HGGC buys PCF Insurance, setting aggressive M&A agenda, OpenGate, forged in last downturn, ready to deploy, Charlesbank to buy New Corp’s NAM business

Weighing how the CARES Act will affect private equity-backed companies and HGGC makes an acquisition in a market that seems pandemic-immune.

Happy Wednesday, Dear Reader!

This is Milana Vinn, with your weekly Tech Take. How are you holding up?

After a few stressful trips to the grocery store, where I was challenged to keep a 6-foot distance from other shoppers, my family decided to escape Brooklyn to a place less populated – the Poconos, Pennsylvania. We plan to stay a while and enjoy this rare opportunity to have everybody home. Yesterday we made a lasagna with participation from the entire family (something for which we usually don’t have the time or energy). This is my long way of saying that there are happy moments amidst the chaos.

For many individuals and small business owners, a similar moment of positivity came last Friday, when the Senate passed the CARES Act. The bill is set to offer financial relief through multiple measures, including through paycheck protection loans for small businesses affected by covid-19. The loans can later be forgiven if spent on things like payroll, rent and utilities.

But what does it mean for private equity-backed companies?

There are a lot of unknowns about the law.
“I applaud the measure; I think it’s exactly what we need, but there is a lot to interpret there,” a partner at a mid-market PE firm told me. “The way we are approaching it is: we learn everything we can, so we can be in the position where we can apply [for those loans].”

The biggest uncertainty comes from the language of the bill, and especially the language around the Small Business Administration’s affiliation rules. The bill states that an applicant has to meet the 500 employee size limit, which includes employees of all of the applicant’s affiliates.

This seemingly makes many PE-backed companies ineligible for this financial stimulus. For instance, if two or more portfolio companies with one majority owner employ more than 500 people combined, those companies and the investor are considered affiliates under the new policy – and are therefore excluded.

“The way that the CARES Act is written now, everybody is interpreting that the large portfolio of PE- and VC- firms are going to be excluded from the program because of their affiliation,” Andy Lock, a partner within the private equity group at Goodwin Procter, told me.

“If you are a PE fund and you invest in many companies as a control investor, chances are most of your companies won’t be eligible,” the lawyer said.
But there is still hope. SBA is working on the implementation guidelines for the Act that may clarify the definition of affiliates. Those guidelines are expected to come out as soon as Wednesday, people familiar with the matter told me. The Paycheck Protection Program website itself is set to start accepting applications on Friday, April 3.

What are your thoughts about the CARES Act in regards to your portfolio? Hit me up with comments and ideas at mvinn@buyoutsinsider.com.

Tech Talk
This past week I’ve also been catching up with software investors to talk portfolio actions and covid-19 “survival.”

Core areas of subscription software that may emerge as potential benefactors of the current environment: subscription entertainment, online learning and working, e-commerce, marketplaces and payments, according to Per Roman, co-founder and managing director at technology-focused investment bank GP Bullhound, who spoke at the Global Tech Market Update webinar last week.

Stay tuned for my roundup on the webinar later today on PE Hub.

Top Scoops
HGGC acquired PCF Insurance in a commercial brokerage market that seems insulated from pandemic-fueled economic volatility and is poised for consolidation, I wrote today on PE Hub. The company is looking at 10 additional acquisition opportunities in the near term across what remains a highly fragmented market, HGGC Co-Founder and President Steve Young said. Read more.

Mia Hegazy, a former investor at Catalyst Investors, joined Apax Digital. Hegazy started at the firm on March 23. Read more.

Have a great day! Reach me with your thoughts, tips, gossip or whatever at mvinn@buyoutsinsider.com.