Promoting Women, the COVID Matrix and Biden Tax Plan: Day 2 of M&A East
On the final day of M&A East, middle-market professionals discussed promoting women inside PE firms, post-COVID due diligence, and more.
In the morning panel of M&A East 2020 entitled “Elevating Women & Girls in Finance: A Fireside Chat,” Jennifer Openshaw, founder of the Women’s Financial Network, says women have to create a clear path to move up the corporate ladder inside a PE firm. Whether she wants to run a portfolio or sit on the board of directors, women need a plan for the next year, she said. “Speak with bosses before you leave for another job,” she advised.
Promoting women inside PE firms not only benefits female employees, it burnishes the reputation of the firm itself, Openshaw said. “Women need a seat at the table and companies need women at the top. I would plant the seed and say you need someone at the leadership team.”
In family offices, where it can be difficult for employees outside the family to advance, Openshaw advised female workers to get close to the family to earn their trust. “Let them know you are ‘in it’ and want to be part of the family and build a legacy,” she said. “Say ‘I want to be one of your leaders in the next five years.’”
COVID-19 has had a profound impact on tech and manufacturing—and some companies are still trying to make sense of the new landscape.
In the panel entitled “Industrial Tech & Manufacturing Industry,” Michael Morrissey, managing principal for Inverness Graham, said that while his PE firm survived the credit crisis of 2008, Friday the 13th of March 2020 was “Judgement Day” when most businesses shut down due to new COVID restrictions.
“We moved to weekly portfolio updates and built a matrix. We wanted market feedback, market updates, debts and covenants, cost cutting, opportunities and this was the most interesting part of matrix,” said Morrissey. This revealed “where could we take advantage of new opportunities that others would miss.”
Chip Grace, partner for May River Capital, found an opportunity during due diligence. “Right out of the gate, spending a million on software and automation development, we will refund that amount at closing and put it into the balance sheets. We can put that money on Day One for capital expenditure initiatives and get on with it,” said Grace.
Supply chains will be a major issue no matter who wins the 2020 election, said Morrissey. “Trump’s tariffs [against China] are a first step and we don’t think relations are going to get better with a new president. We think it might make it more difficult to diversify,” he said, adding that his firm may pursue operations nearshore in Mexico.
In the last panel of the morning session, “Planning For Politics—How Proposed Tax Changes Might Impact M&A Deals,” Andrew Bishop, director for Bernstein Wealth Strategies Group, gamed out what a Biden presidency might mean in terms of tax policy.
While he believes that taxes will go up under Biden, the timing of potential tax increases is uncertain, said Bishop, who met with Biden’s advisors. “The Biden team didn’t give us any direct answer but said if they did get elected, they want to get the economy in order.”
Women need a seat at the table and companies need women at the top. I would plant the seed and say you need someone at the leadership team.
Jennifer Openshaw
Founder, Women’s Financial Network
Whether these tax increases happen in 2021 or 2022, the Biden presidency may take a page from the Clinton tax plan of the early 1990s and make them retroactive to the beginning of the year that they are passed.
As for President Trump’s tax plan for his second term, it appears to be more of the same, said Don Braun, managing director of Bernstein Private Wealth Management.
Bishop added that the markets want more stimulus and if we have gridlock in Congress, this could hamper a stimulus package.
M&A East’s Afternoon Sessions: Friendly Foreclosures, Home-bound Health and Operating Partners
During times of economic uncertainty, traditional M&A tends to turn to distressed assets. Now is no different, according to leading attorneys from Ballard Spahr, which kicked off the event’s afternoon sessions.
The firm has seen a growing list of bankruptcy cases involving companies in industries like retail, oil and gas, manufacturers, and health care providers strained by the pandemic in recent months, followed by a growing number of interested buyers.
Distressed assets have advantages. “Significant value can be achieved,” said Tobey Daluz, a litigation partner at Ballard Spahr. That is, however, if they know where to look.
Buyers typically find distressed companies through bankruptcy sales, which fall under a designation 363—named after the section in the U.S. Bankruptcy Code. But because these listings are public, the assets are usually competitive and there’s no guarantee of exclusivity, which is anathema to most private equity investors, according to Jay Coogan, a partner at the firm.
The firm expects to see more vulnerable industries appear on bankruptcy listings in coming months as virus cases enter a second phase, including movie theater chains, caterers, stadium operators, long-term health care providers and eventually real estate.
“These are interesting times, which is a bit of a curse,” Coogan said.
The following panel focused on the operational challenges facing health care companies. Greg Drobnick, co-founder and executive vice president of Heal, a tech-enabled health care company that provides access to primary care physicians, said he’s seen a spike in demand for its telehealth services, a trend observed among other panelists.
Chris Coburn, Chief Innovation Officer for Mass General Brigham, one of the nation’s largest health care providers, underscored the importance of telehealth, citing a study from the hospital system that between 30% to 40% of primary care could be delivered electronically.
The panelists then discussed other trends shaping the health care industry. Michael Weber, a managing director at investment bank Lincoln International said home health and community-based care have seen significant growth in recent years, a trend that’s been accelerated by COVID-19.
These services—which are increasing in demand by an aging U.S. population—can include home medical suppliers, home modifications and even data analytics. “The medical consumer is going to play a more active role in their health,” Weber said.
At the final panel of M&A East, private equity operating partners shared strategies they used to coach portfolio companies during the pandemic.
Robert Isaman, chief operating partner at Graham Partners, identified four lessons he learned working in China when the SARS virus hit in the early 2000s: be consistent with the information you share with your teams, overcommunicate to customers and suppliers, protect your talent, and increase your response time to stakeholders.
For Darryl Smith, president of global portfolio operations at Skyview Capital, his approach to company leaders was to get them to be decisive. “As in war, you have to be comfortable making decisions with ambiguity,” said Smith, a retired marine captain. “Not making a decision is a decision.”
Benjamin Glick is an associate editor of Middle Market Growth.
Phil Albinus is Middle Market Growth’s managing editor.
