the associate board Prior experience associated risks. In particular, his abil- closed one add-on, signed another, of the George Jackson Academy, a Jackson joined TA in 2014. She was ity to assess these risks and structure entered into exclusivity on a third, and middle school in the East Village for promoted to senior vice president transactions appropriately has been evaluated another five potential add- smart, underserved boys from low- in 2016 and then to principal in 2019. recognized by our senior partners.” on opportunities.” income families. Prior to joining TA, Jackson was a

22 Mergers & Acquisitions July/August 2020 TheMiddleMarket.com

022_MAJ0720 22 6/22/2020 5:23:04 PM Creative workarounds TA-backed Orion’s acquisitions of “The biggest challenge I’ve faced as financial technology provider Advizr a dealmaker in 2020 has been man- in 2019 and FJT FundChoice in 2018. aging a full deal process remotely, from start to close,” says Tejeda. “I Playing offense led Tegra118’s add-on acquisition of Jackson is making sure her portfo- RetireUp, announced on June 10, which lio companies are well-positioned for was completed without having a single the future coming out of the pan- in-person meeting. Performing high- demic. “While our current environ- quality diligence and managing mul- ment is hardly ‘normal,’ my portfolio tiple buyside advisors remotely had its companies have adapted and are challenges. Key work streams that are well positioned to play offense,” normally done on-site required creative says Jackson. “I am in daily dialogue Clara Jackson, Principal, TA Associates workarounds. For example, we per- with my portfolio’s management formed a manual code review via an Fintech expert teams and I’m promoting several online staging environment with remote strategic initiatives, including M&A, monitoring capabilities. Ultimately, with TA Associates’ Clara Jackson has become a trusted investments in key technology and the help of a great team, active process go-to-market initiatives, as well as management and Zoom, we were able supporter during the pandemic to help portfolio making strategic leadership hires, all to close the acquisition seamlessly. It’s companies remain sustainable of which, I believe, will position these great to prove that as a team we can businesses to exit the pandemic from maintain our high standards through Trusted resource vice president with Fireman Capital a position of strength.” such an unusual situation.” Clara Jackson, principal at TA Partners, where she served on the Associates, has proved herself as a board of Skip Hop. Jackson was pre- “While our current Champion of diversity consistent top performer on com- viously an associate at TPG Growth environment is hardly “As a Hispanic American working plex transactions, according to TA and an analyst at Goldman, Sachs & ‘normal,’ my portfolio in the private equity industry, I have chair Brian Conway. “The current Co. She received a bachelor’s degree, always embraced my responsibility to economic crisis has only highlighted summa cum laude, in economics from companies have be a champion of diversity, inclusion Clara’s role as a trusted resource, Vanderbilt University and an MBA adapted and are well and anti-racism,” says Tejeda. “For- assisting portfolio companies with from the Harvard Business School. positioned to play tunately, Motive has empowered me strategic and tactical support as they offense.” to do so in multiple ways. Last year I navigate a unique and challenging Increased cadence was able to help shape our interview market,” says Conway. “Jackson soon Quarantine restrictions have Diverse composition process for the inaugural class of asso- earned a reputation for a prodigious forced dealmakers to come up with “I am a firm believer in the power ciates, ensuring the pool of candidates work ethic and analytical capability, other ways to conduct business. of diverse teams; diversity leads to interviewed was as diverse as pos- and increasingly for her thoughtful, “In-person meetings are so critical more creative, thoughtful perspec- sible, from both a racial and gender unique opinions and perspectives; to building that rapport – not having tives and, ultimately, to better deci- perspective. I’ve also participated judgment is the coin of the private that face-to-face interaction is what I sion making,” says Jackson. “In hiring in mentorship programs at Motive, equity realm. Besides analytical miss most and is the biggest chal- at TA, I am deliberately focused on including the Pencil School Partner- insight, Clara is known for her even- lenge that I’ve faced in 2020,” says identifying talented performers from ship Program, where I mentor students tempered personality, unflappable Jackson. “I’ve met this challenge with a broad range of backgrounds, as we from New York City’s public schools patience and humility, and calm an increased cadence of communica- strive to ensure a diverse composition and Project Basta, where I participated under pressure.” tion – more phone calls, more Zoom of our investment team. I also mentor on a finance panel for first-generation meetings.” young professionals looking to break students. I am on the associate board Prior experience Deals that Jackson recently into private equity.” of the George Jackson Academy, a Jackson joined TA in 2014. She was worked on included TA’s February “More broadly, I am focused on middle school in the East Village for promoted to senior vice president 2020 investment in AffiniPay and the building diverse management teams smart, underserved boys from low- in 2016 and then to principal in 2019. firm’s August 2018 strategic invest- and boards for our portfolio compa- income families. Prior to joining TA, Jackson was a ment in Fintech. She also worked on nies,” Jackson adds.

TheMiddleMarket.com July/August 2020 Mergers & Acquisitions 23

023_MAJ0720 23 6/22/2020 5:23:06 PM Cover Story: Rising Stars

Best practices With the coronavirus making a significant impact on PE portfolio companies, McConnell has been doing his part to help businesses stay the course, and continues to find opportunities during quarantine. “I was instrumental in positioning portfolio companies to take advantage of the dislocation through fortifying the balance sheet, identifying operational levers, and outlining strategies to continue to win business,” McConnell KJ McConnell, Principal, GTCR says. “I share best practices, includ- Financial services wizard ing work-from-home and pandemic procedures, early and often among GTCR’s KJ McConnell has played a leading role in about portfolio companies’ management teams.” 10 of the group’s last dozen deals, which represents approximately $2.3 billion in enterprise value “We used videoconferencing Quarterback MBA from Harvard Business School, for all calls and really KJ McConnell, principal at GTCR, where he was a Baker Scholar, and has a deep knowledge of the fintech a bachelor’s degree in finance with emphasized the and payments industries and in a highest honors from the Indiana Uni- social element on short period of time, he has taken versity Kelley School of Business. the calls to foster on the role of team quarterback, great rapport with according to GTCR managing direc- Remote diligence tor Aaron Cohen. McConnell has Despite the challenges that the management.” taken the initiative to expand GTCR’s pandemic presented in dealmaking, payments focus within the finan- McConnell still led a handful of in- Point person cial services and technology group. vestments, including GTCR’s minority “As the point person for the associ- McConnell has been a leader on growth investment in ate, analyst and internship programs, every platform deal that the group wealth advisor CapTrust that closed I help lead the firm’s recruiting efforts, has completed since 2016. He has in June. “Relationships are core to which are focused on identifying played a leading role in about 10 of GTCR and the cultural fit with man- qualified candidates who also bring the group’s last dozen deals, which agement is paramount, so the most diversity to the team,” says McCon- represents approximately $2.3 billion significant challenge of this deal nell. “Leading by example, I create a in enterprise value. was completing diligence remotely,” culture of acceptance and inclusivity McConnell says. “We addressed this among the team. At a portfolio level, Prior experience challenge by using videoconferenc- I advocate for diversity among the McConnell joined GTCR as a vice ing for all calls and really empha- management team and boards, with president in 2014 and became a prin- sized the social element on the calls one portfolio company in the process cipal in 2019. Previously, he worked to foster great rapport with man- of adding its first female director to as an associate at TPG Capital, a agement.” In addition to CapTrust, the board. I advance diversity and global private equity firm based in McConnell led the efforts on Paya, inclusion within the industry through San Francisco, and as an analyst in RevSpring, Ultimus Fund Solutions my recruitment work at GTCR, as well the financial institutions group at and Dash Financial Technology plat- as influencing portfolio company Goldman Sachs. McConnell holds an form deals. management teams.” M&A

24 Mergers & Acquisitions July/August 2020

024_MAJ0720 24 6/22/2020 5:23:07 PM Justice doesn’t just happen

By Mina Pacheco Nazemi I can do more. I am deeply angered and frustrated by recent events. But is it enough to protest, or hurl insults at incompetent leaders? I can do more. Who is responsible for the income disparity that has left working-class families with a material decline in ag- gregate wealth over the last 30 years – from 40% to 20%? This is a product of how we allocate funds, how we manage our businesses, and the value we place on the dignity of work. As stewards of capital we have an outsized role in determining which businesses to support. And while we might not like to admit it, we have enabled businesses to be run in such a manner that these dispersions have become more amplified. I can do more. Businesses that disproportionately compensate senior ranks should not be tolerated. Businesses that don’t have good relations with employees and local communities should not be tolerated. Businesses run by a homogeneous group of individuals should not be tolerated. Businesses which lack diversity at the board level should not be tolerated. As asset allocators, we need to hold ourselves accountable. We need to hold our investment managers accountable and hold their respective portfolio companies accountable. M&A

Mina Pacheco Nazemi is managing director, alternative investments at Barings.

TheMiddleMarket.com July/August 2020 Mergers & Acquisitions 25

025_MAJ0720 25 6/22/2020 12:31:23 PM ADOBE STOCK

Julia Karol SWITCHING GEARS Putting manufacturing expertise to work Industry expertise and access to capital are among the ways PE firms are helping portfolio companies pivot during the pandemic At the onset of every inked deal, the Watermill Group asks companies to reconfirm their value system. “We By Danielle Fugazy guide management through this exercise, so everyone really under- Covid-19 isn’t going away anytime soon. But its reign over the globe may be stands the company and its values,” waning as a result of social distancing coupled with more reliable data about says Julia Karol, president and chief how the disease is spread. With that, many private equity firms and professionals operating officer of Watermill. “This in the industry are helping portfolio companies make decisions about reopening work pays off especially during a their businesses and assess the impact of the coronavirus and how they can best crisis. Because of their values, our move forward. companies have a firm understand- “This has been the world’s largest work-from-home experiment and how we ing of their priorities, which helped leverage the information we collected and understand the new normal will be them move with speed and agility crucial,” says Bryan Berthold, global lead, workplace experience, at Cushman & during this unprecedented situation.” Wakefield. The Boston-based private equity Here are some examples of how PE professionals are helping portfolio compa- firm, which invests heavily in manu- nies through the pandemic through communication or new financing options. facturing companies, has always emphasized safety first at its portfolio

26 Mergers & Acquisitions July/August 2020 TheMiddleMarket.com

026_MAJ0720 26 6/22/2020 5:25:37 PM lunch schedules so fewer people were sitting together, for example. These tactics prepared us for when Covid arrived in the U.S. Some of our U.S. companies were even able to purchase masks and hand sanitizer ahead of the spread to the U.S.,” she says. Other tactics Watermill en- forced included restricting movement around plants, stopping administrative walk-throughs and employing extensive daily cleaning regimens. Karol also got the firm’s portfolio company management teams on the phone with each other so they could share best practices and discuss similar issues they faced, like how to get Paycheck Protection Program loans. From there, some of the firm’s portfolio companies became creative. “We had one company, Tenere, that couldn’t get hand sanitizer, so ADOBE STOCK they sourced aloe and partnered with a winery and made hand sanitizer for Julia Karol employees,” Karol says. Another one of Watermill’s port- Putting manufacturing folio companies, Enbi, reimagined its SWITCHING GEARS business to make face shields. “They are high-tech company with deep expertise to work market knowhow that make rollers Industry expertise and access to capital are among the ways PE firms are helping for printers,” Karol says. “The com- portfolio companies pivot during the pandemic At the onset of every inked deal, companies. This holds especially true pany realized people who have to the Watermill Group asks companies during the coronavirus pandemic. wear the face shields for long periods to reconfirm their value system. “We “We are checking in with our compa- of time were getting deep welts on guide management through this nies more frequently and we worked their foreheads. Enbi was able to exercise, so everyone really under- through how to keep our team mem- make a high-grade compound that stands the company and its values,” bers safe and ensure that our general used foam across the front of the says Julia Karol, president and chief business practices are OK to weather shields, so they are comfortable. Enbi operating officer of Watermill. “This Covid now and then for the long tail will continue to make masks and work pays off especially during a of impact,” Karol says. explore other innovations.” Enbi is crisis. Because of their values, our Because of their global invest- already certified in Europe to provide companies have a firm understand- ments, Watermill benefited from face shields and is working on getting ing of their priorities, which helped seeing effective practices in re- certification to sell their face shields them move with speed and agility sponding to Covid-19 early on, which in the U.S. during this unprecedented situation.” allowed them to move quickly to put “It’s awesome to see the whole The Boston-based private equity best practices in place at all of their manufacturing community using their firm, which invests heavily in manu- manufacturing companies, Karol skills and expertise to help. It’s been facturing companies, has always em- says. “Early on we learned to socially very heartening to see that,” Karol phasized safety first at its portfolio isolate; take temperatures; change says.

TheMiddleMarket.com July/August 2020 Mergers & Acquisitions 27

027_MAJ0720 27 6/22/2020 5:25:42 PM Feature

of transparency on earnings. We don’t have to rely on earnings of today; we can look at equity value targets in the next three to five years. If the value is where the founders believe it will be, they will receive a great deal.” Since this structure isn’t new for New Heritage, the firm’s pipeline is already active with six opportunities in advanced stages. Additionally, about one third of the firm’s deals are growth equity deals while two thirds are majority deals. Going forward Jrolf expects those numbers to flip. In addition to providing liquidity, this strategy may also be used by companies who are having trouble accessing the debt markets, which will inevitably tighten up. “It’s difficult to rely on senior debt to provide the capital that companies will need for the next six to 12 months because earnings visibility is so cloudy. It’s going to be essential to have an equity structure Mark Jrolf that is not looking at quarterly covenants,” says Jrolf. Shoring up capital, “It’s not just the providing flexibility numbers that make a company. It’s the

New Heritage Capital has been isting portfolio companies, New Heri- competitive market, it’s focused on two things since the pan- tage is already working on how to put the business model, the demic started: helping existing portfo- new capital to work. “We have thought marketing.” lio companies preserve their busi- through the most productive ways to nesses and looking for ways to find do that, which we believe is through Jrolf says New Heritage under- new investments in a new world. “Our growth capital or flexible capital op- stands success can’t be defined by team jumped in to help portfolio com- tions,” says Jrolf, who adds that the quarterly numbers alone and the one panies develop daily metrics so they Boston-based firm’s strategy always silver lining that may come out of the could see if they would be 10 percent had a minority investment component. pandemic is more reliance on business down, 20 percent down or worse, and With less visibility into 2020 and fundamentals and less on computer then they would know how they have 2021 earnings, business owners are spreadsheets. “It’s not just the num- to react,” says Mark Jrolf, managing reluctant to sell. “Owners feel like the bers that make a company. It’s the senior partner with New Heritage. “In price will be too low, so they really competitive market, it’s the business the short term it’s all about liquidity don’t want to transact at this point in model, the marketing. To understand and making sure every company has time,” Jrolf says. “New Heritage’s niche the true competitive fundamentals of done what they can to hold on to cash has been to allow founder owners to a business you have to be able to rely and actively collect cash.” get capital and retain ownership. Flex- on your judgement. Spreadsheets are While working hard to support ex- ible structures can deal with the lack helpful, but it’s only a piece,” he says.

28 Mergers & Acquisitions July/August 2020

028_MAJ0720 28 6/22/2020 5:25:45 PM “American Banker has been a daily must read for me throughout my entire career in the banking industry.” Bill Isaac Former Chairman FDIC and Fifth Third Bancorporation & Senior Managing Director FTI Consulting

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001_ABM_00001029_MAJ0720 29 1 6/23/20204/8/20 4:15:39 12:47 PM Feature

principal payments, in some cases. This cooperation is even a bigger fac- tor in the small and middle market, where the absence of covenant-lite loans can trigger these conversations sooner, allowing investors to pull the appropriate levers and improve recovery rates and minimize losses. It is imperative that private equity sponsors engage in an active dialogue with their lenders at this crucial time, Koenig says. Surprises are in nobody’s best interest. “Lenders have their own lenders with their own formulas and models. Ignoring the concerns of your financing partners or showing arrogance will almost certainly result in loss of control and other undesirable results. Lenders are going to have a much shorter fuse in this current environment and will tolerate far less in terms of denial from private equity sponsors or a lack of action,” Koenig says. Ted Koenig Going forward Koenig predicts it Bryan Berthold will not be business as usual. “Just like Open, candid dialogue after the financial crisis there was a Work from home, transition period before it was business as usual. Leverage levels will be and at the office with lenders lower than they were pre pandemic, enterprise multiples will be lower and Monroe Capital CEO Ted Koenig U.S. today is already estimated at over pricing will be higher than it was pre “Does Covid define the new work- is working with his private equity 35 million, a staggering number by any crisis,” he says. space or is it back to business as partners and focused on the liquidity reading of historical precedents. usual?” asks Cushman & Wakefield’s of the portfolio companies. “It’s not Koenig believes private equity firms “Companies do not Berthold. about Ebitda or enterprise value or may have tough decisions to make fail because of Ebitda, Cushman & Wakefield conducted a Ebitda add-backs,” Koenig says. “It’s with portfolio companies facing tem- but because they don’t survey of 38,000 people who are work- about making sure these companies porary disruptions and some with a ing from home to “diagnose the experi- can pay their bills and cover their less-certain path forward. “Companies have enough liquidity.” ence of the workers.” The results show vendors and supplies. This is what’s have been away from the customer that people working remotely had high crucial and what we are most focused and that’s really across all indus- Additionally, lenders are less likely engagement levels and people who had on. Companies do fail not because of tries. The questions are when will the to use their balance sheet to hold as the proper work setup were really mo- Ebitda, but because they don’t have consumer come back and will these much. Club deals will likely become tivated to work from home. “The good enough liquidity.” companies have the staying power to more popular and there will be a news is most people have the tools, con- Moody’s baseline forecast, as be around for when revenue comes renewed focus on industry invest- nectivity and broadband, and are using of early April, predicted the global back again,” says Koenig. ments as some industries will be less videoconferencing,” Berthold says. “We corporate default rate will jump from That said, lenders are working with popular and thus harder to finance, are seeing collaboration being amped 3.5 percent to over 11 percent over the private equity sponsors to ease or like aircraft, hotels, retail, cars and up because everyone is in the same next 12 months. Unemployment in the waive covenants or defer interest or restaurants, Koenig says. place. It was frustrating before when

30 Mergers & Acquisitions July/August 2020 TheMiddleMarket.com

030_MAJ0720 30 6/22/2020 5:25:51 PM principal payments, in some cases. many cases, they have distractions, This cooperation is even a bigger fac- roommates, no room for a proper office tor in the small and middle market, set up, young kids,” says Berthold. where the absence of covenant-lite For companies, the biggest struggle loans can trigger these conversa- to maintain a remote work environ- tions sooner, allowing investors to pull ment will likely come from personnel the appropriate levers and improve feeling disconnected from the company recovery rates and minimize losses. culture. Employees reported that they It is imperative that private equity have high levels of pride in working for sponsors engage in an active dialogue their companies and that they like the with their lenders at this crucial time, culture. But when working from home, Koenig says. they said it is hard to maintain that Surprises are in nobody’s best inter- sense of personal connection to the est. “Lenders have their own lenders culture and they have a weaker bond with their own formulas and models. to the company. Ignoring the concerns of your financing partners or showing arrogance Hybrid approach will almost certainly result in loss of Berthold believes a hybrid of working control and other undesirable results. remotely and in the office is probably Lenders are going to have a much the best way to keep employees con- shorter fuse in this current environ- nected to company culture while al- ment and will tolerate far less in terms lowing for social distancing and safety. of denial from private equity sponsors “Managers used to worry if people or a lack of action,” Koenig says. are working when they weren’t in the Going forward Koenig predicts it Bryan Berthold office. We know that they are working will not be business as usual. “Just like hard and don’t know when to turn it after the financial crisis there was a Work from home, off. The important thing is making sure transition period before it was busi- they have a personal connection to the ness as usual. Leverage levels will be and at the office company and the culture; keep learning; lower than they were pre pandemic, understand the goals of the company enterprise multiples will be lower and and are informed,” says Berthold. pricing will be higher than it was pre “Does Covid define the new work- everyone was in a conference and two Berthold suggests that more time crisis,” he says. space or is it back to business as people were connected by phone. That should be spent simply connecting with usual?” asks Cushman & Wakefield’s is no longer an issue. For the most part, employees while remotely working, “Companies do not Berthold. working from home has been working along with mentoring and learning fail because of Ebitda, Cushman & Wakefield conducted a and people are productive.” rather than just discussing projects. but because they don’t survey of 38,000 people who are work- More than 70 percent of respondents And the employees that struggle the ing from home to “diagnose the experi- feel the work arrangement should most out of the office may be the first have enough liquidity.” ence of the workers.” The results show be maintained and have proven that ones that companies bring back. Some that people working remotely had high productivity can happen anywhere. of the employees that struggle working Additionally, lenders are less likely engagement levels and people who had And yet 70 percent of Generation Zers remotely are sales team, research and to use their balance sheet to hold as the proper work setup were really mo- and millennials report that they have at development, and human resources much. Club deals will likely become tivated to work from home. “The good least one challenge working remotely personnel. “Having people work re- more popular and there will be a news is most people have the tools, con- whereas less than 50 percent of baby motely all the time is a huge risk and renewed focus on industry invest- nectivity and broadband, and are using boomers report challenges. can lead to losing talent. A hybrid ap- ments as some industries will be less videoconferencing,” Berthold says. “We “The younger you are, the more you proach is most likely appreciated and popular and thus harder to finance, are seeing collaboration being amped are struggling. We thought the younger better for the company,” says Berthold. like aircraft, hotels, retail, cars and up because everyone is in the same people would do better because they “We may never see 100 percent of the restaurants, Koenig says. place. It was frustrating before when are so good with technology, but in workforce in the same office again.”

TheMiddleMarket.com July/August 2020 Mergers & Acquisitions 31

031_MAJ0720 31 6/22/2020 5:25:53 PM Feature

was not secure enough in the remote work environment. This is where private equity firms have the ability to differentiate themselves. Some portfolio companies aren’t large enough to have the infrastructure to handle the cyber issues of working remotely. “This is where private equity firms can provide the support that portfolio companies need to keep their data secure,” Tsafos says. In addition to cybersecurity, documentation of changes will be key. With first-quarter valuations wrapped up, many private equity firms have already turned their attention to second-quarter valuations. Documentation will play a key role going forward.

“IT departments need to be strong

Nick Tsafos enough to handle all the plumbing.”

Cybersecurity needs “Thesis drift is likely to happen during this period,” Tsafos says. special attention “A portfolio company starts doing something differently like change With some level of working re- away from is allowing people to print its end market or its operations and motely likely to become the norm, documents in their home and we are those changes need to be document- cybersecurity concerns have come telling our clients they should have a ed so everyone can see the value the to the forefront. Private equity firms VPN and multi-step authentication company brings in today’s market need to critically review, assess and process.” and its ability to adapt to tomorrow’s perhaps improve protection protocols It’s also important to do phishing market. Right now, we are seeing the for their portfolio companies. With so tests, make sure all home devices changes, but we are not seeing the many employees working remotely are up to date and manage mobile documentation and that’s going to it’s imperative that companies pro- device security for employees. have an impact on valuations. It is tect their data, follow policies and “IT departments need to be strong better to be able to make a bullet- procedures, and be diligent when it enough to handle all the plumbing so proof argument about how your port- comes to data privacy and security. to speak. It’s not about being fancy. folio company can generate cashflow “Security is important for every It’s about handling the ongoing and you need the documentation to company,” says Nick Tsafos, an audit needs of the companies and their be able to do that.” partner and partner in charge of the clients,” says Tsafos. He says has seen The bottom line is auditors will be New York office of Eisner Amper, an companies lose business from the less likely to question the valuation 1,800-person accounting firm. “Some Department of Defense and the U.S. if the analysis is thoughtful and well- of the things we recommend staying Army because their infrastructure documented. M&A

32 Mergers & Acquisitions July/August 2020

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