Happy Wednesday, Dear Readers!
This is Milana Vinn, sharing my weekly Tech Take. Just a reminder, I’ll be writing this column each Wednesday, with a focus on tech-related private equity M&A, as well as the broader deal market.
This has been a tough week for everybody. Every day there are new adjustments that take a toll on the way we used to live and do our jobs.
I’m personally still trying to navigate how to work from home when my daughter is at home too (NYC schools are now closed until at least April 20th). All that while eliminating in-person visits of caretakers or extended family. But I guess we are all in the same boat here – focused on breaking the virus curve!
I’ve been talking to tech-focused GPs about their work and the new adjustments they are making. While a few told me they are open to new business opportunities, more said that M&A talk is pushed far from their agenda.
“It’s insensitive this week and next week to be talking about new companies and new opportunities, because there is so much stuff that CEOs are trying to figure out right now,” one partner at a tech-focused PE firm told me in a recent conversation.
Most GPs agreed that portfolio and business planning has been top priority this week.
Firms engaged in Zoom meetings with CEOs to map out action plans, requiring portfolio companies to develop contingency plans under recession scenarios, based on various lengths a downturn could last.
Great Hill Partners is one PE shop that is putting their portfolio front in center, Chris Gaffney, a managing partner at the firm, told me.
“We have a portfolio of businesses and the first thing for us was to see where those businesses need to make adjustments and assess the risks,” Gaffney said.
Some of the adjustments may include things like focusing on inside sales skills and inside targeting to take advantage of a workforce and customers at home; or opening up multiple call centers and additional warehouses to diversify from having a single point of infection risk, Gaffney said.
While 80 percent of Great Hill’s portfolio is made up of business-to-business software companies that have yet to see any real impact, a few of its consumer-focused businesses have seen better times, he acknowledged.
TodayTix, an online marketplace for tickets to Broadway shows, is one of them.
“Of course there are no Broadway shows. However, we believe that we will see that company making it to the other side,” Gaffney said.
The uncertainty in the market has also exposed which portfolio companies are better positioned to operate independently, and which tend to depend on capital markets as they burn through cash, GPs told me.
This has been especially relevant for lower middle-market and VC-backed companies, Emanuel Pleitez, co-founder of East Los Capital, a Los Angeles-based investment firm, told me.
“There are some PE- and VC-backed companies that are still comfortable burning a lot of cash. GPs are now telling them they may not [have] access to capital markets in the next two years,” Pleitez said.
According to Pleitez, those kinds of companies need to create a budget that is different from the one they had before to foster a new culture.
Despite all the challenges that investors and their portfolio companies are facing now, there are some who are uniquely positioned to benefit from all the craziness.
One of those is Auction.com. Check out my recent scoop on Thomas H. Lee Partners’ upcoming sale process for the online marketplace for bank-owned and foreclosed residential properties.
Unlike many businesses that are delaying their sale processes or adjusting value expectations in the wake of the covid-19 pandemic, growing economic uncertainty could prove advantageous for this company.
I also wrote about Advent International joining forces on TA Associates-backed Conservice, a utility billing software company, which is expected to stay resilient in the economic downturn. Read more.
But also… think e-commerce, software for remote work, e-learning tools, tech-enabled at-home workout devices, services enabling supply chains and delivery services and much more.
While the Dow Jones Industrial Average plunged nearly 3,000 points on Monday, the worst single-day losses since the Black Monday crash of 1987, shares of Peloton, for instance, traded up nearly 13 percent.
One Great Hill company is also seeing tremendous growth in this environment. Stay tuned for more coverage on tech winners amidst the crisis.
Hit me up at mvinn@buyoutsinsider.com with your experiences in the downturn.
Top Scoops
We may be seeing a lot of this. Curium, the CapVest Partners-backed nuclear medicine imaging company, called off its potential $3 billion sale after shaky financial market conditions resulting from the covid-19 outbreak impacted the process, writes Sarah Pringle on PE Hub.
“This decision was made as a result of the impact of extreme volatility and uncertainty in global financial markets in recent weeks, arising from the global covid-19 outbreak,” the company said. Read more here.
More than two and a half years after resigning from the venture firm he founded, Dave McClure is back with Practical Venture Capital, which is raising a secondaries fund, writes Larry Aragon for Venture Capital Journal. Check it out here.
Have a great day! Reach me with your thoughts, tips, gossip, whatever at mvinn@buyoutsinsider.com or find me on LinkedIn.
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