THEMIDDLEMARKET.COM With banks in retreat, PE fi rms are pursuing a new opportunity: SPEND IT OR extending credit to support competitors’ LENDmiddle-market deals IT OCTOBER 2019 CV1_MAJ1019.indd 1 9/9/19 3:20 PM Gain revolution. We broke the mold by bringing M&A payments online. Now we are turning things up a notch with a fast, easy, and predictable platform that takes care of all the details of your deal. Join the movement. Take us for a spin on your next deal. Learn more at srsacquiom.com 0C2_MAJ1019 2 9/9/2019 9:30:49 AM Contents October 2019 | VOL. 54 | NO. 9 Cover Story 20 LEVERAGE With banks in retreat, PE firms are pursuing a new opportunity: extending credit to support competitors’ middle- market deals. Private Equity Perspective 16 Complete control We spoke with Blackstone co-founder Stephen A. Schwarzman about why he SPEND IT likes the PE model. The Buyside OR 18 Expanding e-commerce Logistics and distribution centers are racing to keep up with demand, LEND IT enticing buyer interest. Features 26 Lenders and struggling restaurants Banks are reporting issues tied to the bankruptcies of casual dining chains. 28 Betting on sports Both Worldpay and First Data bring gambling processing businesses and experience to their new owners. Watercooler Guest Article Q&A 6 30 32 Lending together Why PE firms are (hidden) investors Fostering flexibility Crescent expands BDC services with Private equity firms forge new ideas, Prokanga helps financial services Alcentra purchase. products and methods to change com- professionals find roles that offer more 10 panies for the better, writes Chicago balance between work and life. Better for you Pacific Founders’ Matthew Doyle. Hershey buys again. This time the company picks up One Brands to broaden healthy snack offerings. People Moves Data 12 34 35 Thoma Bravo fills tech gap New hires and promotions Completed deals OGsys addresses accounting needs Michael Bernstein gets hired by Arse- H&R Block’s purchase of Wave among in the oil and gas sector, as operators nal. Bruce Larson joins Carlyle. Scott the deals that recently closed. look to tech to make improvements. Schebelsky gets promoted at Lovell Minnick. John Sheputis gets hired by Shaq Backs GI Partners. BlackRock invests in Shaquille O’Neal- backed Authentic Brands Group. TheMiddleMarket.com October 2019 Mergers & Acquisitions 1 001_MAJ1019 1 9/9/2019 6:54:09 PM Inside Word October 2019 | VOL. 54 | NO. 9 TheMiddleMarket.com 1 STATE STREET PLAZA, 27TH FLOOR NEW YORK, NY 10004-1505 • (212) 803-8200 EDITOR-IN-CHIEF Follow the money Mary Kathleen Flynn MANAGING EDITOR Demitri Diakantonis CONTRIBUTING EDITORS Facing increased pressure to grow, private equity Keith Button, Danielle Fugazy GROUP EDITORIAL DIRECTOR, firms turn to lending BANKING AND CAPITAL MARKETS Richard Melville EXECUTIVE DIRECTOR, CONTENT OPERATIONS It’s no wonder private equity firms are getting into AND CREATIVE SERVICES Michael Chu the loan business. “Leveraged loans, by and large, SR. ART DIRECTOR Nick Perkins are cheap and a very good place to invest capital,” said David Miller, global head of credit at Credit VICE PRESIDENT, CAPITAL MARKETS Harry Nikpour (212) 803-8638 Suisse (NYSE: CS), at a recent conference. With inter- SENIOR MARKETING MANAGER est rates likely to continue declining, the appeal of Jamie Billington middle-market lending may increase. CHIEF EXECUTIVE OFFICER ������������������������ Gemma Postlethwaite PE firms including the Blackstone Group (NYSE: CHIEF FINANCIAL OFFICER ���������������������������������������������Sean Kron BX), KKR, the Carlyle Group (Nasdaq: CG), and CHIEF STRATEGY OFFICER ������������������������������������������� Jeff Mancini Apollo (NYSE: APO) have all grown their credit business substantially over CHIEF REVENUE OFFICER �������������������������������������������Dave Colford the past couple of years. For example, in 2018, KKR closed on $2.2 billion for CHIEF CONTENT OFFICER ������������������������������������������� David Evans its KKR Private Credit Opportunities II fund, more than twice its predecessor SVP, CONFERENCES & EVENTS ������������������������������John DelMauro fund, KKR Mezzanine Partners I, which was raised in 2015. In 2019, Silver Lake VP, PEOPLE & CULTURE ����������������������������������������������������Lee Gavin raised $2.5 billion for its first ever credit and structured equity fund. Many middle market firms have also expanded or launched credit strategies. Firms LICENSING AND REUSE OF CONTENT: such as Thoma Bravo, Adams Street, the Sterling Group, the Riverside Co., Contact our official partner, Wright’s Media, about available usages, license and reprint fees, and award seal artwork H.I.G., BC Partners, Silver Lake, Gryphon Investments and Francisco Partners at [email protected] or (877) 652-5295 for more information. Please note that Wright’s Media is the only authorized company that we’ve partnered with for have launched credit arms. SourceMedia materials. “A lot of firms have added credit as part of their expansion,” said Jeffrey Stevenson, a managing partner with VSS, one of several firms featured in our CUSTOMER SERVICE [email protected] or (212) 803-8500 cover story. “The banks left a big void, and the LP market is eager for yield. Private equity is pretty good at going where the money is.” Mergers & Acquisitions Vol. 54/No. 9 (ISSN 0026-0010) is “The private credit market is still in its ascendancy,” said Bill Sacher, a part- published monthly with combined issues in July/August and November/December by SourceMedia, One State ner and the head of private credit at Adams Street. “There is a supply and Street Plaza, 27th Floor, New York, NY 10004-1505. Yearly subscription is $1,995; $2035 for one year in all other demand imbalance that was created when the banks exited the market. That countries. Periodical postage paid at New York, NY and U.S. additional mailing offices. POSTMASTER: Send address void has yet to be filled,” says Sacher. “And even though the private market changes to Mergers & Acquisitions / SourceMedia, One State Street Plaza, New York, NY 10004. For subscriptions, has become more crowded, the supply-demand imbalance remains largely renewals, address changes and delivery service issues contact our Customer Service department at (212) 803- intact. The total pool of dry powder in private credit funds today is about 8500 or email: [email protected]. This publication is $100 billion. That is up two- or three-fold from 10 years ago, but there is still designed to provide accurate and authoritative information regarding the subject matter covered. It is sold with about $800 billion in visible forward demand with upcoming mid-market loan the understanding that the publisher is not engaged in rendering financial, legal, accounting, tax, or other maturities and private equity dry powder.” M&A professional service. Mergers & Acquisitions is a registered trademark used herein under license. © 2019 Mergers & – Mary Kathleen Flynn Acquisitions and SourceMedia, Inc. All rights reserved. 2 Mergers & Acquisitions October 2019 002_MAJ1019 2 9/9/2019 4:17:51 PM 003_MAJ1019 3 9/9/2019 9:30:51 AM What’s going on @TheMiddleMarket.com www.themiddlemarket.com Special reports Voices Data 5 hiring trends in private equity The mid market needs big data H&R Block purchases Wave What does a PE firm look for in a By embracing big data, companies can M&A is poised to remain robust for the potential employee these days? Just improve their business models and tap remainder of 2019, predict deal observ- about every PE firm you talk to seems into its benefits to assist in M&A. Orga- ers. Among the mid-market deals that intent on becoming attractive to nizations must also address the risks, recently closed: H&R Block Inc.s pur- diverse candidates — whether it’s by writes Bank of America Merill Lynch’s chase of Wave Financial and Arsenal hiring a chief diversity officer or adding Robert Arth. Capital’s backing of Seal for Life. portfolio support. 4 Mergers & Acquisitions October 2019 004_MAJ1019 4 9/9/2019 11:00:50 AM BRIDGING THE CAPITAL GAP FOR OVER 20 YEARS 23 6 1.6 125+ 70+ YEARS IN BUSINESS INVESTMENT FUNDS BILLION OF PLATFORM INDEPENDENT SPONSOR RAISED COMMITTED CAPITAL INVESTMENTS PLATFORMS Peninsula Capital Partners provides customized debt and equity solutions to middle-market companies as either a control or non-control investor. We specialize in working with independent sponsors and directly with companies on buyout, recapitalization, growth and other leveraged capital transactions. PLEASE ALLOW US TO SHARE OUR CAPITAL STRUCTURING EXPERTISE WITH YOU — 313.237.5100 | WWW.PENINSULAFUNDS.COM PCP_001_2019_MA_v1FA.indd005_MAJ1019 5 3 9/9/20192/28/19 9:30:52 9:27 AM AM Watercooler Cheesecake Factory expands menu North Italia purchase gives Cheesecake more growth opportunities The Cheesecake Factory Inc. (Nasdaq: CAKE) is buying Fox Restaurant Concepts and the remaining stake it does not already own in Italian restaurant chain North Italia for up to $353 million. Cheesecake is paying $130 million for the stake in North Italia, which it originally invested in 2016, increasing its total investment in North Italia to $174 million. North Italia operates 20 locations. Exponent Women and Owens Group hosts BLOOMBERG NEWS Mark Attanasio DEALMAKERS: Lending together WOMEN AT FAMILY OFFICES Event Sponsor: A PANEL DISCUSSION Crescent broadens investment portfolio with Alcentra acquisition Join Exponent Women and Owens Group for THURSDAY, By Demitri Diakantonis and Mary Kathleen Flynn an intimate panel