As the global covid-19 outbreak influences new ways of living, prominent private equity investors are busy adjusting to a new reality.
Chris Gaffney, managing partner at Great Hill Partners, recently talked to PE Hub about priorities for the Boston-based firm amid the pandemic, as well as the challenges and successes facing some of its portfolio companies.
According to Gaffney, the top priority for the firm is ensuring that its portfolio companies and CEOs have action plans to continue running their businesses.
“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.
Adjustments could include focusing on inside sales skills and inside targeting to take advantage of a workforce and customers in an at-home setting, he explained. It could also mean opening up multiple call centers and additional warehouses to diversify from having a single point of infection risk, Gaffney added.
Despite the market’s downturn and growing financial uncertainty, some businesses are seeing increase in demand in the remote-only environment.
Great Hill’s Examity, which provides online proctoring and authentication tools for higher education institutions, has seen an increase in client volume as American students transition to remote and online learning.
As classrooms increasingly move to a distance learning model, students will be taking exams online and universities will want to make sure testing is being done correctly, Gaffney said.
Some other companies within Great Hill’s portfolio have been less fortunate. TodayTix, an online marketplace for tickets to Broadway Shows, is one case in point.
“Of course, there are no Broadway shows. However, we believe that we will see that company making it to the other side,” the investor said.
Despite the challenges of today’s environment, Gaffney said he does not expect any of its portfolio companies to significantly cut workforce.
“Our businesses, prior to this situation, were generating a 26 percent median growth rate. They were all planning relatively aggressive hiring strategies – none are talking about massive layoffs,” Gaffney said. “We are not expecting delayed sales, but we do expect that hiring plans will slow down.”
The firm is still open to new business and sees potential opportunities to invest in e-commerce, a sector that will stand to benefit from the strong demand, evidenced by online sales in Asia, according to Gaffney.
However, the investor noted that the M&A environment is facing a significant “uncertainty discount” and most sellers are now withdrawing companies from sales processes.
“Processes that we were in market [with] have come to a hold. It is therefore hard to assess the second quarter deals and how quickly the economy recovers. Until then, there will be a significant ‘uncertainty discount’,” the investor said.
Gaffney said the firm is also not missing out on the opportunity to challenge its habits and try out new practices. With people forced to communicate remotely via technology tools, Great Hill is monitoring whether this new method of remote selling works just as well, or possibly, even better for its portfolio companies.
“Anyone selling to [an] enterprise will have a chance and try to sell in a different way. And we are looking at [this] very closely to reassess the best way to sell,” Gaffney said.
Nearly 80 percent of Great Hill’s portfolio companies are involved in business-to-business sales, the investor said.
Great Hill closed Great Hill Equity Partners VII on $2.5 billion in July 2019.
Action Item: View more PE Hub’s coverage on coronavirus.