Covid cut the labor force by 500k, no wonder PE firms are buying staffing companies; Josh Harris launches new firm

Good morning, dealmakers. MK Flynn here with today’s Wire.

Let’s start by looking at some long-term labor trends. And before you go, please take a few minutes to fill out our subscriber survey.

Out sick. Lack of employees is the biggest obstacle to growing companies these days, many private equity investors have told PE Hub over the last year. A study out this morning confirms what many of us have known anecdotally – that the impact of covid on the labor pool is long term and not going away.

“We show that Covid-19 illnesses persistently reduce labor supply,” wrote economists Gopi Shah Goda of Stanford University and Evan J. Soltas of MIT.

“Using an event study, we estimate that workers with week-long Covid-19 work absences are 7 percentage points less likely to be in the labor force one year later compared to otherwise-similar workers who do not miss a week of work for health reasons. Our estimates suggest Covid-19 illnesses have reduced the U.S. labor force by approximately 500,000 people (0.2 percent of adults) and imply an average forgone earnings per Covid-19 absence of at least $9,000, about 90 percent of which reflects lost labor supply beyond the initial absence week.”

“If we stay where we are with Covid infection rates going forward, we expect that 500,000-person loss to persist until either exposure goes down or severity goes down,” Soltas told the Wall Street Journal.

The working paper, which has not been peer-reviewed yet, was published by the National Bureau of Economic Research, a private, nonpartisan organization funded by the National Institute of Health, the National Science Foundation, the Social Security Administration, the Alfred P. Sloan Foundation, among others.

For many PE firms, the labor force challenges also spell opportunity.

This year, PE Hub has seen many PE firms invest in companies that aim to help recruit, retain and train employees. Halifax, HCAP, Infinedi, Littlejohn and TA Associates are among the recent buyers.

Read Iris Dorbian’s roundup of recent PE-backed deals involved in staffing.

Growth fund. “Even as the market turns on tech-focused growth deals struck at skyhigh valuations over the past year, growth shops flush with capital are eyeing potential valuation and prices that have been available for years,” wrote Buyouts’ Chris Witkowsky. “In this environment, Thoma Bravo, in recent years a fundraising machine, is eyeing a final close on its debut growth pool on at least $2 billion, sources told Buyouts. The fund had raised about $1.5 billion as of December, according to a Form D fundraising document.”

Chris continued: “Thoma Bravo Growth Fund has been quietly marketing to a select group of limited partners. The fund started investing and is expected to have a final close later this year. Because of the pace of deployment, Thoma’s growth team could launch Fund II sometime in the first half of 2023, sources said.”

The tech-focused firm – which has offices in San Francisco, Chicago, Miami and recently opened one in London – was extremely active in dealmaking last month, as PE Hub reported.

In August, Thoma Bravo:

  • agreed to sell Frontline Education, a provider of administration software for K-12 educators, to Roper Technologies, in an all-cash transaction for $3.7 billion
  • agreed to buy Nearmap, an Australian mapping company, for $730 million
  • announced a $130 million minority growth investment in Alma, a New York-based network that helps mental healthcare providers accept insurance and build private practices
  • completed its acquisition of SailPoint Technologies, an Austin-based provider of enterprise identity security, in an all-cash deal valued at about $6.9 billion
  • wrapped up its sale of Barracuda Networks, a Campbell, California-based cybersecurity provider for small and medium sized enterprises, to KKR for a reported $4 billion
  • closed the purchase of Mercell, a European provider of e-tendering and procurement systems based in Oslo

For more on the firm’s blockbuster August, see my earlier story.

Old pros, new firm. Josh Harris, who co-founded Apollo Global Management, has formally launched his new firm, 26North Partners. Harris has teamed up with former executives from Brookfield Asset Management and Goldman Sachs Asset Management executives, as Private Equity International reports.

26North Partners will initially focus on private equity, credit and insurance, and will launch with at least $5 billion in AUM, according to a statement.

As our colleagues at PEI point out, Harris is joined by Mark Weinberg, who led Brookfield’s US PE business, and Brendan McGovern, former head of Goldman’s private credit group, as part of a more than 40-strong team that includes former Blackstone, Centerbridge Partners and Apollo executives.

Harris disclosed in May last year that he was stepping down to return to his roots as an investor, after fellow co-founder Marc Rowan was tapped to take over from Leon Black as CEO.

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I’ll be back with more tomorrow.

Happy dealmaking until then,