HEALTHCARE’S MUST-HAVE TECHNOLOGIES...we take our deals, get in touch with BRIAN KERWIN, chair of our global corporate practice, at 312.499.6737 or [email protected]. Duane

MAY 2019THEMIDDLEMARKET.COM

HEALTHCARE’S MUST-HAVE TECHNOLOGIESDealmakers seek targets that leverage the latest in big data, artifi cial intelligence and electronic health records

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TheMiddleMarket.com May 2019 Mergers & Acquisitions 1

May 2019 | VOL. 54 | NO. 5Contents

5 must-have technologies for healthcare Dealmakers seek targets that leverage the latest in big data, artificial intelligence and electronic health records.

14

Watercooler6HGGC sells minority stake Dyal has bought stakes in many pri-vate equity firms, which are using the funds to grow.

8Why robots are attracting buyers “The U.S. market for robotics in or-thopedics is growing at a very rapid pace,” says Permira principal Henry Minello.

9Dipping into Kellogg’s portfolioFerrero buys Famous Amos from the Corn Flakes maker.

Cover Story

Guest Articles30Is your portfolio ready for digital trans-formation? Private equity firms are well advised to delineate where digital and technical “debt” reside within a potential target, says Saggezza CEO Arvind Kapur.

38Adaptive reuse appeals Soho House’s conversion of London’s Midland Bank into The Ned is a great example of adaptive reuse, writes Ryan Companies vice president David Wilson.

People Moves40New hires and promotions Anthony Cassano joins Ridgemont Equity Partners. Beth Pickens joins TSG Consumer Partners. Carolyn Wintner was hired by Charlesbank.

Private Equity Perspective12Downturn may be boon for PE Investors preparing for a market shift look to increase allocations to private equity.

The Buyside13Custom orders McDonald’s is investing in technology to keep customers flowing through drive-thrus.

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Feature32Top PE private equity firms Genstar Capital, Audax Group, Har-bourVest Partners and Stone Point Capital were the four most active U.S. PE dealmakers in 2018, based on the number of deals completed in the U.S., according to PitchBook.

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2 Mergers & Acquisitions May 2019

“How does a big pharmaceutical company reim-burse hundreds of people for travel, or pay them for taking part in a trial?” asks Joe Manning, a partner with the Riverside Co. “It used to be a manual pro-cess of writing checks, handing out cash gift cards, or people sending in receipts and waiting for wires. It was so inefficient.”

Enter Greenphire, an automated payment com-pany for the clinical trial industry that the PE firm

bought in 2014. Since the purchase, Riverside has taken the company a step past automating the payment process, setting up payment systems with global companies like Lyft to drive participants to and from clinical trials. “It’s unmanageable to reimburse so many people. This solution makes the process so much easier,” says Manning.

Payment processing is one of five tech-nologies driving healthcare deals that we explore in this issue’s cover story. Big data, medical devices, revenue cycle manage-ment technology and Software-as-a-Service are the others. Private equity firms that invest in healthcare IT are buying platform companies and closing add-on deals, rapidly consolidating the industry.

“Healthcare IT is the largest cottage industry in the world,” says Sam Hendler, managing director at Harris Williams. “It’s a highly fragmented, multi-billion-dollar market with thousands of companies fo-cused on different $250 million to $500 million sub-markets. Savvy investors see there is an opportunity to aggregate assets and build platforms of scale. It’s an incredibly exciting time in healthcare IT.” M&A

– Mary Kathleen Flynn

Inside Word

Payment processing, big data, medical devices, RCM and SaaS are driving deals

High-tech healthcare

May 2019 | VOL. 54 | NO. 5

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Mergers & Acquisitions Vol. 54/No. 5 (ISSN 0026-0010) is published monthly with combined issues in July/August and November/December by SourceMedia, One State Street Plaza, 27th Floor, New York, NY 10004-1505. Yearly subscription is $1,995; $2035 for one year in all other countries. Periodical postage paid at New York, NY and U.S. additional mailing offices. POSTMASTER: Send address changes to Mergers & Acquisitions / SourceMedia, One State Street Plaza, New York, NY 10004. For subscriptions, renewals, address changes and delivery service issues contact our Customer Service department at (212) 803-8500 or email: [email protected]. This publication is designed to provide accurate and authoritative information regarding the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering financial, legal, accounting, tax, or other professional service. Mergers & Acquisitions is a registered trademark used herein under license. © 2019 Mergers & Acquisitions and SourceMedia, Inc. All rights reserved.

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Top investment banksKPMG, Houlihan Lokey, Goldman Sachs, William Blair and Lincoln International rank as the top five most active M&A investment banks in 2018, based on the volume of completed private equity-backed deals, according to PitchBook.

Features

Foot Locker buys digital startups The way consumers shop continues to change. Customers want to put their own touch on products, not wait too long for them and in most cases, never step foot in a store to buy them.Sneaker retailers, such as Foot Locker are investing in digital capabilities.

News

M&A Mid-Market AwardsExcelled. Innovated. Inspired. That’s what the eight winners of Mergers & Acquisitions’ 12th Annual M&A Mid-Market Awards did in 2018. Our awards honor the leading dealmakers and deals that set the standard for transac-tions in the middle market.

Special reports

What’s going on @TheMiddleMarket.com

www.themiddlemarket.com

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Syndicated financing with JPMorgan Chase

Bank as Administrative Agent for

$750 MILLION

$92 MILLIONIPO in India of Fine Organic Industries (NSE: FINEORG)

for lead managers and underwriters

Senior secured revolving credit facility with

Bank of America as Administrative Agent

for NYSE-listed

$2.585 BILLION

Syndicated financing to a major insurance brokerage

for this subsidiary of Wintrust Financial

$150 MILLION

All-stock merger - largest U.S. public cannabis

deal to date - with MPX Bioceutical Corp. (CSE:

MPX) for Canadian-listed

$1.6 BILLION

Acquisition and financing of three Chicago-area

hospitals, including investor joint ventures, asset

contribution and leasing for

Sale to Red Industries, creating one of largest

UK independent hazardous waste companies, for

£39 MILLION

Sale to Midwest private equity firm for leading supply chain solutions provider to consumer

packaged goods industry

Reverse takeover of Lineage Grow Company

(CSE: BUDD) for Californiacannabis company FLRish, Inc.

(d/b/a Harborside)

$200 MILLION

Syndicated secured acquisition financing to a seven-member borrower

group for

$55 MILLION

Unsecured revolving credit facility to Latin American oil company

for major Spanish banking group

$50 MILLIONStructured renewable

energy investment in Vietnam for

leading Asia-Pacific independent renewable

energy company

$80 MILLION$128 MILLIONSenior and subordinated

financing for manufacturing and

commercial facilities for

Investment into Covetrus, Inc., a combination of a

spinout of Henry Schein, Inc. (NASDAQ: HSIC) and

Vets First Choice for

$361 MILLION

Sale to PE firm Wind Point for world’s leading manufacturer of composite pipeline

repair solutions

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

www.duanemorris.com

For more information on how seriously we take our deals, get in touch with BRIAN KERWIN, chair of our global

corporate practice, at 312.499.6737 or [email protected].

Duane Morris LLP – A Delaware limited liability partnership

An Am Law 100 law firm. More than 800 lawyers.

Established 1904.

Seattle

$37 MILLIONAcquisition of Trident

University International, a regionally accredited

university, by an affiliate of NASDAQ-listed

005_MAJ0519 5 4/4/2019 2:45:19 PM


Ever active on the deal front, HGGC recently invested in American Mega-trends International LLC, or AMI, a provider of firmware, remote manage-ment tools and data storage products.

“Since its founding in 1985, AMI has become known worldwide for its cutting-edge technology products and most importantly, for its stability and customer-focus,” said AMI CEO and founder Subramonian Shankar. “AMI is now poised to enter its next phase of growth, so it was important to find a partner who will maintain continuity and will be able to help unlock new

value to keep it moving forward.” “Not many people outside the sys-

tem software ecosystem are familiar with AMI, but its products are mis-sion critical for the biggest comput-ing brands in the world,” said HGGC co-founder and former San Francisco 49ers quarterback Steve Young.

HGGC is fresh from selling a minor-ity stake in the firm to Dyal Capital Partners, a division of Neuberger Berman. For PE firms, selling minor-ity stakes is a path to raising capital for expansion and for some general partners to gain liquidity. In 2018, Dyal

bought a minority stake in American Securities LLC; the same firm also acquired a minority stake in Clearlake Capital Partners and Vector Capital.

“Attracting this minority investment from Dyal is further evidence of our successful strategy and the results we are generating for our limited part-ners,” said Young.

HGGC, based in Palo Alto, Califor-nia, also announced that Les Brown, John Block, Steven Leistner, Harv Barenz and Lance Taylor have been promoted to partner.

By Demitri Diakantonis and Mary Kathleen Flynn

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HGGC sells minority stake, picks up classic computer component maker AMIDyal has bought stakes in many private equity firms, which are using the funds to grow

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Brewing coffee deals

Huron Capital-backed Ronnoco Coffee picks up Beverage Solutions Group

Huron Capital-backed Ronnoco Coffee, a manufacturer and distribu-tor of premium quality coffee, tea and related products, has acquired Beverage Solutions Group, a provider of high-quality beverages and equipment for convenience stores and the foodservice industry.

Beverage Solutions was founded in 1997 by Doug and Steve Thompson

Watercooler

AMI and HGGC

Failure is not an option.You know the importance of a well-developed strategy. Our private equity team has expertise and experience for each stage of the investment timeline. From investment banking and transaction services to financial reporting and business valuations, our bold, battle-tested pros can help you win the day.

Everyone needs a trusted advisor. Who’s yours?

bkd.com/pe | @BKDPE

006_MAJ0519 6 4/5/2019 1:52:19 PM

bought a minority stake in American Securities LLC; the same firm also acquired a minority stake in Clearlake Capital Partners and Vector Capital.

“Attracting this minority investment from Dyal is further evidence of our successful strategy and the results we are generating for our limited part-ners,” said Young.

HGGC, based in Palo Alto, Califor-nia, also announced that Les Brown, John Block, Steven Leistner, Harv Barenz and Lance Taylor have been promoted to partner.

Watercooler

HGGC sells minority stake, picks up classic computer component maker AMIDyal has bought stakes in many private equity firms, which are using the funds to grow

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Brewing coffee deals

Huron Capital-backed Ronnoco Coffee picks up Beverage Solutions Group

Huron Capital-backed Ronnoco Coffee, a manufacturer and distribu-tor of premium quality coffee, tea and related products, has acquired Beverage Solutions Group, a provider of high-quality beverages and equipment for convenience stores and the foodservice industry.

Beverage Solutions was founded in 1997 by Doug and Steve Thompson

in Maynardville, Tennessee, and has become known for providing reliable, environmentally-friendly equipment and products, including creamers, sweeteners, cappuccino and hot chocolate, in addi-tion to foodservice equipment. The deal marks the eighth acquisition for Ronnoco since Huron invested in the company in 2012.

Celebrating its twentieth anniversary in 2019, Huron has raised more than $1.8 billion in capital through six committed private equity funds and invested in 170-plus companies. The Detroit firm says its portfolio companies have employed more than 11,000 people throughout North America. The Huron Capital buy-and-build investment model, which it

calls ExecFactor, includes equity recapi-talizations, family succession transac-tions, market-entry strategies, corporate carve-outs, and management buyouts of companies with revenues up to $200 million. Ronnoco represents Huron’s platform investment for its ExecFactor buy-and-build model within high-growth beverage categories.

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AMI and HGGC

Failure is not an option.You know the importance of a well-developed strategy. Our private equity team has expertise and experience for each stage of the investment timeline. From investment banking and transaction services to financial reporting and business valuations, our bold, battle-tested pros can help you win the day.

Everyone needs a trusted advisor. Who’s yours?

bkd.com/pe | @BKDPE

007_MAJ0519 7 4/5/2019 1:52:22 PM

TheMiddleMarket.com8 Mergers & Acquisitions May 2019

Slate, Meagher & Flom LLP. Advisors to Omni include Piper Jaffray (NYSE: PJC) and Foley Hoag.

Dipping into Kellogg’s portfolio Ferrero buys Famous Amos from the Corn Flakes maker

Nutella maker Ferrero Group is buying the Famous Amos, Keebler, Mother’s and Murray’s brands from Kellogg Co. (NYSE: K) for $1.3 billion. Since 2017, Italian food manufacturer Ferrero has acquired several U.S. brands and businesses, and, with this transaction, Ferrero will enter into new strategic product categories and will further strengthen its position in the North American market, says the company.

PE firms invest in yoga “Yoga is particularly attractive given its high level of consumer penetration”

TSG Consumer Partners has acquired CorePower Yoga from PE firm L Catter-ton. The deal marks the first investment

from TSG’s eighth fund, which the San Francisco firm closed at $4 billion in February. CorePower operates about 200 yoga studios in 23 states. “CPY is a powerhouse within the fitness segment, and yoga is particularly attractive given its high level of consumer penetration, broad accessibility and appeal relative to other areas of boutique fitness,” says TSG managing director Michael Layman.

According to the National Institutes of Health, the number of U.S. adults surveyed that participate in yoga has increased from 9.5 percent to 14.3 percent between 2012 and 2017, while the use of meditation has increased from 4.1 percent to 14.2 percent dur-ing the same time period. Founded in 1987, TSG focuses on the food, bever-age, restaurant, beauty, personal care, household, apparel and accessories, and e-commerce sectors.

L Catterton was formed in 2016 when French luxury goods maker LVMH Moët Hennessy Louis Vuitton combined its PE arm L Capital with consumer-focused investment firm Catterton. Advisors to TSG include: Piper Jaffray (NYSE: PJC), Jefferies and Ropes & Gray. Advisors to CorePower include: Bank of America Merrill Lynch and Kirkland & Ellis.

Betting on pet health

According to Synchrony, the pet health insurance market is expected to double by 2022

Consumer financial services firm Synchrony (NYSE: SYF) has acquired pet health insurance company Pets Best. The target offers health, wellness and personal care credit products that can be used to pay for a variety of healthcare expenses including vet-erinary care. As the cost of pet care increases, pet owners are increasingly

seeking better access to care. Ac-cording to Synchrony, the pet health insurance market is expected to double by 2022. The acquisition will expand Synchrony’s CareCredit platform, and will allow CareCredit to offer more pay-

ment options for veterinarians and pet owners.

“More people are including pets as part of their family,” says CareCredit CEO Beto Casellas. “With Pets Best, we now have unique insight into the fast-growing pet health insurance market and can offer pet owners more choices for their pet’s care.” Advisors to Synchrony include: Guggenheim Securi-ties and Sidley Austin. Pets Best was advised by Stoel Rives.

Why robots are attracting buyers “The U.S. market for robotics in orthopedics is growing at a very rapid pace“

Permira-backed Corin Group has acquired Omni Orthopedics, which makes robots that assist with knee replacement surgery. Omni’s technol-ogy is designed to assist surgeons with positioning implants for each patient, which is expected to produce less pain and faster rehabilitation.

“The U.S. market for robotics in orthopedics is growing at a very rapid pace, and with the addition of Omni’s technologies, we expect Corin to remain at the forefront of development in robotics and computer-assisted surgery,” says Henry Minello, a principal in Permira’s healthcare group.

Advances in robotic technology are making it possible to complete more complex tasks, from manufactur-ing to medical procedures, at higher speeds and with improved control and outcomes. Advisors to Corin include: KPMG; Barclays; and Skadden, Arps,

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Slate, Meagher & Flom LLP. Advisors to Omni include Piper Jaffray (NYSE: PJC) and Foley Hoag.

Dipping into Kellogg’s portfolio Ferrero buys Famous Amos from the Corn Flakes maker

Nutella maker Ferrero Group is buying the Famous Amos, Keebler, Mother’s and Murray’s brands from Kellogg Co. (NYSE: K) for $1.3 billion. Since 2017, Italian food manufacturer Ferrero has acquired several U.S. brands and businesses, and, with this transaction, Ferrero will enter into new strategic product categories and will further strengthen its position in the North American market, says the company.

ment options for veterinarians and pet owners.

“More people are including pets as part of their family,” says CareCredit CEO Beto Casellas. “With Pets Best, we now have unique insight into the fast-growing pet health insurance market and can offer pet owners more choices for their pet’s care.” Advisors to Synchrony include: Guggenheim Securi-ties and Sidley Austin. Pets Best was advised by Stoel Rives.

Why robots are attracting buyers “The U.S. market for robotics in orthopedics is growing at a very rapid pace“

Permira-backed Corin Group has acquired Omni Orthopedics, which makes robots that assist with knee replacement surgery. Omni’s technol-ogy is designed to assist surgeons with positioning implants for each patient, which is expected to produce less pain and faster rehabilitation.

“The U.S. market for robotics in orthopedics is growing at a very rapid pace, and with the addition of Omni’s technologies, we expect Corin to remain at the forefront of development in robotics and computer-assisted surgery,” says Henry Minello, a principal in Permira’s healthcare group.

Advances in robotic technology are making it possible to complete more complex tasks, from manufactur-ing to medical procedures, at higher speeds and with improved control and outcomes. Advisors to Corin include: KPMG; Barclays; and Skadden, Arps,

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Champion’s AwardsAt SummerBashJune 18, 2019 | 6PM - 9PMInside Park at St. Bart’s

Recognizing and honoring the leading middle market professionals who are Driving Middle Market Growth™ within the ACG community.

Registration Now Open

“Kellogg Company’s cookie, fruit snack, ice cream cone and pie crust

businesses are an excellent strategic fit for Ferrero as we continue to increase

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our overall footprint and product of-ferings in the North American market,” said Giovanni Ferrero, executive chair-man of the Ferrero Group. “With this transaction, I look forward to bringing many iconic Kellogg brands into the Ferrero portfolio, to welcoming our new colleagues to the extended Ferrero community, and to continuing Ferrero’s strong track record of growing brands, as we have through our successful ac-quisitions of Fannie May, Ferrara Candy Company, and the former Nestlé U.S. confectionary business.”

For Kellogg, the deal is part of a pruning process. “This divestiture is yet another action we have taken to reshape and focus our portfolio,

which will lead to reduced complexity, more targeted investment, and better growth,” says Kellogg CEO Steve Ca-hillane. The businesses generated about $900 million sales in 2018. Kellogg is known for the Kellogg’s, Corn Flakes, Frosted Flakes, Eggo, Mini-Wheats and Pop-Tarts brands.

A number of consumer compa-nies are divesting brands to focus on core businesses. Newell Brands Inc. (NYSE: NWL) reached deals to sell its Pure Fishing division and the Jostens brand. Campbell Soup Co. (NYSE: CPB) has hired Goldman Sachs (NYSE; GS) and Centerview Partners to divest its Campbell International and Campbell Fresh businesses, including the Arnott’s, Bolthouse Farms and Garden Fresh Gourmet brands.

On the current deal, JP Morgan Se-

curities plc and Davis Polk & Wardwell LLP served as advisors to Ferrero. Advi-sors to Kellogg include: Evercore Inc. (NYSE: EVR), Goldman Sachs (NYSE: GS) and Wachtell, Lipton, Rosen & Katz.

Peak Rock buys ice cream maker Turkey Hill represents Peak Rock’s eighth current investment in the food and beverage industry

Peak Rock Capital is buying Turkey Hill ice cream maker from Kroger Co. (NYSE: KR). “We believe that Turkey Hill repre-sents an excellent platform for growth through near-term organic initiatives and strategic acquisitions,” says Peak Rock CEO Anthony DiSimone.

“We will be aggressively pursuing complimentary acquisitions to extend the product and brand portfolio.” The acquisition of Turkey Hill represents Peak Rock’s eighth current investment in the food and beverage industry. Some of the PE firm’s other investments in the

sector include: Berner Food & Beverage; Diamond Crystal Brands; Gold Coast Bakeries; Louisiana Fish Fry; Pretzels Inc.; Sweet Harvest Foods; and TNT Crust.

Kroger announced plans in 2018 to explore a sale for Turkey Hill. “We believe this is the right step to ensure the Turkey Hill business can meet its full potential and continue to grow its successful ice cream and beverage brands,” says Erin

Sharp, group vice president for Kroger Manufacturing. Goldman Sachs (NYSE: GS) is advising Kroger.

Investing in manufacturing Watermill buys Enbi from Platinum

Watermill Group has acquired Enbi, a manufacturer of precision rollers, gas-kets, seals and insulation that are used in thermal insulation, from Platinum Equity. The target serves applications in digital printing, ATMS and cash handling systems, along with the HVAC sector.

“Enbi has demonstrated an ability to anticipate and deliver on technically-rigorous customer demands in evolving markets,” says Watermill partner Tracy Streckenbach. “We see rich opportuni-ties to deepen and expand that critical capability, while maintaining the company’s high standards for safety and productivity.” In 2017, Watermill invested in another manufacturer in Cooper & Turner, which makes bolts, studs, anchors, nuts and washers for the wind, railway, tunneling, oil and gas, and structural bolting industries.

Advisors to Watermill on the Enbi deal include: Grant Thornton; Phoenix; K&L Gates and Blais, Halpert, Lieber-man & Greene. Advisors to Enbi include: Lincoln Financial and Stubbs Alderton & Markiles. M&A

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Riverside is grateful to be named Seller of the Year for the 2018 M&A Mid-Market Awards.

Our success is built upon decades of strong relationships with our investors, management teams

and the many partners who help us thrive. We thank you for all that you do.

To learn more about The Riverside Company, visit riversidecompany.com.

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Downturn may be boon for PE

By Mary Kathleen Flynn

Investors preparing for a market shift look to increase allocations to private equity

Private Equity Perspective

“Early 2019 represents a pivotal point in time for the alternative assets industry,” finds a report from Preqin published in April. “Having enjoyed a period of steady growth over the past decade, with total assets under management (AUM) at a record $9.44 trillion as of June 2018 (the latest data available), it is quite clear that this environment has begun to change.”

The research house surveyed more than 400 investors back in November to under-stand their current views on each asset class, the challenges they are facing and their plans for the next 12 months. “With asset valuations currently at record levels, fund managers and investors we spoke to largely agree that we are at the peak of the equity market cycle and are due a correction.” Fully 61 percent

of investors across all asset classes believe equity markets are at a peak, up from 56 percent that said so in June. Just 21 percent say we are in an expansion phase, down from 27 percent six months prior.

PE may prove to be a silver lining. While the public markets already began showing signs of weakening in late 2018, Preqin points out that “alternative assets weathered the storm of the last recession well.” As asset classes go, private equity is perceived as a safer haven in bad economic times.

PE firms are likely to see increasing interest from investors who are preparing for a down-turn, according to the survey. “Private equity is clearly delivering for institutional investors, providing strong returns that are meeting and often exceeding expectations,” says the

report. “Investors remain committed to private equity, and the outlook for 2019 is positive.”

Investors say they expect to be highly active in pri-vate equity moving forward: “almost a third (31 percent) are planning to commit more capital than they did in 2018 and a further 57 percent are planning to commit roughly the same amount.” High absolute returns are one of the pri-mary reasons why investors surveyed say they allocate to the asset class.

There were some caution signs in the report. “Net cash flow was negative in 2017 and, although still strong, fundraising slowed during 2018 in comparison to the record levels of 2017 as investors reduced the pace of new commitments. Pricing is at a record level and the majority of inves-tors feel that this will be the key threat to return genera-tion in the next 12 months.”

Although many survey respondents were wary that future private equity returns may be eroded, they still expressed confidence that the asset class can meet their portfolio objectives over the coming year: 68 percent are just as confi-dent that private equity will deliver in 2019 as they were in 2018, while 15 percent have even more confidence in the asset class. M&A

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The Buyside

Custom orders

By Demitri Diakantonis

McDonald’s is investing in technology to deliver custom menu boards and keep customers flowing through drive-thrus

McDonald’s Corp. (NYSE: MCD) is gobbling up digital startups rapidly to improve customer experience, an-nouncing two deals in two weeks in April. The world’s largest restaurant

chain has acquired a 10 percent stake in app developer Plexure. The investment will expand Plexure’s growth plans, while it gives McDonald’s greater access to technology to help with customer targeting. Plexure already powers McDonald’s global app in 48 countries outside the U.S.

“Across all of our markets, we’re using technology to elevate and transform the McDonald’s customer experience,” says McDonald’s CEO Steve Easterbrook. “Our mobile apps play a key role in our digital acceleration, allowing customers to interact with us on their terms in a personal, custom-ized way.”

The investment in Plexure follows Mc-Donald’s acquisition of Dynamic Yield. With Dynamic Yield, McDonald’s restaurants can vary their electronic menu boards’ items, depending on factors such as the weather. For example, they can feature more coffee on colder days and McFlurries on hotter days.

McDonald’s tested Dynamic Yield’s technology in the U.S. in 2018, and will introduce it to more drive-thru menus once

the deal closes. This is the largest deal for the Chicago-based company in about 20 years, when it became an investor in Chi-potle Mexican Grill Inc. (NYSE: CMG). It has since divested its stake in the burrito chain.

“Technology is a critical element of our Velocity Growth Plan, enhancing the experience for our customers by providing greater convenience on their terms,” adds Easterbrook. “With this acquisition, we’re expanding both our ability to increase the role technology and data will play in our future and the speed with which we’ll be able to implement our vision of creat-ing more personalized experiences for our customers.”

Customers are demanding more cus-tomization on the products they order, and

consumer companies are investing in digital startups to cater to the next wave of shoppers.

Nike Inc. (NYSE: NKE) acquired two companies in order to help speed up the athletic apparel maker’s digital strategy, earn-ing the company Merg-ers & Acquisitions’ 2018 M&A Mid-Market Award for Strategic Buyer of the Year. Nike bought Zodiac, a consumer data analytics firm. And then, Nike bought Invertex, a pioneer in the use of 3D scanning tech-nology to customize shoes. “We’re adding world-class data-science talent and best-in-class tools to power 1:1 relationships with con-sumers through digital and physical consumer experi-ences,” Nike chief digital officer Adam Sussman told investors. M&A

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013_MAJ0519 13 4/5/2019 1:52:51 PM

5 must-have technologies for

healthcare

014_MAJ0519 14 4/5/2019 1:56:36 PM

Dealmakers seek targets that leverage the latest in big data, artificial intelligence and electronic health records

By Danielle Fugazy

5 must-have technologies for

healthcare

015_MAJ0519 15 4/5/2019 1:56:39 PM


The term “medical technology” has evolved from introducing doc-tors to new equipment to for private practices and hospitals to connecting patients and doctors through tele-communications. The one thing that medical technology companies have in common is that they allow providers to better diagnose and treat patients. Investors have been showing interest in the med tech space for quite some time. According to analyst reports in January, RBC Capital Markets analyst Glenn Novarro remained bullish on

a unique approach in a sense.” While the company searched for a

suitable add-on, Cedar Gate con-tinued to grow under Snow’s leader-ship. Snow built software tools that examine data on medical claims and episodes of care, and then compares the outcomes. The tools help payors and providers manage their networks and assess how care is delivered. “It helps them optimize clinical pathways, allowing them to replicate the success of one hospital or physician to deliver high quality care and better outcomes across their platforms,” says GTCR’s Cunningham. “It helps track results and costs, but, importantly, it gives its healthcare users actionable informa-tion, which is critical.”

Then in 2018, Cedar Gate found its match in Global Healthcare Alliance (GHA). GHA has built a proprietary Software-as-a-Service claims ad-judication technology that bundles fee-for-service claims and manages payments to healthcare providers. It enables healthcare entities to man-age bundled payment programs for multiple clinical specialties. It has pro-

2. Medical devices dominate

Cover Story

“Healthcare IT is the largest cottage indus-try in the world,” says Sam Hendler, managing director at Harris Williams investment bank. “It’s a highly fragmented, multi-billion-dollar market with thousands of companies focused on differ-ent $250 million to $500 million sub-markets. Savvy investors see there is an opportunity to aggregate assets and build platforms of scale. It’s an incredibly exciting time in healthcare IT.”

Private equity firms that invest in healthcare IT are buying platform companies and closing add-on acquisitions, quickly bringing consoli-dation to the fragmented industry. “Much like with the Interstate highway system in the 1950s, thanks to government sponsorship, we now have the infrastructure in place that will enable the next generation of leading healthcare IT compa-nies to develop,” says Hendler, who leads health-care IT deals at Harris Williams, which recently won Mergers & Acquisitions’ 2018 M&A Mid-Mar-ket Award for Investment Bank of the Year.

Several underlying trends are helping to fuel M&A activity in healthcare IT. The aging of the

Baby Boomer generation combined with ris-ing costs are increasing the amount of money spent on healthcare. In the U.S., national health expenditures are expected to grow by an aver-age of 5.5 percent annually from 2018 to 2027, reaching nearly $6 trillion by 2027, according to the Office of the Actuary at the Centers for Medicare & Medicaid Services.

M&A in healthcare IT is likely to build on the momentum. In 2018, total transaction value in the sector increased to $35.1 billion, up 18 per-cent from the previous year, according to Berk-ery Noyes, a New York investment bank.

Healthcare companies are looking to invest in technology, with executives identifying their top spending priorities for 2019 as accelerating digital health initiatives and investing in ad-vanced analytics and artificial intelligence capa-bilities, according to a recent survey conducted by Damo Consulting, an Oak Brook, Illinois, advisor to healthcare enterprises. Here are five technology developments driving transactions in healthcare.

Big data is the way of the future in just about every market. It’s no different in healthcare, where organizations are deploying data analytics to improve best practices and discover more ef-fective treatments. For example, repre-sentatives from a variety of healthcare organizations recently came together at a conference convened by the Su-san G. Komen breast cancer organiza-tion to explore breast cancer research and improve treatment with big data.

The use of big data usually falls into two categories. The first is to present current data and predict events. Most technology that focuses on amassing and aggregating data and presenting it to show how it measures up against performance indicators. The second

is using the data to predict what will happen with patients. The Interna-tional Data Corp. contends purchases by commercial buyers of big data and analytics-related hardware, software and services will reach $210 billion by 2020.

With numbers like that, it’s hard for investors to stay away. Partners at GTCR, the Chicago-based private equity firm, knew they wanted it to

be in the big data business. However, instead of buying a business, the firm partnered with David Snow, who had served as CEO of Medco Health Solu-tions, the sixth-largest pharmaceuti-cal company in the United States by revenue. After selling Medco to Express Scripts for $29 billion, GTCR started discussions with Snow about what type of company would be compelling. GTCR and Snow launched Cedar Gate Technologies, a healthcare predictive analytics company, in 2014.

“We had started by looking for healthcare tech assets and were focused on analytics businesses, but we didn’t initially find much that fit our criteria, so we started building soft-ware tools that we figured we would eventually marry up with a platform company,” says Sean Cunningham, a managing director with GTCR. “It was

1. Buyers love big data

The global big data analytics in the healthcare market is projected to reach $67.8 billion by 2025, growing at a compound annual growth rate of 19.1 percent from 2018 to 2025. -Big Market Research

016_MAJ0519 16 4/5/2019 1:56:40 PM


The term “medical technology” has evolved from introducing doc-tors to new equipment to for private practices and hospitals to connecting patients and doctors through tele-communications. The one thing that medical technology companies have in common is that they allow providers to better diagnose and treat patients. Investors have been showing interest in the med tech space for quite some time. According to analyst reports in January, RBC Capital Markets analyst Glenn Novarro remained bullish on

medtech, saying it was an “attractive destination for investors.” Firms like Boston Scientific, Abbott Laboratories, Johnson & Johnson and Medtronic are all expected to be busy buying med tech companies.

Smaller private equity investors are hoping to build companies that are attractive to the larger strategic buyers that are looming. New Heritage Capital, a Boston-based PE firm, made an investment in Rhythmlink in March. Rhythmlink collects neurological data from patients by measuring their brain activity through disposable electrode pads.

From an investor’s perspective, Rhythmlink is attractive because it is a market leader in a space that has few leaders, its founder is maintaining his role with customers and employ-ees, and it touts a recurring revenue stream, says Melissa Barry, a partner

a unique approach in a sense.” While the company searched for a

suitable add-on, Cedar Gate con-tinued to grow under Snow’s leader-ship. Snow built software tools that examine data on medical claims and episodes of care, and then compares the outcomes. The tools help payors and providers manage their networks and assess how care is delivered. “It helps them optimize clinical pathways, allowing them to replicate the success of one hospital or physician to deliver high quality care and better outcomes across their platforms,” says GTCR’s Cunningham. “It helps track results and costs, but, importantly, it gives its healthcare users actionable informa-tion, which is critical.”

Then in 2018, Cedar Gate found its match in Global Healthcare Alliance (GHA). GHA has built a proprietary Software-as-a-Service claims ad-judication technology that bundles fee-for-service claims and manages payments to healthcare providers. It enables healthcare entities to man-age bundled payment programs for multiple clinical specialties. It has pro-

cessed more than 2.3 million bundles. “This is an exciting area and it will continue to grow,” says Cunningham.

“Putting these two companies together created tangible benefits for the cus-tomers of both.”

2. Medical devices dominate

Baby Boomer generation combined with ris-ing costs are increasing the amount of money spent on healthcare. In the U.S., national health expenditures are expected to grow by an aver-age of 5.5 percent annually from 2018 to 2027, reaching nearly $6 trillion by 2027, according to the Office of the Actuary at the Centers for Medicare & Medicaid Services.

M&A in healthcare IT is likely to build on the momentum. In 2018, total transaction value in the sector increased to $35.1 billion, up 18 per-cent from the previous year, according to Berk-ery Noyes, a New York investment bank.

Healthcare companies are looking to invest in technology, with executives identifying their top spending priorities for 2019 as accelerating digital health initiatives and investing in ad-vanced analytics and artificial intelligence capa-bilities, according to a recent survey conducted by Damo Consulting, an Oak Brook, Illinois, advisor to healthcare enterprises. Here are five technology developments driving transactions in healthcare.

be in the big data business. However, instead of buying a business, the firm partnered with David Snow, who had served as CEO of Medco Health Solu-tions, the sixth-largest pharmaceuti-cal company in the United States by revenue. After selling Medco to Express Scripts for $29 billion, GTCR started discussions with Snow about what type of company would be compelling. GTCR and Snow launched Cedar Gate Technologies, a healthcare predictive analytics company, in 2014.

“We had started by looking for healthcare tech assets and were focused on analytics businesses, but we didn’t initially find much that fit our criteria, so we started building soft-ware tools that we figured we would eventually marry up with a platform company,” says Sean Cunningham, a managing director with GTCR. “It was

GTC

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Sean Cunningham, GTCR

The global medical device market is expected to reach $409.5 billion by 2023, increasing at a compound annual growth rate of 4.5 percent. -ResearchAndMarkets.com

017_MAJ0519 17 4/5/2019 1:56:43 PM


Insurance companies are not im-mune to the change going on in the healthcare industry. Frequently, insur-ance companies are asked to reduce cost while improving efficiencies and managing risk. It’s not an easy task and many insurers are turning to SaaS benefit solutions for help. SaaS benefit systems can reduce cost and scale up better while helping employees become highly productive. Although insurers have been slow to adopt the

providers manage their claims and revenue cycles, the company now has another benefit to healthcare provid-ers that Bain Capital Private Equity can invest behind. “One of the most interesting aspects of healthcare IT is being able to access the clinical data in health records,” says Chris Gordon, managing director, Bain Capital Private Equity. “But a lot of the information

4. SaaS comes to benefits administration

Cover Story

at New Heritage. “This isn’t the type of thing that hospitals bid out be-cause it’s relatively low dollars, but so important. The alternative is using

the traditional electrodes, which often carry bacteria and epithelial cells between patients and don’t offer the same technological benefits. Rythm-

link’s solution is safer and more user friendly,” Barry says.

The company’s customers are blue chip hospitals around the United States, Barry says, and New Heritage is planning to take advantage of tail-winds in the industry. “We are seeing a dramatic increase in brain health monitoring,” she says. “Valuable clini-cal insights will be faster and easier to obtain.”

There is an education gap and the sales cycle with hospitals is long, but New Heritage is broadening its reach and looking for add-on acquisitions to grow its core offering, to supplement its existing businesses or to add un-related but complimentary products, says Barry. The firm is also aware of macro trends in healthcare technology and how that technology can solve in-efficiencies in the market.” Technology is definitely on the forefront of solving some problems,” she says. “As we move forward there will be winners and losers, but for now there are plenty of places to play.”

Healthcare organizations have their work cut out for them when it comes to optimizing their revenue cycle manage-ment to provide the efficiency and cus-tomer service needed to succeed today. Part of the challenge is that healthcare organizations struggle to reign in rev-enue cycle costs associated with man-aging the revenue cycle—which starts when the patient makes their initial appointment and ends when the final payments for service are made—and can’t effectively handle revenue cycle management by themselves. Hospital financial executives do not view their organizations as highly capable in most

areas that support value-based pay-ment, which holds physicians, hospitals and other providers accountable for the cost and quality of care, according to a Healthcare Financial Management Association survey.

As result, healthcare organizations are expected to invest more heavily in revenue cycle management systems. The healthcare revenue cycle manage-

ment market is expected to grow to $100 billion by 2024, according to a report from Global Market Insights Inc. This is not lost on private equity firms.

Bain Capital saw an opportunity in the sub sector and pounced on it, buying Navicure and Zirmed and then merging them to form Waystar. Way-star has become giant in the revenue cycle management industry, says Harris Williams’ Hendler. “There continues to be massive need for revenue cycle management. Investors are really look-ing for strong companies in this space,” he says.

While Waystar was built to help

3. Revenue cycle management technology is in high demand

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Spending in the revenue cycle management market is expected to hit $100 billion by 2024. -Global Market Insights Inc.

018_MAJ0519 18 4/5/2019 1:56:47 PM


Insurance companies are not im-mune to the change going on in the healthcare industry. Frequently, insur-ance companies are asked to reduce cost while improving efficiencies and managing risk. It’s not an easy task and many insurers are turning to SaaS benefit solutions for help. SaaS benefit systems can reduce cost and scale up better while helping employees become highly productive. Although insurers have been slow to adopt the

technology, the industry is changing. A recent Gartner study found that 35 percent of insurers currently use some form of SaaS, while 20 percent plan to adopt it. With the tide changing,

investors want in. Boston-based Great Hill Partners

PE firm Great Hill got a small taste of the benefits markets and knew within months that it wanted to be entrenched in the sector. In 2014, Great Hill made a $51 million minority investment in Bswift, a SaaS- provider for health insurance exchanges and employers nationwide. Within seven months Great Hill sold its stake in Bswift to Aetna for $400 million. “We owned the company for a short period of time, but it was long enough to know we liked the space and wanted

providers manage their claims and revenue cycles, the company now has another benefit to healthcare provid-ers that Bain Capital Private Equity can invest behind. “One of the most interesting aspects of healthcare IT is being able to access the clinical data in health records,” says Chris Gordon, managing director, Bain Capital Private Equity. “But a lot of the information

in health records are in the form of scans or PDFs so the data is not easily usable. However, Waystar’s technol-ogy has the ability to synthesize data so claims can be submitted and paid more efficiently and also package it for use in driving clinical improve-ment.”

Waystar now has an analytics business, allows one group of health-

care providers to review how different clinicians treat patients with the same problems but perhaps with differ-ent outcomes, Gordon says. “Maybe one doctor ordered one lab test and another doctor did something differ-ent. Learning the different course of actions is powerful information when you have 50 doctors working together. It doesn’t necessarily show if someone is right or wrong, but it starts the con-versation around best practices and data efficiency,” he says.

In addition to be able to query their own practices, the data can provide benchmarking information to prac-tices to help them understand industry trends.

Waystar has acquired several smaller businesses, including its recent purchases of Connance, a predictive analytics company, and UPMC’s Ova-tion Revenue Cycle Services. Gordon expects the strategy of buying smaller companies to continue. “Waystar was in a transformation in 2017 and now they are a tech leader. We were able to recognize the value in consolidat-ing product lines at the outset of our investment in Waystar and today we are helping drive innovation on the consolidated chassis,” says Gordon.

4. SaaS comes to benefits administration

link’s solution is safer and more user friendly,” Barry says.

The company’s customers are blue chip hospitals around the United States, Barry says, and New Heritage is planning to take advantage of tail-winds in the industry. “We are seeing a dramatic increase in brain health monitoring,” she says. “Valuable clini-cal insights will be faster and easier to obtain.”

There is an education gap and the sales cycle with hospitals is long, but New Heritage is broadening its reach and looking for add-on acquisitions to grow its core offering, to supplement its existing businesses or to add un-related but complimentary products, says Barry. The firm is also aware of macro trends in healthcare technology and how that technology can solve in-efficiencies in the market.” Technology is definitely on the forefront of solving some problems,” she says. “As we move forward there will be winners and losers, but for now there are plenty of places to play.”

ment market is expected to grow to $100 billion by 2024, according to a report from Global Market Insights Inc. This is not lost on private equity firms.

Bain Capital saw an opportunity in the sub sector and pounced on it, buying Navicure and Zirmed and then merging them to form Waystar. Way-star has become giant in the revenue cycle management industry, says Harris Williams’ Hendler. “There continues to be massive need for revenue cycle management. Investors are really look-ing for strong companies in this space,” he says.

While Waystar was built to help

3. Revenue cycle management technology is in high demand

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Chris Gordon, Bain Capital Private Equity

The benefits administration software market is expected to reach $23.5 billion by 2022, increasing at a compound annual growth rate of 3 percent. -Apps Run the World

019_MAJ0519 19 4/5/2019 1:56:49 PM


makes the process so much easier,” says Manning.

Riverside studied the sector prior to buying Greenphire. It had liked another company in the sector, but

Cover Story

to own more companies like Bswift,” says Christopher Busby, a partner with Great Hill. “Our investment in Bswift validated our thesis.”

In 2015, the Boston-based firm

made a $70 million minority invest-ment in PlanSource, a provider of cloud-based health exchange and benefits administration technology to mid-sized companies. PlanSource

applies technology to what has traditionally been a manual, time-consuming process human resources professionals.” Busby says. “PlanSource makes it easy for someone who has four dependents or a person with no dependents to pick the best plan for them,” he says.

The company has added insurance carriers like Cigna, Liberty Mutual, Mutual of Omaha, Prudential Insur-ance Company of America and Frost Insurance as customers while snapping up smaller companies to build out its capabilities. The company acquired Next Generation Enrollment in 2017. In 2018, PlanSource’s revenues grew more than 41 percent. Employers such as John Hopkins Healthcare are using the technology. “PlanSource is performing very well,” says Busby.

SaaS is taking over more than just the insurance industry. In April, Symplr, a healthcare governance, risk and compliance SaaS provider, backed by Clearlake Capital Group and SkyK-night Capital, completed the acquisi-tion of API Healthcare from Veritas Capital.

Payment processing solutions have become a necessity. Most service providers and consumers agree that payments should be mostly invisible. One way to judge the quality of the payment processor’s services: The more time the payment process takes, the worse the solution is. This has translated in to healthcare, where consumers do not want to spend a lot of time waiting for reimbursements or calling payors or providers to track payments. As a result, more payors and providers are turning to payment processing technologies to speed pro-

cesses up while maintaining accuracy. Greenphire aims to do exactly that.

The firm is an automated payment company for the clinical trial indus-try. The company’s customers are big pharmaceutical companies running large-scale clinical trials, as well as hospitals and universities around the world. The Riverside Co., a Cleveland

and New York -based PE firm, bought Greenphire in 2014.

“How does a big pharmaceuti-cal company reimburse hundreds of people for travel or pay them for taking part in a trial?” asks Joe Man-ning, a partner with Riverside. “It used to be a manual process of writing checks, handing out cash gift cards, or people sending in receipts and waiting for wires. It was so inefficient.” Since its purchase, Riverside has gone a step past automating the payment process, setting up payment systems with global companies like Lyft to drive participants to and from clinical trials. “It’s unmanageable to reim-burse so many people. This solution

5. Payment processing gains efficiency

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Chris Busby, Great Hill Partners Joe Manning, The Riverside Co.

Seventy-seven percent of healthcare providers still use paper-based patient billing. - Medical Group Management

Association, Navicure

020_MAJ0519 20 4/5/2019 1:56:53 PM


makes the process so much easier,” says Manning.

Riverside studied the sector prior to buying Greenphire. It had liked another company in the sector, but

the PE firm was runner up in a sales process. Still, Riverside knew that the market had very little penetration—less than 5 percent-- and remained interested.

“It was clear that everyone would eventually migrate towards utilizing software and outsourcing this type of thing to third-party providers like Greenphire,” says Manning. Since Riverside’s investment, Greenphire has quadrupled its revenue through organic growth, and the market is still wide open, he says.

Riverside expects to continue to innovate and will be bringing new products to market later this year. Riverside invested out of its micro-cap fund, which has flexibility as it invests in post-venture-capital-stage, high-growth companies that require more financial flexibility than later-stage companies. Riverside is looking for more companies like Greenphire. “We like segments where you are replacing disparate systems. Software brings efficiencies to the system and it’s a benefit. Greenphire is also a good value proposition for everyone. It allows regulators to track payments, participants to get paid and payors to keep track in a very easy, manage-able way. It’s really compelling for all involved,” Manning says.

applies technology to what has traditionally been a manual, time-consuming process human resources professionals.” Busby says. “PlanSource makes it easy for someone who has four dependents or a person with no dependents to pick the best plan for them,” he says.

The company has added insurance carriers like Cigna, Liberty Mutual, Mutual of Omaha, Prudential Insur-ance Company of America and Frost Insurance as customers while snapping up smaller companies to build out its capabilities. The company acquired Next Generation Enrollment in 2017. In 2018, PlanSource’s revenues grew more than 41 percent. Employers such as John Hopkins Healthcare are using the technology. “PlanSource is performing very well,” says Busby.

SaaS is taking over more than just the insurance industry. In April, Symplr, a healthcare governance, risk and compliance SaaS provider, backed by Clearlake Capital Group and SkyK-night Capital, completed the acquisi-tion of API Healthcare from Veritas Capital.

and New York -based PE firm, bought Greenphire in 2014.

“How does a big pharmaceuti-cal company reimburse hundreds of people for travel or pay them for taking part in a trial?” asks Joe Man-ning, a partner with Riverside. “It used to be a manual process of writing checks, handing out cash gift cards, or people sending in receipts and waiting for wires. It was so inefficient.” Since its purchase, Riverside has gone a step past automating the payment process, setting up payment systems with global companies like Lyft to drive participants to and from clinical trials. “It’s unmanageable to reim-burse so many people. This solution

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Joe Manning, The Riverside Co.

How healthcare execs are spending their IT dollarsHealthcare executives rank digital health initiatives that improve patient and caregiver experiences as the No. 1 priority for their IT budgets

Source: Damo Consulting

Digital health 79%

58%Analytics and AI

25%IT infrastructure

21%EHR systems

4%Other

021_MAJ0519 21 4/5/2019 1:56:56 PM

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Planning Ahead For Success

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2 visit adp.com/pe


It’s no secret that the deal making environment has reached a frenzied pace over the last decade. There is an unprecedented level of competition in the private equity industry. The numbers tell the story. Deal volume in the middle market reached a total of $427.9 billion with 2,971 deals in 2018, that’s an increase of 14.8 percent and 15.1 percent year-over-year, respectively, according to Pitchbook Data. Additionally, private equity firms have not had any challenge accessing fresh capital from limited partners. In fact, recent reports put the amount of dry powder in private equity firms’ coffers at around $1.4 trillion, which is at an all-time high. And leverage is also at a record level. In 2018, almost three quarters of large LBOs were levered at 6x EBITDA or higher; well over a third were levered at 7x or higher. With so much capital and debt available, to remain competitive private equity firms have had to move forward quickly when they have the opportunity to purchase a quality asset. This has resulted in compressed due diligence processes. This is unfortunate. Private equity firms that spend the proper time due diligencing companies usually have a much smoother transition process and greater long-term success than those who rush into a transaction.

During due diligence, buyers should also be conducting due diligence on the human capital at the portfolio company. Human capital is often viewed as a critical asset to any company and an important component in the deal process. Yet, human capital is often not considered until later in the transaction process.

According to a research study conducted by SourceMedia Research on the use of human capital management solutions (HCM), 44 percent of respondents said they needed an HCM solution during the implementation phase after buying a new

portfolio company, while only 26 percent said they needed HCM solutions when they were preparing for a transaction and only 13 percent said they needed an HCM when they identified assets for purchase.

However, there are real benefits to engaging earlier on. “Getting HCM consultants involved earlier on allows private equity firms to accomplish more, and in a quicker period of time, because they will be able to hit the ground running when the acquisition is complete. Employees are expecting change during the first 100 days and management will be ready to execute if they prepare ahead of the close,” says Jason Favreau, Vice President of Strategic Partnerships with ADP, a large provider of human resources, payroll and benefits solutions.

The use for HCM varies as every company has different needs. One middle market private equity firm implemented an HCM solution because its portfolio company is national and kept getting sued in California by employers because the employee laws differed in California from the state the company was headquartered in. “We had a director of human resources, and we had employees in New York, Florida, California and Texas. He didn’t

8%Negotiation, valuation and final agreement

10%Securing third-party services

13%Identifying assets for purchase

26%Preparing for the transaction

44%Implementation

What is the earliest phase that you would need an HCM solution?

Base = 39 - use directionally

d39187_ADP_M&A_Whitepaper_7.875x10.5.indd 2 4/4/19 10:34 AM

3 visit adp.com/pe


know human resource employment practices and requirements in the state of California. We ended up parting with him and we outsourced the department. Our provider has people on the ground nationally who understand local employment laws. The lawsuits stopped,” says one private equity professional.

In some cases the HCM function needs to be optimized or stabilized, and in other cases it needs to be built out because there essentially isn’t an HCM function at all. Reviewing the HCM function with an HCM specialist during due diligence allows the consultant to assess and define what the function currently looks like, what it should look like and put together a plan that is deliverable during the first 100 days when employees are already anticipating change. “The plan may change once we are executing, but going in with no plan is a sure way to fail,” says Favreau.

Interestingly, according to the survey, almost 80 percent of respondents said that retention of key

employees was one of their top initiatives during the first 100 days.

“Employees are expecting change during the first 100 days and management will be ready to execute if they prepare ahead of the close.”– Jason Favreau, Vice President of Strategic

Partnerships with ADP

A little more than 40 percent said employee selection and downsizing and creation of new policies to guide the organization were top initiatives. Compensation strategies were also listed as important in the first 100 days. “It’s not surprising that things like retention of top employees and development of compensation strategies is important to private equity owners given the tight labor market and how difficult it has become to train and retain C-suite, and other talent, at organizations today,” says Favreau. “Human capital is more important than ever.”

One private equity respondent who owns healthcare staffing companies and uses HCM solutions regularly says that after getting the finance function and financial reporting under control, the next priority is making sure that the company is HR compliant. Hiring, assessing the existing employee base, and looking at HR, benefits, payroll, finance and accounting is next on the to-do list.

“Human capital is incredibly important in our world because the entire success of the operation is contingent on happy employees. The first touch point with employees is how we handle the payroll and benefits so it’s incredibly important that we do it seamlessly, transparently and in a way that’s as good as—if not better than—their current structure,” says one private equity professional. In addition to solidifying employment benefits and human resource functions, HCM solutions give portfolio companies and their private equity owners

79%Retention of key employees

56%Communications

41%Employee selection and downsizing

38%Creation of new policies to guide the new organization

33%Development of compensation strategies

23%HCM system selection/integration

10%Creation of a comprehensive employee benefit program


What are the top initiatives with in the first 100 days of closing a transaction


2 visit adp.com/pe


It’s no secret that the deal making environment has reached a frenzied pace over the last decade. There is an unprecedented level of competition in the private equity industry. The numbers tell the story. Deal volume in the middle market reached a total of $427.9 billion with 2,971 deals in 2018, that’s an increase of 14.8 percent and 15.1 percent year-over-year, respectively, according to Pitchbook Data. Additionally, private equity firms have not had any challenge accessing fresh capital from limited partners. In fact, recent reports put the amount of dry powder in private equity firms’ coffers at around $1.4 trillion, which is at an all-time high. And leverage is also at a record level. In 2018, almost three quarters of large LBOs were levered at 6x EBITDA or higher; well over a third were levered at 7x or higher. With so much capital and debt available, to remain competitive private equity firms have had to move forward quickly when they have the opportunity to purchase a quality asset. This has resulted in compressed due diligence processes. This is unfortunate. Private equity firms that spend the proper time due diligencing companies usually have a much smoother transition process and greater long-term success than those who rush into a transaction.

During due diligence, buyers should also be conducting due diligence on the human capital at the portfolio company. Human capital is often viewed as a critical asset to any company and an important component in the deal process. Yet, human capital is often not considered until later in the transaction process.

According to a research study conducted by SourceMedia Research on the use of human capital management solutions (HCM), 44 percent of respondents said they needed an HCM solution during the implementation phase after buying a new

portfolio company, while only 26 percent said they needed HCM solutions when they were preparing for a transaction and only 13 percent said they needed an HCM when they identified assets for purchase.

However, there are real benefits to engaging earlier on. “Getting HCM consultants involved earlier on allows private equity firms to accomplish more, and in a quicker period of time, because they will be able to hit the ground running when the acquisition is complete. Employees are expecting change during the first 100 days and management will be ready to execute if they prepare ahead of the close,” says Jason Favreau, Vice President of Strategic Partnerships with ADP, a large provider of human resources, payroll and benefits solutions.

The use for HCM varies as every company has different needs. One middle market private equity firm implemented an HCM solution because its portfolio company is national and kept getting sued in California by employers because the employee laws differed in California from the state the company was headquartered in. “We had a director of human resources, and we had employees in New York, Florida, California and Texas. He didn’t

8%Negotiation, valuation and final agreement

10%Securing third-party services

13%Identifying assets for purchase

26%Preparing for the transaction

44%Implementation

What is the earliest phase that you would need an HCM solution?


d39187_ADP_M&A_Whitepaper_7.875x10.5.indd 2 4/4/19 10:34 AM

3 visit adp.com/pe


know human resource employment practices and requirements in the state of California. We ended up parting with him and we outsourced the department. Our provider has people on the ground nationally who understand local employment laws. The lawsuits stopped,” says one private equity professional.

In some cases the HCM function needs to be optimized or stabilized, and in other cases it needs to be built out because there essentially isn’t an HCM function at all. Reviewing the HCM function with an HCM specialist during due diligence allows the consultant to assess and define what the function currently looks like, what it should look like and put together a plan that is deliverable during the first 100 days when employees are already anticipating change. “The plan may change once we are executing, but going in with no plan is a sure way to fail,” says Favreau.

Interestingly, according to the survey, almost 80 percent of respondents said that retention of key

employees was one of their top initiatives during the first 100 days.

“Employees are expecting change during the first 100 days and management will be ready to execute if they prepare ahead of the close.”– Jason Favreau, Vice President of Strategic

Partnerships with ADP

A little more than 40 percent said employee selection and downsizing and creation of new policies to guide the organization were top initiatives. Compensation strategies were also listed as important in the first 100 days. “It’s not surprising that things like retention of top employees and development of compensation strategies is important to private equity owners given the tight labor market and how difficult it has become to train and retain C-suite, and other talent, at organizations today,” says Favreau. “Human capital is more important than ever.”

One private equity respondent who owns healthcare staffing companies and uses HCM solutions regularly says that after getting the finance function and financial reporting under control, the next priority is making sure that the company is HR compliant. Hiring, assessing the existing employee base, and looking at HR, benefits, payroll, finance and accounting is next on the to-do list.

“Human capital is incredibly important in our world because the entire success of the operation is contingent on happy employees. The first touch point with employees is how we handle the payroll and benefits so it’s incredibly important that we do it seamlessly, transparently and in a way that’s as good as—if not better than—their current structure,” says one private equity professional. In addition to solidifying employment benefits and human resource functions, HCM solutions give portfolio companies and their private equity owners

79%Retention of key employees

56%Communications

41%Employee selection and downsizing

38%Creation of new policies to guide the new organization

33%Development of compensation strategies

23%HCM system selection/integration

10%Creation of a comprehensive employee benefit program


What are the top initiatives with in the first 100 days of closing a transaction


4 visit adp.com/pe


access to accurate reports, ensure companies are compliant with government regulations while eliminating redundant payroll and HR data entry. HCM solutions also give users a single source of employee information. This can all lead to management and private equity firms having the ability to leverage data and use it to understand compensation, hiring and overall employee trends at a company. This type of data will allow management to predict turnover rates or turnover by job description, for example.

“Human capital is incredibly important in our world because the entire success of the operation is contingent on happy employees.”

– Private equity professional

“Given today’s competitive environment, HCM is becoming more important than ever and is being pulled up the priority list. It is clear that HCM impacts more than the C-level today. The bottom line is owners need to have a happy team to be able to execute on their vision. The return on investment when executed correctly can be truly tremendous,” says Favreau.

ADP takes a holistic view when advising clients on HCM matters. The firm engages with private

equity firms on three fronts: financial, transactional and operational transformation. From a financial perspective, private equity firms get the benefit of pooled purchasing power when they work with ADP. When a private equity firm is spending on labor and benefits across multiple portfolio companies it can add up. Pooled purchasing can be an effective way to save spend across an entire portfolio.

On the transactional front, ADP has dedicated professionals who understand that private equity firms move at a rapid pace and need strong support from their partners. ADP’s team of professionals understand the most complex M&A transactions, and that time is always of the essence and that seamless execution is paramount.

Lastly, once the transaction is complete, the ADP team is ready to roll up its sleeves and help clients reduce general and administrative spend, professionalize back-office processes and provide the infrastructure necessary to take the portfolio to the next level.

*In the second half of 2018, SourceMedia Research conducted a survey on Human Capital Management. 39 high-level, middle market private equity professionals responded.


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WHERE PARTNERS AND DEALS GET DONEARE WON

SUMMER CONFERENCEJULY 15-17, 2019 / CHICAGO, ILLINOIS / HYATT REGENCY MCCORMICK PLACE

The world of middle-market mergers and acquisitions is gearing up for the year’s most impactful and anticipated business-building event. The 22nd annual AM&AA Summer Conference in Chicago will bring together

hundreds of private business investment, advisory, and transactional experts with advanced updates, insights, certifications, and unparalleled deal-making opportunities for every mid-market professional.

Connect to the buyers, sellers, expertise, and strategies you need to capitalize on the year ahead. This is the new era of opportunity. This is the future of M&A events.

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DON’T MISS OUT ON THE SUMMER’S MOST ANTICIPATED MIDDLE MARKET M&A EVENT.

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Unlike financial debt, digital “debt” refers to a deficit in technological capabilities and assets. In this case, it might comprise a lack of website personalization; low social media presence across sites like Instagram, Facebook, Foursquare, etc.; an unresponsive mobile site; or lack of engaging brand content (especially user-generated content) on a website – basically, the brand’s digital experience does not mirror its positive, comprehensive in-restaurant experience.

Technical debt for the chain might include issues like online ordering systems that go down a lot; online pricing or menus that don’t match the in-store restaurant prices/menus; or loyalty programs with inaccurate customer data – techno-logical malfunctions that lower brand perception, no matter how good the in-restaurant experience is.

An experience must be seamless and balanced from end to end – from digital to in-person, across all technology aspects of a company. If it’s not, it impacts revenue and the lifetime value of the brand, which means the PE firm won’t get the most out of its investment.

That means it’s critical to examine every single aspect of the managed company’s business, delving deep into the complete value chain early in the acquisition – or even before it – to understand keys areas of technological impact and deficit.

Getting out of debtTo determine the quality and quantity of an invest-

ment’s digital and technical debt, a private equity firm must consider eight main factors and evaluate how well (or not so well) the brand is doing with each one:• Customer engagement• Execution and delivery • Technology and platform• Data management• Culture• Digital operations• Capacity and capability• Content

Every brand is at a different stage of the life cycle for each of these, but looking at all of them together measures the status of a brand’s current digital transformation – and it’s critical for a PE firm to know where they stand.

Delineating where digital and technical debt reside within a company and what areas need to improve will help a private equity firm define its approach to technology in its

Arvind Kapur is the co-founder and CEO of Saggezza, a Chicago-based global management consulting and technology services firm.

Guest article

Is your portfolio ready for digital transformation?

By Arvind Kapur

Private equity firms are well advised to delineate where digital and technical “debt” reside within a potential target

Guest Article

A common mantra in the business world is “Every com-pany is a technology company now.” We hear it repeated ceaselessly by a host of industry pundits, tech reporters and consultants.

That’s not only because it’s catchy – it’s also a valid point. The line between “regular company” and “technology com-pany” has been blurring for decades, and for private equity firms, that means every company in which they invest is a technology company.

Or, at least, they should be. In actuality, many brands are falling short of the digital transformation everyone is striv-ing for these days – the promise of using technologies and digital strategies to transform the entire value chain, from

visual identity to user experience and customer engagement to time to market and more, to streamline a business, create new efficiencies and boost profits.

The reason for this shortfall is that many companies carry digital and technical debt, which not only hinders their digital transformation, but also diminishes their brand value – thus impacting a private equity firm’s return on investment.

Why digital and technical debt mattersAlthough the terms are often used interchangeably, digital

and technical debt are two separate entities that might be best understood by using a casual dining restaurant chain as an example.

AD

OB

E S

TOC

K

030_MAJ0519 30 4/5/2019 1:56:02 PM


Unlike financial debt, digital “debt” refers to a deficit in technological capabilities and assets. In this case, it might comprise a lack of website personalization; low social media presence across sites like Instagram, Facebook, Foursquare, etc.; an unresponsive mobile site; or lack of engaging brand content (especially user-generated content) on a website – basically, the brand’s digital experience does not mirror its positive, comprehensive in-restaurant experience.

Technical debt for the chain might include issues like online ordering systems that go down a lot; online pricing or menus that don’t match the in-store restaurant prices/menus; or loyalty programs with inaccurate customer data – techno-logical malfunctions that lower brand perception, no matter how good the in-restaurant experience is.

An experience must be seamless and balanced from end to end – from digital to in-person, across all technology aspects of a company. If it’s not, it impacts revenue and the lifetime value of the brand, which means the PE firm won’t get the most out of its investment.

That means it’s critical to examine every single aspect of the managed company’s business, delving deep into the complete value chain early in the acquisition – or even before it – to understand keys areas of technological impact and deficit.

Getting out of debtTo determine the quality and quantity of an invest-

ment’s digital and technical debt, a private equity firm must consider eight main factors and evaluate how well (or not so well) the brand is doing with each one:• Customer engagement• Execution and delivery • Technology and platform• Data management• Culture• Digital operations• Capacity and capability• Content

Every brand is at a different stage of the life cycle for each of these, but looking at all of them together measures the status of a brand’s current digital transformation – and it’s critical for a PE firm to know where they stand.

Delineating where digital and technical debt reside within a company and what areas need to improve will help a private equity firm define its approach to technology in its

target company. Once you understand the context of any shortcomings, you can make better decisions on where to focus your investment, bringing your portfolio brands up to speed and reaping the most value out of your acquisitions.

For example, you may be buying a brand that has low customer engagement, but accurate master data on their customers and plenty of solid content they just aren’t mar-keting appropriately. You likely don’t need to add any more content or clean the data, but instead should invest funds in strategies that improve the customer experience and access to that content.

The earlier, the betterAdditionally, technical and digital debt can actually af-

fect the terms of the deal. A private equity firm may allot a certain dollar amount for investment to generate the desired results – but that might not be enough. Finding issues prior to closing means you can alter projections and renegotiate the price, depending on the risks it reveals; after the deal is locked in, your freedom to change any part of it is limited.

Reducing digital and technical debt is important even at the end of the investment cycle, because the next buyer may balk at any lingering technology problems, and back out of the deal. Deloitte found that technology acquisition is the new No. 1 driver of M&A pursuits, ahead of expanding customer bases in existing markets, or adding to products or services.

Formerly, private equity firms were left to evaluate their investments on their own, but a shift in perspective is driving more firms to partner intimately with both target companies and third-party advisers early on to perform a technology audit and help guide the digital transformation journey.

Getting it rightPrivate equity firms may think they are not in the technol-

ogy business, but they are – because every company is a technology company these days, and to maximize the busi-ness case for investing in a particular brand, getting the tech right is critical.

Digital debt leads to loss of brand value and can increase costs and reduce profitability – all of which thus affects the PE firm. A company might have the best product in the world, but if it’s missing the technological capabilities that allow that product to reach and resonate with the customer and maximize market opportunities, that great product isn’t worth much at all. M&A

Arvind Kapur is the co-founder and CEO of Saggezza, a Chicago-based global management consulting and technology services firm.

Guest article

Is your portfolio ready for digital transformation?Private equity firms are well advised to delineate where digital and technical “debt” reside within a potential target

Guest Article

visual identity to user experience and customer engagement to time to market and more, to streamline a business, create new efficiencies and boost profits.

The reason for this shortfall is that many companies carry digital and technical debt, which not only hinders their digital transformation, but also diminishes their brand value – thus impacting a private equity firm’s return on investment.

Why digital and technical debt mattersAlthough the terms are often used interchangeably, digital

and technical debt are two separate entities that might be best understood by using a casual dining restaurant chain as an example.

031_MAJ0519 31 4/5/2019 1:56:03 PM

By Keith Button

Top private equity firms of 2018

San Francisco’s Genstar Capital, which backs companies in the financial services, software, industrial technology and healthcare sectors, proved the most active PE firm

in 2018, based on completed deal volume

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Feature

1. Genstar Capital (79 completed deals)

Genstar Capital is a San Francisco-based PE firm that has been investing in middle-market companies since 1988. Genstar partners with its management teams and a network of strategic advisors, including current and former C-level executives from the industries in which it invests. The firm employs more than 40 professionals and manages funds with total capital commitments of about $17 billion. Genstar invests in targeted segments of only four sectors: financial services, software, industrial technology and healthcare, and focuses on global companies headquartered in North America. It is currently managing its eighth fund and is seeking investment opportunities in founder-owned companies, public company orphans, corporate carve-outs and traditional buyouts.

2. Audax Group (62)

Audax Group, founded in 1999, invests in middle-market companies through Audax Private Equity and Audax Private Debt, currently managing more than $16 billion of assets overall. Audax Private Equity, based in Boston and San Fran-cisco, takes a buy-and-build investment approach, partnering with established companies to create larger entities through acquisitions and organic growth. The firm has invested more than $5 billion in 120 platform investments and 750 add-on acquisitions. The private equity team has more than 100 investment, transaction and operations professionals. Audax Private Equity’s investments are headquartered in the U.S. and Canada, with operations in 21 countries. The companies are in business and consumer services, healthcare, software

and technology, chemicals, energy, engineered products and materials industries.

3. HarbourVest Partners (54)

HarbourVest Partners is global private markets investment firm with more than $58 billion in assets under manage-ment as of yearend 2018, including primary fund investments, secondary investments and direct co-investments. The firm, founded in 1982, has invested more than $9 billion directly in operating companies, including companies in the com-munications, consumer, financial, healthcare, industrial and information technology sectors. It invests in buyout, growth equity and mezzanine stages. HarbourVest, has more than 500 professionals, including more than 100 investment professionals. Its offices are in Beijing, Bogotá, Boston, Hong Kong, London, Seoul, Tel Aviv, Tokyo and Toronto.

4. Stone Point Capital (45)

Stone Point Capital, a PE firm based in Greenwich, Con-necticut, has raised more than $19 billion to invest in more than 100 companies since launching its first fund in 1994. Stone Point invests in 12 verticals within the financial services industry: asset and wealth management; advisory, broker dealers and merchant trading; banking institutions; man-aged care and healthcare services; human resources benefits and employer services; insurance distribution and services; insurance run-off; life insurance underwriting; outsourc-ing and technology; property and casualty insurance; real estate finance and services; and specialty finance/non-bank lenders. The firm targets $50 million to $500 million equity investments, taking both minority and majority positions, with a horizon of five to more than 10 years.

5. Abry Partners (41)

Abry Partners, a PE firm headquartered in Boston, focuses on investments in media, communications, insurance, business and information services, with industry expertise in broadband, business services, communications, cybersecurity, health-care information technology, information services, insurance

Genstar Capital, Audax Group, HarbourVest Partners and Stone Point Capital were the four most active U.S. private equity dealmakers in 2018, based on the number of deals completed in the U.S., according to PitchBook. Here are Mergers & Acquisitions’ profiles of the 21 PE entities that led the league tables in a very active year for dealmaking.

Ryan Clark, Genstar Capital

Gen

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services, Internet of Things, logistics, media and Software-as-a-Service. Since its founding in 1989, Abry has completed more than $82 billion of transactions. The firm has $12 billion under active management in four fund strategies, targeting invest-ments of $20 million to $200 million. Its flagship private equity fund is the $2.1 billion Abry Partners IX, with a $525 million Abry Heritage Partners fund focused on lower middle-market companies, a $1.05 billion structured equity investment fund and a $1.5 billion senior debt securities fund.

5. Kohlberg Kravis Roberts (41)

KKR & Co. (NYSE: KKR) is a global firm that manages private equity, energy, infrastructure, real estate and credit investments, plus it has partners that manage hedge funds and it provides financing and investments through a capital markets business. KKR was founded in 1976, and through 2018 the firm had completed PE transactions with about $595 billion of total enterprise value in about 20 industries. KKR’s PE business invests in management buyouts and build-ups, minority positions, public company toe-hold investments and growth capital opportunities. Its Americas PE teams focus on industrials, financial services, retail and consumer, energy, technology, media and communications, healthcare, and hospitality and leisure industries. KKR has offices in 20 cities across 15 countries.

7. CI Capital Partners (35)

CI Capital Partners, a New York-based middle market PE firm, focuses on investing in business services; distribution, transportation and logistics; healthcare services; and residen-tial services sectors. The firm seeks to form partnerships with experienced management teams and entrepreneurs to build through add-on acquisitions, organic growth and operational improvements. Since its inception in 1993, CI Capital has acquired more than 320 companies worth about $10 billion in enterprise value, including 33 platform companies and more than 285 add-on acquisitions. The firm’s target equity invest-ment range is $10 million to $150 million. Portfolio companies acquired by CI Capital since 2008 have produced four times the revenue they produced before acquisition, on average, according to the firm.

8. The Blackstone Group (34)

The Blackstone Group (NYSE: BX) is an investment firm with nearly 2,500 professionals in 23 offices around the world. Blackstone’s private equity business has $130 billion in

assets under management and a portfolio of more than 95 companies with $82 billion in combined annual revenue. The firm, founded in 1985, has more than 250 PE professionals worldwide, with PE offices in New York, London, Dusseldorf, Mumbai, Singapore, Hong Kong and Sydney. Through its cor-porate PE group, Blackstone invests in growth equity oppor-tunities; new and later-stage development projects in energy and power and related sectors; buy-and-build opportunities with smaller companies in large, fragmented industries; and leveraged buyouts of large and mid-cap global companies.

8. Canada Pension Plan Investment Board (34)

Canada Pension Plan Investment Board, or CPPIB, is an investment manager governed by the Canada Pension Plan that invests pension’s funds in private equity, public equi-ties, real estate, infrastructure and fixed income instruments. CPPIB is headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York, São Paulo and Sydney. As of Dec. 30, 2018, the pension’s fund totaled C$368.5 billion ($275 billion). The CPPIB group that makes direct investments in private companies in North America and Europe has more than 55 professionals. The group considers investments ranging from passive, minority positions to 100 percent control positions in all sectors excluding real assets, with a minimum investment size of C$100 million ($75 million).

10. Providence Equity Partners (32)

Providence Equity Partners is a global private equity firm focused on the media, communications, education and infor-mation industries with about $40 billion in aggregate capital commitments. The firm is headquartered in Providence, Rhode Island, with offices in New York and London. Since the firm’s inception in 1989, it has invested in more than 180 companies. Providence’s flagship PE team invests in compa-nies ranging from growth capital opportunities and family-owned businesses to large buyouts and take-privates, mostly in North America and Western Europe. The firm established its Providence Strategic Growth Capital Partners affiliate in 2014 to focus on growth equity investments in lower middle-market software and technology-enabled service companies, primarily in North America.

11. Ares Capital (31)

Ares Capital Corp. (Nasdaq: ARCC) is a specialty finance company that makes debt and equity investments in private

Feature

middle-market companies and power generation projects in the U.S. The company invests primarily in first- and second-lien loans and mezzanine debt, and to a lesser extent it makes equity investments. Ares is regulated as a business development company, and with $12.9 billion of total assets as of yearend 2018 it is the largest BDC as measured by total assets and market capitalization, according to Ares. Its portfolio is valued at about $12.4 billion, consisting of 344 portfolio companies backed by 167 private equity sponsors. Ares Capital is externally managed by a subsidiary of Ares Management Corp. (NYSE: ARES).

11. TA Associates Management (31)

TA Associates is a global growth private equity firm with offices in Boston; Menlo Park, California; London; Mumbai; and Hong Kong, and about 85 investment profes-sionals. The firm invests in technol-ogy, healthcare, financial services, consumer and business services industries, typically investing $70 million to $500 million in businesses valued at $100 million to $3 billion. In 2018, the firm invested about $2.8 billion in 17 new investments and 11 add-on investments, and it realized $3.4 billion in liquidity for completing seven com-pany exits, eight partial sales, three equity recapitalizations and two public offerings. Since its 1968 start, the firm has raised $24 billion and invested in more than 500 companies. TA won Mergers & Acquisitions’ 2018 M&A Mid-Market Award for Private Equity Firm of the Year.

11. Aquiline Capital Partners (31)

Aquiline Capital Partners, based New York and London, is a private equity firm that invests in the financial services sector, including insurance, financial technology and services, investment management, and banking and credit companies. Since its start in 2005, the firm has invested more than $2.5 billion in 40 middle-market businesses in North America and

034_MAJ0519 34 4/5/2019 1:56:23 PM


assets under management and a portfolio of more than 95 companies with $82 billion in combined annual revenue. The firm, founded in 1985, has more than 250 PE professionals worldwide, with PE offices in New York, London, Dusseldorf, Mumbai, Singapore, Hong Kong and Sydney. Through its cor-porate PE group, Blackstone invests in growth equity oppor-tunities; new and later-stage development projects in energy and power and related sectors; buy-and-build opportunities with smaller companies in large, fragmented industries; and leveraged buyouts of large and mid-cap global companies.

8. Canada Pension Plan Investment Board (34)

Canada Pension Plan Investment Board, or CPPIB, is an investment manager governed by the Canada Pension Plan that invests pension’s funds in private equity, public equi-ties, real estate, infrastructure and fixed income instruments. CPPIB is headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York, São Paulo and Sydney. As of Dec. 30, 2018, the pension’s fund totaled C$368.5 billion ($275 billion). The CPPIB group that makes direct investments in private companies in North America and Europe has more than 55 professionals. The group considers investments ranging from passive, minority positions to 100 percent control positions in all sectors excluding real assets, with a minimum investment size of C$100 million ($75 million).

10. Providence Equity Partners (32)

Providence Equity Partners is a global private equity firm focused on the media, communications, education and infor-mation industries with about $40 billion in aggregate capital commitments. The firm is headquartered in Providence, Rhode Island, with offices in New York and London. Since the firm’s inception in 1989, it has invested in more than 180 companies. Providence’s flagship PE team invests in compa-nies ranging from growth capital opportunities and family-owned businesses to large buyouts and take-privates, mostly in North America and Western Europe. The firm established its Providence Strategic Growth Capital Partners affiliate in 2014 to focus on growth equity investments in lower middle-market software and technology-enabled service companies, primarily in North America.

11. Ares Capital (31)

Ares Capital Corp. (Nasdaq: ARCC) is a specialty finance company that makes debt and equity investments in private

middle-market companies and power generation projects in the U.S. The company invests primarily in first- and second-lien loans and mezzanine debt, and to a lesser extent it makes equity investments. Ares is regulated as a business development company, and with $12.9 billion of total assets as of yearend 2018 it is the largest BDC as measured by total assets and market capitalization, according to Ares. Its portfolio is valued at about $12.4 billion, consisting of 344 portfolio companies backed by 167 private equity sponsors. Ares Capital is externally managed by a subsidiary of Ares Management Corp. (NYSE: ARES).

11. TA Associates Management (31)

TA Associates is a global growth private equity firm with offices in Boston; Menlo Park, California; London; Mumbai; and Hong Kong, and about 85 investment profes-sionals. The firm invests in technol-ogy, healthcare, financial services, consumer and business services industries, typically investing $70 million to $500 million in businesses valued at $100 million to $3 billion. In 2018, the firm invested about $2.8 billion in 17 new investments and 11 add-on investments, and it realized $3.4 billion in liquidity for completing seven com-pany exits, eight partial sales, three equity recapitalizations and two public offerings. Since its 1968 start, the firm has raised $24 billion and invested in more than 500 companies. TA won Mergers & Acquisitions’ 2018 M&A Mid-Market Award for Private Equity Firm of the Year.

11. Aquiline Capital Partners (31)

Aquiline Capital Partners, based New York and London, is a private equity firm that invests in the financial services sector, including insurance, financial technology and services, investment management, and banking and credit companies. Since its start in 2005, the firm has invested more than $2.5 billion in 40 middle-market businesses in North America and

Europe, including investments in start-ups, growth equity and buyout opportunities, corporate carve-outs, consolidations and turnarounds. Through its Aquiline Technology Growth Fund, the firm invests in early- and growth-stage technol-ogy companies serving the insurance and financial services industries, including insurance technology, asset manage-ment technology, benefits and retirement, security, data and analytics, and enterprise software.

11. The Riverside Co. (31)

The Riverside Co. is a global private equity firm with more than $8 billion in assets under management and more than 200 professionals world-wide. Riverside, based in Cleveland and New York, has made more than 600 investments since it was founded in 1988, with more than 90 companies in its private equity and structured capital portfolios. The firm focuses on investing in businesses valued at up to $400 million. Its private equity business includes teams focused on control buyouts of North American-based platform companies with $10 million to $35 million in last-12-months EBITDA and with less than $10 million in LTM EBITA; investments in growth-stage technology companies; and control buyouts of European, Australian and New Zealand-based companies. Riverside won Mergers & Acquisitions’ 2018 M&A Mid-Market Award for Private Equity Seller of the Year.

15. Warburg Pincus (30)

Warburg Pincus is a global private equity firm focused on growth investing with more than $43 billion in assets under management. Since its founding in 1966, Warburg Pincus has raised 17 private equity funds that have invested more than $73 billion in more than 855 companies in more than 40 countries. Its active portfolio includes more than 180 com-panies. The firm is headquartered in New York, with offices also in Amsterdam, Beijing, Hong Kong, Houston, London, Luxembourg, Mumbai, Mauritius, San Francisco, São Paulo,

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Shanghai and Singapore. Its investment teams are organized by sector, focusing on energy; financial services; healthcare and consumer; industrial and business services; and technol-ogy, media and telecommunications sectors.

16. The Carlyle Group (29)

The Carlyle Group (Nasdaq: CG) is a global investment firm with $216 billion under management. The firm’s cor-porate PE business, with 275 investment professionals in 22 offices, is invested in 180 portfolio companies through 33 buyout and growth capital funds. The buyout teams invest through funds with $75 billion under management that focus on the U.S. and other geographic areas globally, as well as technology and financial services. The growth teams invest through funds with $6 billion under management focused on middle-market and growth companies in the U.S., Asia and Europe. Since 1990, the corporate PE unit has invested $98 billion in equity in 626 transactions and generated nearly $82 billion in gains, according to the firm.

17. Thoma Bravo (28)

Thoma Bravo is a PE firm with offices in Chicago and San Francisco that manages private equity and credit funds with more than $30 billion of investor equity commitments. The firm focuses on software and technology, acquiring more than 200 companies valued at more than $50 billion in those industries over a 20-year span. It takes a buy-and-build investment approach, investing in growth initiatives and stra-tegic acquisitions to drive long-term value. Thomas Bravo’s current private equity software portfolio includes 35 compa-nies that generate more than $10 billion in revenue annu-ally and employ more than 33,500 people. The firm recently closed its Thoma Bravo Fund XIII at $12.6 billion in investor capital commitments.

17. Apax Partners (28)

Apax Partners is a London-based private equity firm that has raised funds with about $50 billion in total commit-ments over a more-than-40-year span. Apax funds invest in companies globally in technology and telecommunications, services, healthcare and consumer sectors. The firm reviews investment opportunities through investment teams focused on the four sectors, plus a team of executives with operating experience, plus executives from those teams who also have online or digital knowledge, and a financing team. The firm started out as a venture capital firm in the 1980s and shifted

its focus to buyouts in the 1990s. In addition to its London headquarters, the firm has offices in New York, Hong Kong, Mumbai, Munich, Shanghai and Tel Aviv.

17. TPG Capital (28)

TPG Capital is a global alternative asset firm with more than $103 billion under management with investment and operational teams in Austin and Fort Worth, Texas; Beijing; Boston; Dallas; Hong Kong; Houston; London; Luxembourg; Melbourne; Moscow; Mumbai; New York; San Francisco; Seoul; and Singapore. TPG, founded in 1992, manages investments in private equity, growth venture, hedge funds, real estate, credit and public equity asset classes. The firm’s TPG Capital PE business has invested more than $50 billion through about 175 transactions since 1993. Its TPG Capi-tal Asia manages more than $9.4 billion in PE assets. TPG Growth specializes in growth equity and middle-market buy-out investments, with $13.2 billion under management.

17. H.I.G. Capital (28)

H.I.G. Capital is a global private equity that focuses on investing in small and medium-sized companies. The firm has more than $30 billion of equity capital under management and more than 350 investment professionals, with offices in Atlanta, Bogotá, Boston, Chicago, Dallas, Hamburg, London, Los Angeles, Luxembourg, Madrid, Miami, Milan, New York, Paris, Rio de Janeiro, San Francisco and São Paulo. H.I.G. invests in management-led buyouts or recapitalizations of established, profitable, manufacturing and service businesses, and in growth and development opportunities in high-growth companies. Since H.I.G. was founded in 1993, the firm has acquired more than 300 businesses the U.S., Europe and Latin America.

17. Insight Venture Partners (28)

Insight Venture Partners is a New York-based global venture capital and private equity firm with more than $20 billion under management. The firm invests in high-growth technology and software companies. Since Insight was founded in 1995, it has invested in more than 300 companies, completed more than 200 M&A transactions for its portfolio companies and fostered more than 40 initial public offerings. The firm advises its portfolio companies through its Insight Onsite program, providing advice targeted at product and technology, marketing, sales, strategy and M&A, talent, busi-ness development and customer success functions. M&A

Feature

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tors, adaptive reuse still faces some hurdles. For more capital to flow into this asset class, it is essential to have an industry-recognized definition of adaptive reuse coupled with a meth-odology for valuation and underwrit-ing. CCIM Institute, in partnership with Alabama Center for Real Estate at the University of Alabama, has been instru-mental in establishing a solid definition. To qualify as adaptive reuse, a project must include four factors:

1. Existing structure: While adaptive reuse projects may involve some level of new construction or an expansion/addition of space, they always start with an existing structure.

2. Functional and/or economic obsolescence: The old use is no longer productive or economically viable, and the tenants have left.

3. Change of use: The project/prop-erty must involve a repurposing of a prior structure and use, not a mere re-tenanting with tenant improvements. Defining the new use is vital for capital sources to perform proper valuations of the project.

4. Economic viability: The new project/property must pass the ultimate test of highest and best use. Not only does the reuse need to be physically possible and legally permissible, it also must be economically viable.

The underlying objective is to provide both regulators and capital providers the specificity needed for everything from tax codes and legal structures to valuations and due dili-gence. Ultimately, it also will pave the way for aggregation by private equity portfolios and REITs.

AdRu opportunities for PE For those PE firms interested in

David Wilson is the vice president of real estate development company Ryan Companies.

Guest article

Adaptive reuse appeals

By David Wilson

Soho House’s conversion of London’s Midland Bank into The Ned is a great example of adaptive reuse

Guest Article

What’s driving adaptive reuse, and how can private equity tap into this increasingly common but misunderstood and under-analyzed property segment? Adaptive reuse, which involves repurposing a building designed originally for something else, is fast becoming a global phenomenon; from turn-of-the-century warehouses to castles to train stations, developers and investors have unlocked enormous value from obsolete building stock.

Adaptive reuse projects constitute 1 percent to 2 percent of all commercial real

estate space in the U.S.—and will likely increase to 4 percent over the next five years. What’s more, experts say that by 2023, adaptive reuse projects will make up a greater percentage of investment activity than self-storage and other select non-core property types.

While these projects often are associated with lifestyle trends, such as the renewed popularity of urban living, other, less-glam-orous factors also are at play:• The increased cost of land and construc-

tion for ground-up projects.

• A desire by cities to re-move blight and reinvigo-rate their tax bases.

• An increased awareness of sustainability in devel-opment; and

• The seismic changes in retail, which have freed up vast amounts of empty retail and ware-house space.While historic preserva-

tion projects are the most familiar reuse develop-ments, adaptive reuse projects vary widely and are spread across markets of all sizes. In 2017, private equity-backed Soho House made a splash in London when it turned the former Midland Bank headquarters, built in 1924, into the swanky The Ned. In Kansas City, Ryan Companies transformed the 1965 Commerce Tower into a LEED Gold-certified 32-story vertical neighbor-hood, with commercial and residential use, as well as a day care facility, green space, and a univer-sity branch. In Brooklyn, Jamestown Properties, Belvedere Capital, Angelo Gordon, and Cammeby’s International currently are expanding adaptive reuse on the 16-building, 6 million square-foot Industry City complex.

The challenges of adaptive reuse

While such developments can be appealing to inves-

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038_MAJ0519 38 4/5/2019 1:56:12 PM


tors, adaptive reuse still faces some hurdles. For more capital to flow into this asset class, it is essential to have an industry-recognized definition of adaptive reuse coupled with a meth-odology for valuation and underwrit-ing. CCIM Institute, in partnership with Alabama Center for Real Estate at the University of Alabama, has been instru-mental in establishing a solid definition. To qualify as adaptive reuse, a project must include four factors:

1. Existing structure: While adaptive reuse projects may involve some level of new construction or an expansion/addition of space, they always start with an existing structure.

2. Functional and/or economic obsolescence: The old use is no longer productive or economically viable, and the tenants have left.

3. Change of use: The project/prop-erty must involve a repurposing of a prior structure and use, not a mere re-tenanting with tenant improvements. Defining the new use is vital for capital sources to perform proper valuations of the project.

4. Economic viability: The new project/property must pass the ultimate test of highest and best use. Not only does the reuse need to be physically possible and legally permissible, it also must be economically viable.

The underlying objective is to provide both regulators and capital providers the specificity needed for everything from tax codes and legal structures to valuations and due dili-gence. Ultimately, it also will pave the way for aggregation by private equity portfolios and REITs.

AdRu opportunities for PE For those PE firms interested in

ESG or socially responsible investing, adaptive reuse projects often tick all the boxes. These projects also tick the box for cost effectiveness. On aver-age, AdRu projects are 15 percent to 20 percent cheaper and faster than new construction.

In addition, private equity firms can take advantage of a wide variety of incentives for these projects, such as new market or historic tax credits, TIFs, low-income housing tax credits, and opportunity zones. Cities also are becoming more creative with incentives offered. After all, no one wants vacant properties in their town.

Opportunity zones, in particular, are

prime candidates for private equity and adaptive reuse deals. Looking at the available inventory in these newly defined opportunity zones – such as abandoned factories, warehouses, parking garages, and big boxes – these properties are perfectly suited for multi-family, mixed-use, hotel, or creative

office projects.Adaptive reuse also can be an ideal

solution for site selection for a private equity firm’s portfolio companies. Whether the company is expanding or relocating, adaptive reuse not only saves time and money, but can attract and retain a strong workforce. With the growing desirability of live-work-play lifestyles, particularly among millenni-als, the conversion of a unique property in the city or an urban satellite can be very attractive to this desired demo-graphic.

The social goodwill and public relations benefits shouldn’t be under-estimated either. Adaptive reuse brings

jobs, economic activity, and people back into communities and often saves or transforms a beloved structure in the neighborhood.

Look to this combination of adaptive reuse and opportunity zone incentives as a powerful driver of growth in this asset class for years to come. M&A

David Wilson is the vice president of real estate development company Ryan Companies.

Guest articleGuest Article

• A desire by cities to re-move blight and reinvigo-rate their tax bases.

• An increased awareness of sustainability in devel-opment; and

• The seismic changes in retail, which have freed up vast amounts of empty retail and ware-house space.While historic preserva-

tion projects are the most familiar reuse develop-ments, adaptive reuse projects vary widely and are spread across markets of all sizes. In 2017, private equity-backed Soho House made a splash in London when it turned the former Midland Bank headquarters, built in 1924, into the swanky The Ned. In Kansas City, Ryan Companies transformed the 1965 Commerce Tower into a LEED Gold-certified 32-story vertical neighbor-hood, with commercial and residential use, as well as a day care facility, green space, and a univer-sity branch. In Brooklyn, Jamestown Properties, Belvedere Capital, Angelo Gordon, and Cammeby’s International currently are expanding adaptive reuse on the 16-building, 6 million square-foot Industry City complex.

The challenges of adaptive reuse

While such developments can be appealing to inves-

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039_MAJ0519 39 4/5/2019 1:56:15 PM


People Moves

New hires and promotionsBy Demitri Diakantonis

Ila Afsharipour was hired by investment bank KeyBanc Capital Markets as a managing director and head of the higher education and not-for-profit public finance group. He was previously with U.S. Bancorp.

Dale Araki was hired by K&L Gates as a partner. Previously with Morrison & Foerster, Araki focuses on M&A across Asia and Japan.

Derek Beres was hired by William Blair as a managing director. Beres was most recently with Piper Jaffray (NYSE: PJC).

Brian Boucher has joined Trilantic North America-backed Planet Fitness franchisee Taymax Group Holdings as a chief operating officer. He was previously with Under Armour Inc. (NYSE: UA).

Colin Bumby has joined law firm McGuireWoods as a partner. He was most recently with Latham & Watkins, and represents private equity firms in M&A.

Anthony Cassano was hired by middle-market PE firm Ridgemont Equity Partners as a part-ner. He was most recently with Spire Capital Partners, and focuses on investments in the tech and telecom sector.

Rennie Faulkner has been named CEO at Gryphon Investors-backed logistics company Transportation Insight. Faulkner has been the company’s CFO since 2010 and will continue to hold that title.

Terry Hill has been named CEO at CI Capital-backed chemicals distributor Maroon Group. Hill has been serving on Maroon’s board since 2017.

Elinor Hiller has joined law firm Alston & Bird as a partner, where she is focus-ing on healthcare regulations. Hiller was most recently a senior advisor to Centers for Medicare & Medicaid services administrator Seema Verma.

Perry Joiner has joined Wil-liam Blair as a vice president to expand the investment bank’s transportation, logis-tics and automotive group. Joiner was previously with Wells Fargo (NYSE: WFC).

Scott Iorio was promoted to managing principal at GoldPoint Partners, a private equity affiliate of New York Life Investment Management LLC.

Karsten Langer has been promoted to man-aging partner at The Riverside Co. He joined Riverside in 2006.

Jon Merriman was promoted from head of capital markets to senior managing director, chief business officer at financial services firm B. Riley Financial (Nasdaq: RILY).

Katie Oswald was hired by private equity firm Crossplane Capital as director of business development. She was previously with Gauge Capital.

Brad Page has joined Baird as a managing director. Previ-ously with William Blair, Page focuses on environmental and facility services.

Beth Pickens was hired by TSG Consumer Partners as a principal, where she is based in the firm’s new London office. Pickens was previ-ously the head of European consumer banking at William Blair.

Andrea Prochniak has joined Perella Weinberg Partners as a managing director and global head of investor rela-tions and corporate affairs. She was most recently with AllianceBernstein. Chris Springer was hired by Edgewater Capital Partners as an operating partner. He was previously with Alliance Holdings.

Brad Staley has been named CEO of Atlantic Street Capital-backed Advancing Eyecare. Staley was most recently the CEO of United Scope.

Carolyn Wintner was hired by Charlesbank Capital Partners as head of capital markets. She was most recently with Bain Capital Credit. M&A

Carolyn Wintner

Elinor Hiller

040_MAJ0519 40 4/5/2019 1:53:22 PM

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HEALTHCARE’S MUST-HAVE TECHNOLOGIES...we take our deals, get in touch with BRIAN KERWIN, chair of our global corporate practice, at 312.499.6737 or [email protected]. Duane