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BGL: Power-Hungry AI Drives Cooling Consolidation

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A new report from Brown Gibbons Lang (BGL) shows that strong demand for data‑center cooling, power management and instrumentation has positioned the HVAC‑equipment sector for consolidation.

Driving the surge, the report notes that exponential data‑center growth—fueled by AI and emerging technologies—is generating a significant need to displace heat. As future power requirements increase, so does the need for innovative, energy‑efficient cooling solutions.

Advanced technologies such as liquid cooling, low‑PUE (power usage effectiveness) systems, instrumentation and control subsystems are attracting capital. The recent strategic acquisitions of Motivair by Schneider Electric and TMGcore by Modine Manufacturing underscore the trend toward consolidation in the sector.

The new BGL report outlines several key takeaways: the growing regulatory focus on energy efficiency; rising investor interest in engineered‑equipment sectors; and a wave of HVAC‑equipment transactions led by both strategic and financial investors. Amid these dynamics, HVAC has shifted from a secondary industrial consideration to a strategic asset in next‑generation digital infrastructure.

The report was published by members of BGL’s engineered equipment investment banking team. This team has experience working with companies that produce highly engineered equipment and machinery, sub-systems, and components used in a variety of end markets.

“Participants in the environmental controls and power management sectors that serve the data center market are experiencing a period of unprecedented growth, fueled by increasing energy efficiency requirements and instrumentation demands to ensure uptime,” said Justin Wolfort, a director within BGL’s engineered equipment team. “We’ve observed a significant rise in investor interest in both mature and emerging technologies utilized in the space. Notable M&A activity by strategic and financial investors alike indicates a market ripe for consolidation and further investment.”

Brown Gibbons Lang is a mid-market investment bank that specializes in mergers and acquisitions, divestitures, capital markets, financial restructurings, valuations, and fairness opinions. The firm was founded in 1989 and has investment banking offices in Boston, Chicago, Cleveland, Los Angeles, and New York.

To download and read the BGL Engineered Equipment Insider click HERE.

© 2025 Private Equity Professional | June 24, 2025

How to Control Healthcare Costs Throughout Your Portfolio With New Insurance Model

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During the five- to seven-year window that private equity typically owns businesses, firms have a value creation plan to increase profitability so they can sell or take the company public. Those plans frequently involve go-to-market strategies or cost reductions like offshoring some business areas. But private equity firms often ignore one of the largest items on a P&L statement: employee benefits.

Improving the cost structure of employer-sponsored health insurance is incredibly effective in enhancing profitability, especially for middle-market PE-backed companies, but leaders are understandably wary of changes that might spark employee backlash or drown HR teams in administrative tasks.

Many companies in the portfolios of private equity and venture capital firms are struggling with health insurance costs.

Fortunately, there’s a new model — the individual coverage HRA (ICHRA) — that delivers quality, personalized healthcare for employees while giving the business control over insurance costs and eliminating the risk of double-digit renewals that can devastate a balance sheet.

Here’s how ICHRA can help control healthcare costs throughout your portfolio:

Why PE-backed companies are turning to ICHRA
From speaking with industry leaders, it’s clear that many companies in the portfolios of private equity and venture capital firms are struggling with health insurance costs. Perhaps the worst part of a traditional group health plan is the unpredictability.

Strong financial management is built on data-driven decision-making — accurately forecasting revenues and proactively anticipating expenses. But there’s no way to adequately prepare for health plan renewals. A company’s annual rate increase is tied directly to the risk pool of its group insurance. The plan may include 150 employees; if one of those employees or their dependents has a difficult diagnosis or requires specialized care, that will cause the overall group rate to skyrocket. All of the organization’s careful financial planning is now meaningless.

The new model is especially attractive to employers with a multi-state footprint.

These are the moments when a company most wants to be there to care for its employees — to help them through a challenging time and assure them they’ll be supported. But there’s a harsh reality to the situation: one employee’s health diagnosis can have dramatic consequences for the business. As the company’s costs skyrocket, the CFO has no choice but to shift costs and increase employee contributions. One person’s health status has an immediate financial impact on the other 149 people in the group plan.

The vast majority of companies don’t exist to choose health insurance plans. Why should a company that builds software or manages restaurants be making healthcare decisions for their employees? And why don’t the employees — each of whom has specific, personal health needs — have a say in the matter? With ICHRA, employers let go of group plans and instead provide an allowance to employees to buy health insurance on the individual market.

The playbook for applying ICHRA across a portfolio
ICHRA can save money for both employers and employees when the individual market is less expensive than the group healthcare market. PE firms who are not exploring the potential for an ICHRA win-win may be leaving money on the table. More importantly, ICHRA means that employers are no longer financially shouldering the burden of high-cost claimants. Employees can choose the quality coverage that best meets their needs — benefiting from a competitive market as carriers slash premiums to attract customers — while employers no longer nervously await their renewal.

Additionally, traditional insurers have strict participation requirements. If a carrier knows your company only has 5% enrollment, they’ll decline to quote because they assume only the poorest-risk employees are enrolled. ICHRA has no such requirements.

In addition to providing stability for the employer, ICHRA also provides flexibility to employees.

The new model is especially attractive to employers with a multi-state footprint. One-size-fits-all plans are a poor fit for those companies. PE-backed businesses growing quickly by acquisition are often bringing together different employers, and trying to harmonize group plans every time is a miserable exercise. Alternatively, businesses that use ICHRA simply fold the newly acquired company’s employees into their existing ICHRA plan and let them choose their insurance.

Finance and HR leaders sometimes worry that putting hundreds or thousands of employees on an ICHRA plan means they’ll have to hire people to handle the day-to-day management, but that’s not the case. Vendors like Take Command help employees find the right plan, then handle everyday employee inquiries and ensure the HR team is not dealing with every question. These vendors can also help companies proactively communicate the available plans and average costs.

Cost savings and employee freedom of choice
Business leaders understand the risk of having an employee get sick and require expensive care. As a result, employers often try to join a consortium and participate in larger group plans. The arrival of ICHRA means that companies can now join the largest imaginable risk pool — the more than 20 million Americans who purchase health insurance on the individual market. When spread out across that pool, an expensive diagnosis has no impact on the overall cost.

That stability allows financial leaders across a PE firm’s portfolio to finally set a predictable, consistent budget for health insurance costs. Many organizations provide employees with a monthly allowance — typically between $500 and $1,000 — to purchase an ICHRA plan on the individual market. When renewal season arrives, the employer can simply continue contributing the same amount, avoiding unpredictable cost increases.

In addition to providing stability for the employer, ICHRA also provides flexibility to employees.

Prototek, a PE-backed digital manufacturing company based in New Hampshire with more than 250 employees, experienced this firsthand. As the company expanded rapidly through mergers and acquisitions across nine locations in multiple states, it faced a steep renewal hike under its traditional group health plan — a challenge that threatened the company’s efforts to improve benefits for employees.

Jenifer Combs, Prototek’s director of human resources, was determined not to shift the burden onto employees. Instead, the company adopted ICHRA, maintaining its existing healthcare budget while even reducing out-of-pocket costs for some team members.

“We get to pick the dollar amount,” said Ms. Combs. “From a budget perspective — especially since we’re private equity-held — that’s key. You can base it on that and next year make an adjustment if need be. The beauty is that employees get control over both their coverage and costs.”

In addition to providing stability for the employer, ICHRA also provides flexibility to employees. Rather than providing too little coverage for some employees and too much coverage for others, the individual market allows employees to choose the right amount for their families. With ICHRA, employees choose the services and providers that matter most to them. Whether it’s keeping a family doctor they like or choosing a network with the hospital closest to their home, the individual market offers dozens of options to meet the needs of every employee.

One of the roles of a private equity firm is to outfit its portfolio companies with the right systems and tools. For businesses staring down sky-high renewals or trying to assimilate a newly acquired company into their own, ICHRA is a powerful tool that controls costs while giving employees back control of their healthcare. It’s a proven lever for value creation.

About the Author
Jack Hooper is the CEO and co-founder of Take Command, a Dallas-based SaaS company that offers health reimbursement arrangement administration. Jack is a founding member of the HRA Council and has served as Chairman of the Board. He is a graduate of the Wharton School of Business and has been featured in The New York Times, BenefitsPro, Dallas Morning News, Bloomberg, and more. His motto? “Health insurance was never meant to be this complicated.”

Contact Jack Hooper at jack@takecommandhealth.com

© 2025 Private Equity Professional | May 9, 2025

2025 Deal Terms Study Reveals Shifting Leverage Between Buyers and Sellers

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Amid evolving market uncertainty, an uptick in private M&A activity in 2024 has many market participants predicting a faster pace toward the back half of the year. Private equity and venture capital firms holding onto portfolio companies are reaching a critical juncture as liquidity and LP returns remain critical to success. Meanwhile, buyers are navigating their own competitive landscape as more investors vie for top targets. Simultaneously, strategic acquirers may adjust their M&A approach in response to macroeconomic conditions, pursuing countercyclical opportunities or acquiring targets with strong revenues.

What is certain is that M&A deals remain highly negotiated, with 2024 transactions reflecting deal term shifts, some of which are benefiting buyers while others favor sellers. Motivated buyers were more willing to meet valuation expectations, while longer dealmaking timeframes and the robust due diligence of sellers’ thoroughly populated data rooms allowed sellers to leverage higher levels of buyer comfort for less post-closing risk. But buyers held their ground in other areas. See all the data in our 2025 M&A Deal Terms Study that analyzes over 2,200 private-target acquisitions that closed from 2019-2024, highlighting nuanced trends for deal parties entering negotiations.

Deal Sizes Surge as Private Equity Buyers Step Up Activity
Considering rising liquidity pressures, the number of jumbo deals (valued over $750 million in our study) has nearly tripled from 2023, a trend visible across public and private markets. This rise is partly due to fewer earnouts, with sellers using their current leverage to push for higher upfront values. Additionally, private equity buyers – who increased activity in 2024 – typically focus on larger deals, contributing to this trend. While valuation gap issues persisted, utilization of earnouts was well below the 2023 peak. Similarly, the markets continued to see some distressed deals with over 5% of deals including a management carveout.

Given recent Delaware court cases, deal parties will likely continue focusing on operational covenants and diligence standards applicable during earnout performance periods.

Conversely, the number of deals valued under $100 million have decreased by about one-fifth, impacting overall transaction values. Larger deals with more money on the line tend to involve highly negotiated and customized indemnification protections, special escrows, and a particular focus on post-closing claims and purchase price adjustments (PPAs). As found in the SRS Acquiom 2024 M&A Claims Insights Report and the 2024 M&A Working Capital PPA Study, over three-quarters of deals included a special purpose escrow for the PPA, with nearly three in ten deals including one for a stand-along indemnity matter, such as taxes or ongoing litigation.

Earnouts Remain Slightly Elevated as Deal Parties Catch Up to Macroeconomic Conditions
Earnout prevalence remains slightly elevated as valuation gap issues persist, but 2024 did not continue the significant jump in earnouts seen in 2023. While fewer deals may have earnouts, they remain highly complex with 68% of such deals including multiple earnout metrics. There is a trend towards shorter earnout performance periods, with fewer deals (none in our study that closed in 2024) extending beyond four years. Based on data in the SRS Acquiom 2024 M&A Claims Insights Report, earnouts pay about 21 cents on the dollar across all deals with earnouts (excluding life sciences). For deals achieving any earnout level, about half the max earnout dollars are paid.

Given recent Delaware court cases, deal parties will likely continue focusing on operational covenants and diligence standards (e.g. Commercially Reasonable Efforts) applicable during earnout performance periods. As a result, both buyers and sellers must carefully negotiate and document earnout terms to mitigate the risk of disputes and ensure the earnout mechanism operates as intended.

Reps & Warranties Insurance (RWI): a Safety Net?
Overall, despite a slight uptick in RWI usage for 2024 deals, it remains below its 2021 peak, prompting insurers to offer more concessions to increase product attractiveness. Broader market uncertainty and RWI claims history is impacting RWI utilization.

RWI, whose presence on a deal directly impacts indemnification structures, is interestingly having an impact on non-RWI deals, with buyers becoming accustomed to more favorable seller terms even in deals without RWI. Underscored by data, this shows that a merger or purchase agreement is less likely to contain either a “10b-5” representation (no material misstatement or omission) or a “Full Disclosure” representation when there is not a buy-side RWI policy. In fact, in 2024, 85% of deals without RWI contained neither of these seller representations, which is a notable increase from 75% in 2023.

For deals where indemnification protections survived post-closing, the median survival period remained at 12 months.

Additionally, 2024 saw a substantial increase in “walk-away” or no survival of seller’s general representations for both RWI and non-RWI deals. In 2024, 33% of deals were structured as “no survival”. When buyers have recourse against an RWI policy, they may be more likely to agree to a walk-away for the sellers. However, even for deals closed in 2024 without RWI, buyers still agreed to a walk-away on 18% of deals – a 50% increase from 2023. Continued rigorous due diligence may also be driving this trend; the more comfortable the buyer is with the target company’s financials and other diligence items, the fewer post-closing protections they may seek.

For deals where indemnification protections survived post-closing, the median survival period remained at 12 months. Yet, there was a significant and somewhat confounding increase in survival periods shorter than 12 months. Again, this might be stemming from buyers’ confidence coming out of their fulsome diligence reviews.

Conclusion: The Evolving Balance of Power in M&A Deal Terms
The changing M&A landscape has shown that leverage is shifting between buyers and sellers in different ways when it comes to negotiating deals. Looking ahead, macroeconomic and geopolitical conditions, liquidity pressures, and buyer competition, in that order and with a major emphasis on the first, will likely continue to shape the dealmaking landscape, making it essential for market participants to stay informed and agile in their approach.

About the Author
Kip Wallen is a senior director leading the SRS Acquiom thought leadership practice. He leverages his extensive expertise and SRS Acquiom proprietary data to produce resourceful content regularly utilized by market practitioners. Kip has broad experience in M&A and provides guidance on market standards and trends.

Previously, Kip was a Director with the SRS Acquiom Transactional Group, where he collaborated with clients and counsel to negotiate M&A documents including purchase, escrow, payments, and other transactional agreements. Before joining SRS Acquiom, Kip was an attorney with a Denver-based boutique business law firm where he assisted clients with M&A transactions as well as general corporate governance and securities matters.

Kip is an avid supporter of the Colorado Symphony, serving on the Associate Board and Colorado Symphony Fund Board, and the Colorado Rockies. He is an active participant on the American Bar Association’s M&A Committee. In 2016, Kip completed Leadership 20 with the Denver chapter of the Association for Corporate Growth.

Kip received his J.D. from the Sturm College of Law at the University of Denver and an M.S. in Economics, B.S. in Economics and B.A. in International Relations from Lehigh University. He is a member of the Colorado bar.

© 2025 Private Equity Professional | May 6, 2025

Pike Street Closes Continuation Fund for Impel

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Pike Street Capital has held a final close of Pike Street Capital Reserve LP (PSCR), a single-asset continuation fund for the firm’s Fund I portfolio company, Impel Company. NorthSands Capital and Painswick Capital served as lead investors for PSCR, with NorthSands contributing $100 million to the transaction.

Impel Company provides fluid management products, systems, and services used in municipal and industrial applications. The company’s products include pumps, integrated packaged systems, and maintenance services for applications in water and wastewater treatment, food and beverage, semiconductors, manufacturing, and other industrial sectors.

Source: Impel Company

Pike Street formed Impel as a platform company in June 2021 and simultaneously acquired PumpTech, a Washington-based pump systems distributor. Future add-on acquisitions include Idaho-based Intermountain Industrial (2022), Utah-based Frost Engineering (2022), South Dakota-based Dakota Pump (2022), New Mexico-based Alpha Southwest (2022), Colorado-based Pipestone Equipment (2022), California-based K&N (2022), Alaska-based Alaska-Roteq (2022), California-based L2 Systems (2023), California-based Rockwell Engineering and Equipment (2023), California-based Don Pedro Pump (2024), and Washington-based Pump Dynamics (2025).

Today, Seattle-headquartered Impel is led by CEO Doug Staab and operates across the Western, Mountain, and Midwestern United States.

“With our partners’ investment and support, we have transformed Impel into a leading provider of fluid management products, engineered systems, service, and solutions, bringing together established leaders and technical capabilities to build a great business with a strong company culture,” said Mr. Staab. “We look forward to ongoing success together as we add new founder partners to the team and expand into new markets, capabilities, and geographies.”

The closing of PSCR provides liquidity options for existing investors while allowing for continued ownership in the company and funding for its future organic and add-on acquisition growth.

“We are thrilled to complete the fundraise of ‘Pike Street Capital Reserve’ in this single-asset continuation vehicle with Impel and our new limited partners, NorthSands and Painswick,” said Dave Dandel, a partner at Pike Street. “The transaction offered our Fund I investors the opportunity to generate liquidity at an attractive return or participate in the next phase of growth and acquisitions with Impel. In just a few years, Impel has established itself as a comprehensive provider of technical products and services for municipal and industrial fluid management needs, and we see tremendous opportunity for continued growth. The additional capital and longer investment period will enable the outstanding management team to fully execute its growth strategy.”

NorthSands Capital, founded in 2023 and based in New York, invests exclusively in single-asset continuation vehicles. The firm was launched by Bruce McEvoy, a former Senior Managing Director at Blackstone.

Painswick Capital is a New York-based investment firm that partners with private equity sponsors to invest in middle-market companies via single-asset continuation vehicles. The firm was founded by John Garcia in partnership with AEA Investors.

Pike Street makes control equity investments in companies with revenues of $10 million to $100 million and EBITDA of $4 million to $20 million. Sectors of interest include industrial technology, distribution and logistics, business services, and specialty manufacturing. The firm invests across the business-to-business sector with a common theme of investing in companies that serve professional end-user customers. Pike Street was co-founded by Paul Caragher, Dave Dandel, and Ed Whatley, and is headquartered in Seattle.

© 2025 Private Equity Professional | March 25, 2025

BCG: Private Equity Infrastructure Investment Gains Momentum

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Private equity investment in infrastructure is showing renewed strength as macroeconomic uncertainties stabilize, according to the latest Infrastructure Strategy 2025 report by Boston Consulting Group (BCG).

According to BCG, the private infrastructure market, which has navigated fluctuating deal volumes in recent years, reached an all-time high of $1.3 trillion in assets under management as of June 2024, a strong indicator of investor confidence in the asset class.

Although fundraising remains below its 2022 peak, infrastructure funds secured $87 billion in 2024, reflecting a 14% year-over-year increase. Meanwhile, transaction volume declined by 8%, following a 19% drop in 2023. Despite this, large-scale transactions in the digital infrastructure and energy transition sectors may suggest a rebound as investors look to reinvest capital and capitalize on emerging transaction opportunities.

A notable trend in infrastructure investment has been the growing interest in digital assets, particularly data centers. With AI and cloud computing demand surging, investments in data centers soared to $50 billion in 2024, a substantial rise from $11 billion in 2020. At the same time, energy transition investments, including renewable energy and battery storage, continue to attract funding.

“Infrastructure remains a cornerstone of private investment strategies, offering stability and inflation protection in volatile markets,” said Wilhelm Schmundt, a managing director and senior partner at BCG and the firm’s lead for infrastructure investment. “As investors adjust to a maturing market, we see significant opportunities emerging in energy transition, digital infrastructure, and new investment structures designed to attract capital.”

Private equity and infrastructure funds are adapting to these shifts through industry consolidation, expanded investment mandates, and operational efficiencies.

Within the infrastructure sector, mergers and acquisitions (M&A) have become a key strategy for general partners, with some funds scaling up into diversified infrastructure platforms while others focus on specialized sector-specific plays. New fund structures, including continuation vehicles and sector-specific funds, are also gaining traction, providing limited partners with more tailored investment opportunities. As governments increasingly turn to private capital to bridge infrastructure funding gaps, co-investment opportunities are also expected to rise.

“Private investment will be critical to modernizing infrastructure and meeting the world’s growing connectivity and energy needs,” said Alex Wright, a managing director and partner at BCG. “With capital deployment expected to accelerate in 2025, we anticipate a more dynamic investment landscape, particularly in AI-driven infrastructure, renewables, and smart grids.”

A PDF of BCG’s Infrastructure Strategy 2025 report can be accessed HERE.

© 2025 Private Equity Professional | March 18, 2025

M&A 2025: I Was Wrong, Time for a Do-Over

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In the final months of last year, deal professionals and analysts arrived at a consensus forecast for 2025. After a year of gradually increasing volume, improved macro-conditions combined with pent-up seller demand would lead to a land rush of quality deals coming to market.

I was part of this consensus. The land rush isn’t happening – at least not yet.

Deal activity remains sluggish. One measure I cited back in the fall was the U.S. Conference Board’s Expectations Index, which by definition is more forward-looking than the more widely cited confidence index.  As of October 31, the expectations index had risen to 89 from 73 in March of 2024.  As of the end of January, the index had fallen back to 83.9 (a value of 80 signals the expectation of a recession).

“What a time to be a $10-million EBITDA commercial landscaper.”

We can all list the contributing factors beyond softer consumer outlook – stubborn inflation, reduced prospect of interest rate cuts, supply chain disruptions, uncertainty over tariffs and regulations.

Maybe we should have seen more of that coming, but deal people are nothing if not eternal optimists.

What actually seems to be occurring in early 2025 is a continuation of conditions that characterized the market in 2024. Macro-economic and sectoral challenges are weighing most heavily on businesses in manufacturing, distribution and third-party logistics. As firms in these categories hold back from sale, professional, commercial and residential service firms have come to dominate the market.

A private equity friend recently called to commiserate about how light the new-deal pipeline seems to be for industrial properties.  “But,” he said, “what a time to be a $10-million EBITDA commercial landscaper.”

It’s there to see in the numbers.

We turned to GF Data, the M&A data tracking firm I co-founded and ran until 2022, and cut the data to focus on: (1) Manufacturing (MFR) and business services (BS), the two categories that comprise about 60 percent of the data set; (2) Three time periods representing pre-pandemic conditions (2018-19), the heart of pandemic-era dynamics (2020-22) and a return to normalized conditions (2023-24); (3) Deals between $25 and $250 mm TEV; and (4) The useful distinction GF Data makes between selling businesses with above-average financial performance (AAFP) and others (NON).

There are comparatively fewer high-performing manufacturers in-market – this is the scarcity driving valuation.

Here’s what we see: First, overall valuations have stabilized, but with significant differences between the two industries.  The overall mark for business services is conventionally .75-1.0x greater than for manufacturing. While that relationship holds at the aggregate level, this masks two quite different dynamics within the AAFP and non-AAFP subsets. AAFP manufacturers have shaved the spread to .1x.  Among the non-AAFPs, the spread has widened to 1.2x.

Second, there are comparatively fewer high-performing manufacturers in-market – this is the scarcity driving valuation. GF Data recorded a completed deal explosion in 2021, coming out of deep Covid, followed by a drop off in 2023 and a steady resurgence in 2024.  Across all three periods, manufacturing deals account for about 60 percent of the combined MFR/BS deal volume, but a steadily declining share of AAFPs.

Third, non-AAFP Business Service firms are also getting some lift from being in market at a time when buyers are starved for product.

The “Quality Premium” is GF Data’s long-standing measure of the gap in valuation between AAFPs and non-AAFPs, based on TTM EBITDA margins and revenue growth rates along with a review of industry category and other deal characteristics.

Better performers commanded premiums in the 20-25% range in both business services and manufacturing prior to Covid.  The smaller cohort of manufacturing AAFPs continue to receive an average pricing differential in that range.  In business services, though, the premium has dropped to 3.9%.

Dissatisfaction with the current exit environment will continue to be one factor driving the proliferation of private equity continuation vehicles.

The buyer who opts not to pay 12x for that mythical top performer still wants to put money to work.  So, they may be paying 8x for a property that would be valued at 7x in less of a seller’s market.

2025 DO-OVER TAKEAWAYS

(1) The macro factors creating uncertainty will take some time to resolve.

(2) It is a great time to be that $10 million landscaper, but it’s also great to be one of the handful of industrial businesses not subject to uncertainty over regulation, government spending or trade policy. Defense and medical technology come to mind as two sectors with well-defended niches.

(3) We tell GVC clients that when buyers are asked to value a company based on a prospective turn rather than proven performance, there is always a discount. It is just a matter of how much.  However, the imperative many financial buyers face to put money to work will continue to exert downward pressure on that discount. Earnouts and seller financing – widely disparaged but useful price bridging mechanisms — will remain in vogue, particularly for smaller transactions in this tier of the market.

(4) Dissatisfaction with the current exit environment will continue to be one factor driving the proliferation of private equity continuation vehicles (CVs).

(5) CVs are not a scratch for every itch. If there is an uptick in new product in 2025, it will be evident first among financial buyers who need to respond to holding period expectations of their investors. Individual/family business owners who can afford to wait, generally do.

*****

About the Author
Andy Greenberg is CEO of Greenberg Variations Capital, a mergers & acquisitions advisory firm based in suburban Philadelphia devoted to one-off or targeted transactions. Mr. Greenberg was founder and CEO of GF Data©, the M&A data tracking service, prior to its acquisition by the Association for Corporate Growth in 2022.

For more information, visit www.greenbergvariations.com.

 

M&A and JV Activity in Private Credit: What the Trend Could Mean for Borrowers

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The State of the Game
The private credit arms race has taken the industry landscape by storm, with Ken Moelis citing the shift as the “greatest change in the history of transactional finance.”[1] Already enjoying years of measured growth, when banks and the broadly syndicated loan market stepped back from lending in 2023 due to market volatility, private credit stepped up, cementing private credit’s position as a force in financing markets. This has created a very active M&A and joint-venture market that does not seem to be slowing anytime soon.

BlackRock made headlines in late 2024 through the firm’s acquisition of HPS Investment Partners, backed by their expectation that the private debt market will more than double to $4.5 trillion by 2030.[2] While BlackRock’s acquisition dominated the news cycle, other firms have already made it their prerogative to jump into the private credit pool. In late 2024, Wendel Group acquired a majority stake in Monroe Capital, and Third Point (Dan Loeb’s hedge fund) acquired AS Birch Grove. In late 2023, TPG bought Angelo Gordon, and going even further back, Eldridge Industries acquired a majority stake of Maranon Capital in 2019. Eldridge recently announced a rebrand of its combined private credit vehicles, including Maranon and Stonebriar Commercial Finance, as “Eldridge Corporate Credit.”

The sector has become extremely attractive for investors, with LPs and asset managers pouring money into private credit.

Banks have also taken the plunge to offer product and garner revenue lost within their traditional lending and leveraged finance practices (most notably broadly syndicated loans or “BSL”). Wells Fargo and Centerbridge Partners joined forces in late 2023, PNC and TCW Group followed suit, and then in September 2024, Citibank and Apollo created a direct lending program with a goal of financing “approximately $25 billion of debt opportunities over the next several years, encompassing both corporate and financial sponsor transactions.” [3]

Consolidation Drivers
What is driving the push towards consolidation and bank / private credit partnerships occurring in the market? The sector has become extremely attractive for investors, with LPs and asset managers pouring money into private credit. It has even been a more favored asset class over private equity in the last few years (though the markets are intertwined). Fundraising for private credit reached $207B through Q3 of 2024, an increase from $193B over the same period in 2023, while average vehicle size approached $1.2B, marking 2024 as the first year for average vehicle size to eclipse $1B.[4] Meanwhile private equity was on pace for its lowest annual fundraising total since 2020, having raised only $234B through September.5

Additionally, private credit is increasingly competitive against (and in some instances more attractive than) BSLs. From 2022 through 2024, private-credit-financed buyouts outnumbered BSL financed deals 6 to 1. To compete against the BSL market, private credit needed significant size and scale, and the sector has done just that — 40%+ of private debt capital raised was for funds over $5B, while five years ago, only 20% of capital was for funds over $5B.[5]

Conflicts of interest, particularly arising from JVs between banks and private credit, could also create tension.

Lastly, the dearth of overall M&A activity over the last 12 – 24 months has provided the perfect environment for dealmaking at the fund level. A respite offered by relatively slower activity and deployment caused managers to explore and execute on transformational initiatives such as acquisition(s) for scale and / or Joint Venture(s) to broaden offerings.

The Good, the Bad and the Ugly
Regarding the upside for borrowers, the primary benefit is that investment in the market means more capital, which results in more competition and better terms. Additionally, the upper end of the market will be deeper than it has been historically.

The bad? The shift could result in a turnover in deal teams, specifically regarding who covers the deal. The team that closes a deal may not necessarily manage the relationship going forward.

Conflicts of interest, particularly arising from JVs between banks and private credit, could also create tension. These nascent alliances will require a delicate balance between investment banking divisions, leveraged finance departments, commercial and corporate lending, sales and trading desks, ancillary banking offerings (e.g., hedging, treasury), fund financing, and more. In an ultimate downside scenario, could this lead to a Volcker Rule 2.0? The original legislation, of course, limited banking entities’ relationships with private equity funds.

In addition to the aforementioned dynamics, rapid evolution means sponsors and borrowers face an increasingly difficult task with lender coverage.

Additionally, the traditional capital directed towards the middle market may get lighter. Private credit, which used to focus on smaller deals, has moved upward to compete in the BSL universe. Funds are moving up market for $100 – 200M minimum check sizes, leaving a shrinking number of players in the $30 – 75M size range.

Lastly — the ugly. As with any deal, not all of them are successful. Unfortunately, some mergers and JVs have significant integration issues and could leave borrowers scrambling for the next step. Onex’s 2020 purchase of Falcon Investment Advisors lasted less than four years, as Onex divested its majority stake of the ~$4B AUM credit fund in Q3 2024.[6] Similarly, Voya divested Czech Asset Management less than three years after acquiring the ~$5B AUM direct lender. Although the Onex/Falcon separation was due to synergies across the remainder of Onex platforms failing to materialize (and no rationale has yet been provided for Voya / Czech), other “break-ups” could be much worse and have a spillover effect for borrowers.

Considering the Above
While it’s an exciting time for participants in the private credit market with increased activity and interest, there are, of course, factors that may affect sponsors and borrowers. In addition to the aforementioned dynamics, rapid evolution means sponsors and borrowers face an increasingly difficult task with lender coverage — which in turn lends itself to better terms and best execution. With new funds forming, investment parameters shifting, and consistent lender velocity, broad coverage of the lender universe will require more investment of time and attention.

About the Author
James Bardenwerper is a Director at Configure Partners, where he joined in 2018 as an Associate. Before joining Configure Partners, he was at Genuine Parts Company, supporting merger and acquisition efforts and strategic planning. He began his career as an Analyst at SunTrust Robinson Humphrey (now Truist Securities), where he spent three years advising clients on debt and equity capital raises across various industries.

James received a bachelor’s in finance from the University of Kentucky. He is a FINRA General Securities Registered Representative (Series 79, 63).

Footnotes:
1 – Ken Moelis, Unplugged in New York
2 – BlackRock to Acquire HPS Investment Partners to Deliver Integrated Solutions Across Public and Private Markets
3 – Citi and Apollo Announce $25 Billion Private Credit, Direct Lending Program
4 – Private Debt Investor Fundraising Report Q3 2024
5 – Pitchbook Q3 2024 US PE Breakdown, Configure Partners Private Credit Quarterly
6 – Onex Hands Control of Private Credit Unit Falcon Back to Its Managers

© 2025 Private Equity Professional | January 9, 2025

The Evolving Playbook: Expert-Led Operational Enhancements in Private Equity

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Over the years, private equity has shifted from a focus on leverage and financial engineering to an ever-increasing emphasis on creating value through operational improvements within their portfolio companies. This shift includes enhancing management practices, investing in technology upgrades, and creating new sources of revenue.

As market conditions grow more competitive and complex, the ability to drive value through operational improvements has become a key differentiator in achieving superior investment returns.

In many ways, creating value is a more difficult path. It means working with portfolio management to refine their product or service focus, streamline operating processes, align management performance systems, and change fundamental behaviors of both managers and employees.

Here, operational optimization experts across several unique sectors outline where value can be found and identify ways to unlock it.

MANUFACTURING & CONSTRUCTION
In the current environment, leadership is increasingly being pressured to react to market turbulence. One significant result of that is that we’re seeing a heightened need for a project management framework.

Corporate objectives and strategies are being created all the time. But having strategies in play without any path forward can be a detriment. A well-structured Project Management Office (PMO) and a framework that overlays the facilitation of the work is a key ingredient that drives implementation, ultimately providing rapid and sustainable ROI.

Defining the right expectations, milestones, and timelines is important, but, because time is money, managing them closely to an outcome is critical.

Our team of consultants recently helped a global service provider to develop a framework for the management of internal improvement projects. Multiple mergers and acquisitions had created operational inconsistencies within the business. These inconsistencies, coupled with rising interest rates, created pressure on the organization’s leaders to rapidly reduce costs and streamline processes. The first nine months of our initiative produced significant improvements in process alignment, planning, and execution, resulting in more than $15 million in annualized savings.

HEALTHCARE
Private equity firms that are invested in or are looking to expand a healthcare rollup will often struggle to integrate best practices and standardize execution. This leaves valuable margin dollars on the table. Firms are often working with technical experts, such as physician-owned businesses, where resistance to standardization is common. There is an added complexity in that the operations are dealing with people’s lives. There are many risks and operational challenges surrounding this type of business.

It is in this space that operational management experts are able to create a thoughtful operating model that can be used to not only to compare performance across the network but create a useful blueprint for additional acquisitions.

After adopting the new operating model, the network realized a 27% increase in productivity, 10% improvement in capacity,
and a 24% improvement in patient access.

A leading healthcare network, for example, wanted to improve performance and patient access across multiple outpatient facilities to provide growth opportunity and understand asset capacity and utilization. Upon analysis, our consultants discovered that key assets were underutilized by more than 50%, appointment wait times were exaggerated due to scheduling deficiencies, and planned procedure times were not aligned with actual procedure times. Significant rework was also created by disconnects between key departments.

To address these challenges, operational management experts created a comprehensive operating model to improve visibility to key drivers of capacity and utilization while increasing access for patients. The implementation of this model focused on aligning procedures across clinics, with a strong emphasis on communication and training to ensure buy-in from all staff.

After adopting the new operating model, the network realized a 27% increase in productivity, 10% improvement in capacity, and a 24% improvement in patient access. Patient satisfaction scores improved, indicating a more consistent experience and enhanced quality of care.

This example demonstrates how a thoughtful and collaborative approach to standardization can bridge the gap between numbers-driven objectives and patient-centered care, ultimately leading to better financial and operational outcomes. Alignment and adoption among facilities, locations, or environments is a critical piece of that puzzle, and communication is integral to this.

FINANCIAL SERVICES
Financial service organizations, such as insurance companies and credit unions, are fundamentally about customer service. Success often hinges on whether customers feel supported and understood. While local staff often go above and beyond to provide excellent service, this dedication can lead to inconsistent practices across different branches, making it difficult for corporate offices to standardize processes and measure performance accurately.

To resolve these disparities and enhance overall service quality, it’s essential to establish clear, organization-wide standards for customer service, processes, and systems. This involves defining best practices, standardizing operations while minimizing unnecessary variations, and implementing a robust system of metrics and regular follow-ups. By focusing on aligning customer service and operational goals across all branches, financial service companies can optimize their business as a whole, ensuring a more consistent and effective customer experience.

The operational transformation resulted in productivity improvements ranging from 7% to 57%, a reduction in labor cost averaging 14%,
and service level improvements of more than 17%.

One example of this can be seen in a large insurance provider with multiple branches that struggled to identify process optimization opportunities due to a highly variable knowledge-based work environment. Non-value added work and uneven workloads existed in many departments, and cultural barriers created obstacles to the development of consistent practices.

To address this issue, our team of consultants implemented a company-wide initiative to establish processes and workflows that increased productivity and reduced errors and duplication. This included customized, location-specific changes to maintain valid region differences as well as improved management operating system tools to track and respond to variances to plan.

The operational transformation resulted in productivity improvements ranging from 7% to 57%, a reduction in labor cost averaging 14%, and service level improvements of more than 17%.

This example illustrates how strategic standardization and process alignment can enhance service quality, leading to efficient operations and a more reliable positive customer experience across locations.

Private equity professionals increasingly recognize the importance of having a robust network of operational management experts to help drive operating cash flow. Operational experts bring specialized knowledge and hands-on experience that can significantly enhance the performance of portfolio companies and help build high performance management teams. They identify inefficiencies, streamline processes, and implement best practices that lead to sustainable growth and profitability.

For private equity firms, leveraging such expertise not only maximizes value creation but also provides a strategic advantage in navigating the intricacies of modern deal-making and post-acquisition integration.

About the Author:
Carl Valentino is a seasoned executive with over three decades of senior management experience in the private sector. He currently leads the Private Equity division at Carpedia International, a global consultancy specializing in the implementation of operational improvement. Throughout his career, Carl has collaborated with C-level executives across diverse industries, spearheading initiatives that drive revenue growth, optimize cost structures, and enhance working capital management. A proud graduate of Notre Dame, Carl resides in Atlanta, Georgia.

Carpedia International is a global operational improvement consultancy that partners with organizations across various industries to help them achieve sustainable performance enhancements. By focusing on aligning corporate strategy with day-to-day operations, Carpedia delivers customized solutions that drive measurable improvements in productivity, profitability, and organizational culture. The firm utilizes a hands-on approach, working closely with clients to identify inefficiencies, implement best practices, and ensure long-term success through continuous improvement and accountability.

For more information, visit www.carpedia.com.

© 2024 Private Equity Professional | November 22, 2024

Rapid Evolution: How the Growth of Strategic Capital is Fueling a New Approach to Value Creation

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rivate equity general partners (GPs) are incredibly busy, although M&A volume might suggest sponsors aren’t as active as they were in 2021 and 2022. Their focus, however, has been on efforts to accelerate and enhance value creation within their existing portfolios.

The data bears this out. For one, the median hold period at exit continues to stretch longer, according to Pitchbook, and exceeded seven years based on exits completed in 2023. Moreover, the proportion of add-on acquisitions as a percentage of total investment activity reached 75%, and the volume of add-ons in the first half of 2024 was easily on pace to eclipse last year’s total, according to data from Pitchbook.

The market, to be sure, is a factor, but sponsors have shown they are willing to extend hold periods if they can continue to drive value from their best investments, and add-ons are increasingly becoming a key ingredient in the private equity playbook.

None of this should come as a surprise, as sponsors are increasingly looking inward to find conviction. While the economic and geopolitical backdrop play a role, another contributing factor is that GPs have never before had so many tools at their disposal to extend the growth runways of their existing investments or navigate the obstacles that often get in the way. In this sense, strategic capital solutions are facilitating mid-hold value creation efforts that 10 or even five years ago were not always available.

Strategic capital can solve complex challenges that would have
otherwise prevented the sponsor from taking advantage
of potential upside opportunities.

Consider, for instance, the roadblocks most sponsors would historically encounter that would limit the extent to which they could re-invest in existing portfolio companies. These might include concentration limits that require LPAC approval; dwindling fund reserves that might restrict a sponsor’s ability to commit more equity; or co-investors with different motivations, investment timelines, or objectives. A traditional secondaries solution or a single-asset continuation fund might provide some relief, but in a capital constrained, difficult fundraising environment, these alternatives offer little certainty and can take a year or longer to arrange and structure.

Enter strategic capital. To be sure, as the market develops, this can still mean different things to different people and currently represents a very large tent that contains sometimes vastly different strategies — from NAV loans to growth capital and a lot of things in between. At ASC, we think of strategic capital as investments in seasoned situations, or mid-hold equity solutions, where we can bring speed and flexibility to bear in building equity value. Our solutions seek to facilitate M&A or organic growth initiatives, cross-fund investments, shareholder consolidation, or other similar initiatives.

While many strategic capital providers pursue a specialization or niche, one common thread is that, by design, the value proposition rests in the flexibility afforded to GPs. For instance, some strategies may be focused on providing liquidity solutions, whereas others are geared for distressed situations. ASC’s specific mandate is centered on minority, non-control investments — alongside existing private equity sponsors — to facilitate tangible opportunities for predictable value creation within their portfolios. Said another way, mid-hold strategies are premised on helping GPs capitalize on the work they’ve already put into their portfolio companies to drive further equity value in the business.

MID-HOLD EQUITY IN ACTION
To appreciate the flexibility, it can help to understand the types of investments these strategies facilitate. For instance, in one transaction last year, ASC invested preferred equity into a private equity-backed business services company that used the capital to complete a priority acquisition. This opened up a new end market, extended the company’s product suite, and unlocked cross-selling opportunities that are driving new channels of organic growth. Audax invested alongside the existing sponsor, which had owned the company for several years, and invested new capital into the business.

In another example, in the education space, ASC’s common equity investment facilitated a transaction that allowed the existing sponsor to invest fresh capital into the company through its new fund, while bringing on a co-control investment partner. The ASC investment, beyond allowing the sponsor to maintain joint control, included an unfunded equity commitment for future M&A.

And in Europe, in an investment in the business services sector, ASC’s common equity equipped the sponsor to execute on an attractive and actionable pipeline of M&A opportunities that can drive product line expansion and geographic growth.

The connection across these investments, beyond the flexibility required, is that ASC is backing strong, performing PE-backed companies seeking to pursue another phase of growth. In each case, too, the investment solved a complex challenge that would have otherwise prevented the sponsor from taking advantage of potential upside opportunities.

As valuations remain historically high, sponsors aren’t generally
counting on multiple expansion unless they’re able
to materially drive top- and bottom-line growth.

Each of the investments also leveraged Audax’ history and track record executing its Buy & Build playbook that brought to bear speed and decisiveness for the sponsor to capitalize on opportunities that could otherwise be fleeting.

Not every investment, however, will necessarily be premised on a specific add-on. In some cases, it can be about re-aligning interests to try to push forward growth strategies already in place. In these situations, the capital is dedicated to clearing a path for M&A and growth opportunities, versus being channeled directly into new transactions.

For instance, in one case, ASC supported a dental support organization through a convertible preferred investment. The investment was premised on helping the sponsor maintain the company’s de novo and M&A growth momentum entering the sixth year of its hold period.

A STRATEGY FOR ANY MARKET
The value proposition of mid-hold equity, generally, is to provide another tool that allows sponsors to drive long-term growth and draw on private equity’s role as a provider of truly patient capital. And while an accommodating monetary policy in the years between the great financial crisis and the end of the pandemic may have fueled an accelerated exit environment, marked by shorter hold periods and elevated IRRs, a higher-for-longer- interest-rate environment, even as the Fed adopts a more dovish stance, is seeing sponsors drill into value creation as the primary driver of returns.

This focus on value creation is also informing new investment decisions, as valuations remain historically high. This means sponsors aren’t generally counting on multiple expansion unless they’re able to materially drive top- and bottom-line growth. As such, many are underwriting their investments with longer hold periods in mind.

Another factor that supports the maturation of strategic capital generally — and the mid-hold equity segment more specifically — is that while financial engineering as a sole driver of returns may be a thing of the past, sponsors are increasingly building out their internal capital markets functions to bring deep proficiency and expertise to fund ambitious theses centered around value creation. And as more sponsors adopt Buy & Build strategies trying to effect organic and inorganic growth, they will require sophisticated tools to engender the financial flexibility required. Mid-hold equity solutions, in this sense, are a way to meet the needs of today’s sponsors in looking to drive long-term value.

While dislocated financing markets and interest rate volatility may accentuate the need for flexible capital solutions, we believe the recent growth of the segment is untethered to the current economic and market backdrop. Instead, it speaks to the evolution of the larger private capital asset class in which sponsors are seeking predictable paths for value creation and want to continue to invest behind the winners in their portfolios.

— End —

About the Authors
Husain Kumber is a Managing Director for Audax Strategic Capital, focused on providing various capital solutions to companies owned by private equity sponsors. Prior to joining Audax in 2022, Mr. Kumber was Managing Director, Head of Americas, for DWS Private Equity and previously worked at Morgan Stanley Alternative Investment Partners, WP Global Partners, and Swiss Re. Mr. Kumber’s experience spans private equity secondaries, co-investments and fund commitments, with the majority of investments being made into concentrated and customized secondary transactions.

Daniel Green is a Managing Director for Audax Strategic Capital, focused on providing various capital solutions to companies owned by private equity sponsors. Prior to joining Audax in 2022, Daniel was Managing Director, Head of Europe, for DWS Private Equity with responsibility for the activities of the business in EMEA. He also previously worked as a Senior Director at Meketa Investment Group where he led EMEA investment activities across private equity and real assets. Daniel spent 13 years with Greenpark Capital, a UK-headquartered secondaries private equity fund manager with $2 billion of commitments, rising to the position of Chief Investment Officer.


Based in New York and London, Audax Strategic Capital (ASC) is a flexible partner to private equity sponsors seeking customized equity solutions to drive continued growth at their portfolio companies. ASC’s capital solutions support add-on acquisitions and organic growth initiatives through bespoke structures that enable PE sponsors to maintain continued control and ownership of performing assets while ensuring interests remain aligned in pursuit of future growth. ASC is part of the Audax Private Equity platform, a capital partner to middle market companies with $19 billion of assets under management, over 270 employees, and 100-plus investment professionals.

DISCLOSURES
The information herein has been prepared solely for informational purposes. Certain statements constitute “forward-looking statements” that can be identified by the use of forward-looking terminology such as “may,” “will,” ”should,” “expect,” “anticipate,” “estimate,” “intend,” “continue,” or “believe” or comparable terminology. Due to various risks and uncertainties, actual events or results may differ materially from those reflected in such forward-looking statements. Opinions expressed reflect the current opinions of Audax Strategic Capital (ASC) as of November, 2024 only and are based on ASC’s opinions of the current market environment, which is subject to change. Certain information contained herein may be based on or obtained or derived from data published or prepared by other parties. While such sources are believed to be reliable, ASC does not assume any responsibility for the accuracy of any third-party information.

StepStone Steps Up for Shrieve Chemical

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Gemspring Capital has completed a single-asset continuation fund for Shrieve Chemical, a portfolio company under Gemspring’s ownership since December 2019.

The continuation fund, which acquired Shrieve Chemical, was organized with lead investor StepStone Group and included participation from a mix of new and existing investors, along with significant contributions from an affiliate of Gemspring and members of Shrieve’s management team. In addition to funds for the acquisition, the new fund also allocates capital for follow-on investments and other operational needs.

Shrieve Chemical is a distributor specializing in industrial chemicals, fluids, and specialty lubricants and operates across four divisions: Chemical Distribution, Specialty Lubricants and Enhancers, Energy Products and Services, and Custom Packaging.

Source: Shrieve Chemical

Within its chemical distribution division, Shrieve supplies chemicals and ingredients to a diverse range of industries, including agriculture, energy, food, pharmaceuticals, personal care, mining, manufacturing, paint and coatings, paper production, refineries, and wastewater treatment. This division also provides toll manufacturing, import services, and a variety of chemical services, such as ammonia tank inspections and ammonia system maintenance, repair, and safety.

Shrieve’s energy products and services division supplies base oils and drilling fluid additives essential to drilling, production, transmission, and refining activities. The company’s custom packaging division is a certified packager of non-flammable liquids (using totes, drums, pails, and bottles), a blender of custom lubricants—including motor oils, refrigerants, and brake fluids—and a provider of logistical support services for finished products.

Source: Shrieve Chemical

Serving over 1,500 SKUs from 600 suppliers in 40 countries across North America, Europe, the Middle East, and Asia, Shrieve supplies companies in the industrial, food ingredient, water treatment, agricultural, energy, and specialty lubricant sectors. The company’s infrastructure includes a sales network and over 50 global facilities, with key operating centers in the UK and China. Shrieve was founded in 1978 by Jim Shrieve and is headquartered in The Woodlands, Texas, near Houston.

“Gemspring and Shrieve have demonstrated a strong track record of success, and we’re pleased to support the company’s next stage of growth as it strengthens its position as a leading, value-added chemicals distributor,” said Adam Johnston, a partner at StepStone.

“With Gemspring’s operational and financial resources, we have entered new markets, added key personnel, bolstered our capabilities, and significantly enhanced our product offerings for customers while maintaining exceptional service,” said Shrieve CEO George Fuller. “We are excited to extend our partnership with Gemspring and secure additional capital to continue growing organically and through strategic acquisitions.”

StepStone, headquartered in New York City, is a global private equity firm managing over $169 billion in assets. The firm specializes in private equity funds, secondaries, co-investments, and mezzanine debt, with offices in six additional U.S. financial centers and international locations in Canada, Ireland, the United Kingdom, Luxembourg, Switzerland, China, South Korea, Brazil, and Australia.

“Gemspring has partnered with the talented team at Shrieve to implement a value creation plan that has driven an expansion of products, geographies, and capabilities to best serve Shrieve’s customers,” said Geoff Broglio, a managing director at Gemspring. “We are excited to continue on the growth journey with Shrieve and utilize additional financial resources to remain a consolidator of choice in the chemical distribution industry.”

Gemspring invests in companies with revenues of up to $500 million and focuses on sectors including aerospace and defense, business and consumer services, financial and insurance services, industrial services, software and tech-enabled services, healthcare services, and specialty manufacturing.

In January 2023, Gemspring closed two funds: Gemspring Capital Fund III LP, its third buyout fund, at $1.7 billion, and Gemspring Growth Solutions Fund I LP, its first non-control investment fund, at an oversubscribed $400 million. With these closings, Gemspring, based in Westport, Connecticut, now manages $3.4 billion in capital.

Jefferies and Moelis & Company served as financial advisors to Gemspring for this transaction.

© 2024 Private Equity Professional | November 8, 2024

 

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