Q1 2021 Private Equity Insights Overview

Working with over 500 of the world’s top private equity firms gives us insight into what the industry is focusing on. Every quarter our team analyzes the projects we work on with our PE fund clients to get a bird’s eye view of the market. We analyze behaviors across the large variety of clients that we work with on a daily basis and synthesize the data into a comprehensive private equity industry report. You can access the valuable data in this report such as the following:

diligence vs value creation 2021

If you would like to get a copy of the report, reach out directly to your BluWave contact or our team at insights@bluewave.net and we’ll be happy to assist.

 

Elements of Value Scorecard Revealed

What makes a what are the elements of value for a company?

Its people? Definitely.

Its products? Absolutely.

Its patents? Very likely.

But these are the obvious, high-level answers for anyone with a rudimentary understanding of how business (and the economy) works. But it’s the more nuanced elements of value that can make or break a company, particularly during vulnerable times—like an economic downturn or a barrage of new market entrants.

Whether your company is investor-backed, customer-supported, or a combination of both, investors have a significant amount of knowledge about the core elements of value for any business beyond the usual suspects. In part, this is because they are in the “business of growth”—and growth only happens when the products and services being sold have value and can hold value in their specific market.

In a recent CEOWORLD Magazine article, our founder and CEO Sean Mooney offered eight core elements of value that any company can benefit from when prioritized, based on his 20-plus years of experience in private equity. How does your company measure up?

8 core elements of value

Based on his experience, both from the investor and company founder side, he notes: “By taking the perspective of outside investors, business leaders will identify more opportunities, reduce the risk profile of their company, and drive accelerated value creation over time.”

Check out the full article in CEOWORLD Magazine for details on each core element of value.

Private Equity Interview with MiddleGround Capital founder Lauren Mulholland

What happens when a former New York investment banker and mother of two young children (with a third not far behind) decides to take a “measured risk?” First, she teams up with long-time colleagues John Stewart (no, not this onethis one) and Scot Duncan in Lexington, Kentucky; next, together they decide to build a franchise focused squarely on the middle market; and, certainly not last, in under three years they grow their private equity firm to a team of nearly 40 individuals, raise capital for three funds, and invest in ten companies within the industrial and manufacturing space. Mission accomplished? Hardly. She’s just getting started. 

This is all in a day’s work for Lauren Mulholland, founding partner of MiddleGround Capital. Speaking with her was not only enlightening but inspiring, as she and her team have opened the aperture on what’s possible for private equity investment for the “missing middle.”   

Katie Marchetti: What was the genesis of MiddleGround Capital, and what circumstances led you to that choice? 

Lauren Mulholland: For me personally, it was an opportunity to be a leader of an organization from day one, and to build a team and culture I could be truly excited about—along with partners committed to a common vision. Scot, John, and I had all worked together for nine years and have complementary skill sets, so I had confidence in our collective ability to execute against our plan. Together we had experience across all aspects of the business: sourcing, execution, back office management, and portfolio operations. 

In terms of the firm’s vision, we wanted to build a specialized franchise for the middle market.  Most private equity firms start in the lower middle market and then move up-market as they raise bigger and bigger funds. But we are taking a different approach and have committed to our investors to keep our first three flagship funds under $700M. This allows us to stay focused on the middle market, where we see substantial opportunities to acquire privately-held businesses ripe for operational improvement 

KM: I like to ask this question because it seems like a good way to understand someone’s thinking in short order. So, as an homage to Hemingway, what is your “six-word story? 

LM: Measure risk, but take your opportunities. 

KM: What was the most challenging aspect of raising your first fund and getting those first three portfolio companies? 

LM: Getting our first institutional investor was a huge milestone, but we closed three deals before we held a final close on the fund, and this fast-tracked the entire process. The more challenging part was wearing multiple hats at any given time and figuring how to be the most effective. One hour I would be focused on sourcing, the next hour fundraising, the next diligence—plus I was hiring people and constantly acquiring more office space, and this is an entirely different aspect of the business. 

KM: Speaking of hiring, do you have a professional guiding mantra or principle for “why” you make the choices you do?  

LM: I try to hire people that are smarter than I am but also have the right worth ethic. We seek out individuals who are proactive and entrepreneurial but have mastered certain skills. At the end of the day, we are a services firm in service to our Limited Partners, so it’s all about the “right fit” people. 

KM: What is technology’s role in what you do, and for the future of PE in general? 

LM: Having access to data is extremely important and gives us an edge, and I see this “data first” mindset being adopted industry-wide. As an example, we work with third parties to obtain data to help us prioritize our sourcing initiatives and optimize where we are spending our time.  We have also invested in building out a dashboard using Microsoft BI, so we have comparable analytics on all of our portfolio companies available at our fingertips, enabling us to spot trends quicker and make better decisions. For our portcos specifically, we focus on upgrading them along the tech continuum, including helping them understand and embrace automation as the manufacturing industry goes through a transformational shift 

KM: Third-party resources are a substantial part of what you offer your portcos. Any best practices for how to source and engage with third-parties so everyone wins? 

LM: We try to engage with key providers for each specific work area. In other words, “right fit experts” who have deep knowledge and functional expertise in a particular resource area. Beyond that, third-party service providers are an extension of our firm, so they have to be willing to understand our approach and our culture. This is where a firm like yours has been valuable, because, much like our approach, you have data that can easily map resources to our specific needs and even geographical areas. Finding these thirdparties quickly is also extremely important. 

KM: In ten years, where do you see the private equity industry? What has changed, for better or worse? 

LM: I think private equity’s reputation needs to change, particularly with an increasing emphasis on ESG that many firms are putting in place. PE has historically been known as a white man’s world that utilizes high leverage to financially engineer a return and doesn’t invest in its companies or people. That story and reputation is an outdated perspective, and while convenient for media narratives and PE detractors, is not the reality. 

At MiddleGround, we are working on a project right now to highlight change agents in the industry and bring to life some stories that talk about diversity, sector expertise, investing in businesses, growing jobs, and ESG efforts. My hope is that, as a community, the firms and professionals who share these shifting perspectives will come together and invest in redefining the brand of private equity. After all, if we expect our portfolio companies to continuously invest in themselves and their markets, we must be willing to do the same.

Head of Sales Needed To Drive Value at Portco

PE firm urgently needs Head of Sales as portco grows

A private equity firm and portco CEO came to us with a critical need for a Head of Sales for their healthcare logistics company. Since the acquisition, the portfolio company had been growing rapidly and they needed to bring in a sales leader that could forge the way for the company to expand into new markets. With a lean sales team, they knew filling the vacant role was a top priority. They urgently needed a PE-grade sales leader who was a strategic thinker and strong seller while having a proven track record of building and leading sales organizations in high-growth, healthcare companies.

BluWave identifies top providers for firm’s needs

Leveraging our founder’s 20 years in private equity, we have extensive frameworks for assessing PE-grade sales executive needs. BluWave utilizes technology, data and human ingenuity to pre-map, assess, monitor, and maintain deep pools of the select executive sales recruitment firms that uniquely meet the private equity standard. We interviewed the PE firm to understand their specific key criteria, and then connected the client with the select pre-vetted groups from our invitation-only Intelligent Network that fit their exact needs.

Firm selects ideal recruiting firm to find candidates

Within 24 hours of the initial scoping call, the PE firm and portfolio company were introduced to two PE-grade executive recruiting firms that specialized in senior sales roles in the healthcare space. The client selected their ideal choice. The PE firm was able to confidently engage the recruiting firm who quickly provided them with the exact-fit sales leader they needed, allowing the fund and portco to drive an excellent outcome without wasting time or cost.

The 5 Key Ingredients To Building A Thriving Business

During my 20 years in private equity in New York, I learned quite a few lessons about what makes a thriving business and its people tick — for better or for worse. Some are driven by dollars and cents; some are motivated by a people-first philosophy that puts human beings at the center of decision-making. Many fall somewhere in between.

When I decided to spin out of the private equity world and start a company, I quickly realized how important it was to articulate my own philosophy. Otherwise, how could I lead others in any direction with a clear purpose?

Fortunately, my entrepreneurial craze turned out to be the right move, and four years later — with patience, grit, and an amazing team — we’ve exponentially grown and now serve more than 500 of the world’s top private equity firms. I believe this is in part due to a handful of “ingredients” — all of which reinforce one another and somehow ensure that we are getting back what we put in. Follow this recipe and your business will likely be the better for it:

Ingredient No. 1: Do good with good.

This is probably about as simple as it gets. I call it the “Karma School of Business”: Do good things with and for good people, and the world tends to take care of itself. It’s not necessarily the fastest path to Rome, but in my experience, this approach yields the highest percentage chance of long-term success.

The Karma School of Business principle is at the center of my company’s work, where we connect business leaders with service providers to help create a successful environment for both parties. We actively test the service providers we invite into our network for this mindset, and I consider it one of the key reasons why we have grown so quickly.

Ingredient No. 2: Work and learn hard.

Secretary Colin Powell said it well: “There are no secrets to success. It is the result of preparation, hard work, and learning from failure.” I built my career in an industry filled with many of the smartest people in the world. I most definitely was not the smartest person in most of the rooms I shared with peers. The thing that differentiated me was that I worked exceptionally hard, asked lots of questions, and sought answers from those who had already figured out the thing I needed to know.

The lesson here: Don’t recreate the wheel. Instead, ask a lot of questions, take time to learn how things operate, and then work tenaciously to make it happen.

Ingredient No. 3: Use the word ‘no.’

In our business, it’s our job to connect private equity firms with specialized third parties (e.g., boutique advisors, independent consultants, interim executives, etc.). If a resource isn’t the perfect fit, we tell them. “No” is always the best answer.

This is often hard to do, particularly if you think someone is otherwise smart, effective, and likable. But this doesn’t always mean they are the right person for the job. The trick is learning to say “No” in a self-aware and gracious way. I take a lot of time to explain how life is too short to put yourself in a bad position. To throw another quote in the mix, according to Warren Buffet, “It takes 20 years to build a reputation and five minutes to ruin it.” Your customers will thank you for saying “No” when it’s not the right situation and will remember you when it is.

The caveat to this ingredient: Do not be anti-everything. “No” can be the easiest thing in the world to say. But if you’re not being thoughtful, you can become paralyzed in the face of otherwise confidently manageable risk. Good people know the difference between an errant “no” and one that is applied with introspection and purpose.

Ingredient No. 4: Prioritize growth.

Whether you’re committed to personal growth or the growth of the business, this ingredient is vital to the health and longevity of any thriving business. The ability to learn, be agile, and always on your toes is often the difference between success and failure.

My dad had many wise sayings when I was a kid. One relevant one that comes to mind is, “The second you start to feel like you’ve figured the world out, you’re already falling behind.” Investing time and energy into constantly advancing knowledge and skills (for yourself, your employees, and your customers) will benefit you and your business in spades.

Word to the wise: Growth-oriented organizations are far more likely to retain their best employees. Your best people will eventually leave if they feel bored or stagnant.

Ingredient No. 5: Adopt a winning mindset.

When push comes to shove, at the end of the day, ingredients one through four are foundational for success. However, you still need to have a winning mindset to create a thriving business that matters. It’s imperative that you work to win for your customers, win for your stakeholders and win for your company and yourself.

To be clear, I’m not talking about a “winner takes all” mentality, where someone else is always losing. Healthy relationships are not transactional. They should be built around core commitments that are important and lead to the success of both parties.

A winning mindset means that you’re always looking for ways to ensure that both you and your peers end up ahead.

 

The 5 Key Ingredients To Building A Thriving Business originally appeared on Forbes.com.

Tools and techniques to love this February and beyond

Where would we be as solutions-focused experts without a few favorite tools and techniques we can depend on, even during the most challenging engagements and ever-shifting workplace environments?

With the lightning speed of innovation these days, not to mention skill sets required to stay on course, this month I wanted to share a few ideas—in the vein of “digital transformation”—that may be useful for managing the daily demands of business development, client work, and the 948 other things on your plate (including reading emails like this!).

Idea One: Instead of overwhelming your teams, contractors, or yourself with app after app (and password after password), try consolidating into one suite that can be used company-wide and allows for outside collaboration. The 800-pound gorillas here are Microsoft Office and Google Workspace, but there are more suites to choose from depending on your line of business. For example, if you’re visually-based, Trello could do the trick. Or just embrace the complexity and use a tool like LastPass!

Idea Two: Looking to build and maintain strong relationships, even while things are virtual? Check out Thnks: “Growing business with gratitude.” While it may seem old school, saying thank you actually never gets old, even if you’re doing it in a modern way.

Idea Three: If you are a small to midsize business that operated in 2019 and 2020, chances are you may be dealing with all sorts of new changes due to the stimulus packages—not to mention all the “rules” for 2021 that come with a new White House administration. Many positive changes were made in an attempt to help businesses stay afloat, while simultaneously creating more work. Stay on track with payroll, tax deadlines, and more with a platform like Gusto or ComplYant, and help alleviate some of the work in these “headache” areas.

Bonus idea that has nothing to with technology: Feeling stressed? Needing some time away from WFH? The benefits of Infrared Saunas are quickly becoming mainstream: better sleep, relaxation, detoxification, and muscle soreness relief, to name a few. Chances are, if you’re located in a regional or major metropolitan area, there will be an IR business nearby.

Stay tuned for more BluWave insights, and don’t forget to follow us on LinkedIn and Twitter.

How We Did It: Healthcare Turnaround and Performance Improvement Case Study

A multi-site healthcare provider portco was in need of turnaround expertise to help improve their growth-stalled performance. Moving quickly, we worked to thoroughly understand the client’s specific turnaround needs. Tapping into our Intelligent Network, we were able to match the client with a resource who fit their exact requirements (including geographic location) and was able to efficiently start moving on the strategy. In the short-term, the PE fund was able to quickly gain confidence in the interim executive. In the long-term, the PE fund hired the candidate full-time to lead and execute the turnaround plan. 

 

For the full story, read the case study here.

How we did it: Digital marketing due diligence case study

Our PE fund client needed a resource to perform digital due diligence for an e-commerce-enabled aftermarket products business. They needed a full overview of the digital landscape, including SEM, SEO, UX, conversion path analysis, Google Analytics, and digital GTM strategy. We used our extensive experience in digital marketing due diligence to immediately connect our client with expert groups from our invitation-only Intelligent Network. They used the insights gathered from the chosen digital marketing group to make an informed decision and quickly close on the investment opportunity. Ultimately, we were able to help the client find a clear path forward. 

For the full story, read the case study here.

The year of specialized work and continued recalibration

What better way to kick off 2021 than with some age-old wisdom from the most outstanding figure in medicine, Hippocrates: “Persons in whom a crisis takes place pass the night preceding the paroxysm (spasm) uncomfortably, but the succeeding night generally more comfortably.”

In other words, if last year was the “uncomfortable paroxysm” then this year should be markedly less so, as most of us have adjusted to the new normal. Yes, things are still a little shaky, but at least we aren’t at the height of the disruption. In fact, in many cases it seems companies are embracing the changes and shifting their hiring practices and organizational frameworks to include more remote workers.

According to a recent World Economic Forum report: “41% of companies plan to expand their use of contractors for task-specialized work” and as a result of the COVID-19 recession, “day-to-day digitalization has leapt forward, with a large-scale shift to remote working and e-commerce, driving a surge in work-from-home arrangements and a new marketplace for remote work.”

Another interesting insight based on a four-year projection by the authors, “by 2025, the time spent on current tasks at work by humans and machines will be equal. A significant share of companies also expect to make changes to locations, their value chains, and the size of their workforce due to factors beyond technology in the next five years.”

However, despite these shifts and focus on technology, it still holds true that “despite the current economic downturn, the large majority of employers recognize the value of human capital investment.”

As far as the future is concerned — namely for those willing to innovate, get creative, and adapt — opportunities abound. Furthermore, specialized workers and the demand for expertise will continue to grow as companies recalibrate. The intended result: workforces and an economy that comes back stronger, more resilient, and better equipped to adapt to future disruptions.

 

To read the full WEF “Future of Jobs Report” click here.

Quickly perform digital marketing due diligence on new business

Firm quickly needs digital marketing diligence on target

Understanding the digital landscape has never been more important. Our PE firm client needed a resource to perform digital marketing due diligence for an e-commerce-enabled aftermarket products business. To build confidence in the investment, our client needed to know more about the target’s SEM, SEO, user experience (UX), and transaction process (mobile versus desktop, etc.) capabilities, as well as gain clear insight into the state of the platform itself. Additionally, the client required a quick turnaround time.

BluWave identifies top expert groups to perform diligence

BluWave utilized its extensive experience helping other PE funds with similar digital diligence requirements to intimately understand our client’s needs. Immediately following our scoping call with the PE firm, we connected our client with three expert groups from our invitation-only Intelligent Network. Each one had extensive experience with digital marketing due diligence—particularly in the areas of SEM, SEO, UX, conversion path analysis, Google Analytics, and GTM.

Client engages ideal provider, gaining insight on target

Our client efficiently selected an expert PE-grade group with specific experience in the target’s industry as well as best-in-class e-commerce/online retail experience. Beyond digital marketing due diligence expertise, this group also understood the target’s specific tech stack. The PE firm was able to assess the company with unique insights that enabled them to quickly close on the investment opportunity.

Urgent Interim CEO To Provide Turnaround, Performance Improvement

Interim CEO immediately needed for healthcare portco

A PE firm VP came to us with a critical need for an interim CEO for their multi-location healthcare services portfolio company. The portfolio company was experiencing stalled performance and the firm was urgently seeking an interim CEO that could turn around this problem and improve performance. They not only needed the resource to have the necessary skills but also required that they be in the same city as the portfolio company’s headquarters in order to limit travel concerns.

Using pre-vetted network, BluWave finds exact-fit candidate

Leveraging our founder’s 20 years in private equity, we have extensive frameworks for assessing PE-grade interim CEO needs. BluWave utilizes technology, data, and human ingenuity to pre-map, assess, monitor, and maintain deep pools of interim CEOs that uniquely meet the private equity standard. We interviewed the PE firm to understand their specific key criteria and then connected the client with the select pre-vetted providers from our invitation-only Intelligent Network that fit their exact needs.

Firm engages candidate to lead company turnaround

Quickly after the initial scoping call, the PE firm was introduced to a PE-grade interim CEO who was local to the portfolio company’s area and specialized in multi-location company turnarounds. The PE firm confidently engaged the individual and after an initial assessment and interim service, was so pleased with the individual’s work that they hired the executive full-time to lead and execute on the turnaround plan.

In 2021 Focus on Healthy Communication, Collaboration, and Inclusivity

Despite all the uncertainty and disruption still lingering from last year, 2021 offers ample opportunities for companies to refocus on what matters most: healthy communication and collaboration, an inclusive workplace culture, and ultimately greater productivity. While companies need to understand what will be different in the post-COVID era, they should also remember what will stay the same: the need for real human connection, whether it is mediated by technology or not.

 

#1 – New Ways To Assess and Engage With Employees

Office politics has always been a fact of life – employees have often been rewarded by who knows how to best navigate office politics versus who does the best work. We are now seeing signs that remote work can help companies reward employees based on merit and by giving traditionally overlooked colleagues more of a voice and having more objective processes to measure them. In some cases, the remote work era is even prompting companies to consider new employee performance metrics altogether.

According to a recent PwC survey of U.S. executives in the process of shifting to remote work, most companies are focused on “greater flexibility in work hours” (57 percent) to drive productivity. In effect, outmoded measures of employee performance – such as the number of hours an employee works – are becoming less important. Companies are instead moving to a more merit-based model: efficiency in completing a task, quality of work, and the ability to collaborate productively with colleagues.

While the trend toward evidence-based employee assessment was already underway before COVID-19, the pandemic has privileged some forms of interaction and evaluation over others. For example, a recent Deloitte report explains that remote work is “usually assigned by the outcome, instead of by task, enabling productivity assessment.”

The influence of office politics on managers’ perceptions becomes more limited as they make assessments based on concrete outputs versus subjective impressions. Although after-work drinks or trips to the golf course help colleagues build closer connections, these activities can also be exclusionary and give managers a biased attitude toward employees’ performance.

We will never get to a point where in-person interactions are completely supplanted by technology (nor should we want this to be the case), but managers should take this opportunity to determine if their assessment methods are as rigorous and impartial as they can be.

 

#2 – Balancing Productivity With “Organized Serendipity”

Many employees have proven that they’re capable of being just as productive at home as they are in the office – in fact, 94 percent of employers say productivity has been just as high or higher during the pandemic as it was before. Other surveys (such as this one conducted by the Boston Consulting Group) have found that a significant proportion of employees have maintained their productivity while working remotely. Meanwhile, 72 percent of office workers say they would like to work from home at least two days per week.

Although productivity has remained steady, employees haven’t been able to interact with their colleagues or clients/customers as naturally as before. Without chance encounters in the break room, close colleagues poking their heads around corners to say “hi,” and the occasional coffee meetup with a client, employees may feel disconnected. As we all know by now, this can eventually take an emotional and psychological toll. What can companies do to address this?

As offices remain closed and people continue to work from home, companies may consider creating what I call organized serendipity – getting people together in a structured but organic way to facilitate relationship building and creative collaboration. For example, at BluWave, we’ve launched a virtual, topic-driven event series to share best practices among our roster of PE fund clients. After a brief panel discussion, clients break out into discussions on sub-topics and network with each other using an interactive technology platform. The organization comes from cutting the groups by functional expertise, but the agenda is loose enough to allow for actual networking that does not feel forced.

On the employee front, while some are still working from home and others are socially distancing at our physical office, we host “Friday lunch hours” that gather everyone together to share a meal and chat about the upcoming weekend.

 

#3 – Making the Era of Remote Work More Human

“Zoom fatigue” – a term used to describe the lack of motivation for hopping on yet another video work call, joining a digitally-driven event, or getting together with family and friends virtually – is becoming a real threat to remote workforces. No matter how well we integrate remote work into our lives, we will never be able to replace the value of in-person human connection or shared experiences.

According to a recent survey by Slack, 45 percent of newly remote workers report that their sense of belonging has suffered since they began working from home. This is a powerful reminder that companies should focus on building authentic and consistent human connection into their remote work platforms.

Once it’s safe to do so, companies should swiftly prioritize in-person interactions. Even now, many companies recognize that it’s impossible to shift to 100 percent digital communication – a reality I’ve seen personally with private equity fund managers who still need to shake the hands of the management team before purchasing a company or stepping into the company’s facility. Once the threat from COVID-19 subsides, remote-focused companies should still give employees opportunities to interact with meet-ups, site visits, and other events that satisfy our need for human connection.

The original version of this article was published on Toolbox HR.