MSCP’s Aaron Sack: Invest early post-crisis, stick to what you do best

This crisis differs from 2008 in that many people believe the economy was strong before the pandemic-fueled downturn, which could mean a snapback recovery once the health crisis eases, Sack tells PE Hub.

Communicating with your networks is more crucial than ever, but it’s also not time to sit on the sidelines or implement a major change in strategy in matters of new deal flow, Aaron Sack of Morgan Stanley Capital Partners told PE Hub.  

“Things are on hold, but it would be a mistake to bury your head in the sand or hide under the table,” said Sack, who heads the middle market private equity arm of Morgan Stanley. “Now is really the time to reach out to CEOs, as a human, and make sure people you respect are doing okay. It’s time to humanize our approach and business.” 

Although much of MSCP’s focus is internal today, the firm also is actively thinking through ways to put money to work in the aftermath of the covid-19 pandemic, Sack said. 

“I think we were really remiss and we didn’t take advantage at the end of the last crisis to be aggressive enough to invest early after the crisis,” Sack said. 

MSCP will watch as trends emerge, but, Sack said, intends to stick to maintain its strategy: “The biggest mistake a fund can make is pivoting their investment approach and style suddenly.”

Some funds can invest in credit and aggressively buy portfolio debt and potentially achieve phenomenal returns, but not every firm can do that, Sack said. MSCP will continue to seek opportunities to back family- and founder-owned companies across its focus sectors, he said. 

The New York firm backs North American companies with enterprise values of $100 million to $750 million across the business services, industrials, education, consumer and healthcare industries.

MSCP is working to stay ahead of themes emerging from coronavirus-fueled economic volatility, including supply chain disruption, Sack said. Although there was significant talk around on-shoring during past crises, this time around, Sack said, things feel different.

“You have to watch whether there is a real move toward on-shoring in the very near term so the US controls more of its supply chain – from sourcing raw materials all the way to the final product.”

Sack said he wouldn’t be surprised to see the undoing of some of the heavily Asia-focused manufacturing and consumer sourcing. 

It’s too early to determine how today’s “unimaginable crisis” will truly impact behavior, but because the economy was so strong and healthy before this, at least one thing feels different versus the global financial crisis, Sack said.

“As bad as it gets, people believe the recovery is around the corner,” Sack said. “There is still this belief that we will get through this and the fundamentals are intact. That gives a little bit of an optimistic tone to this in the market in a way that the financial crisis did not.”

All hands on deck

At MSCP, one portfolio company well-positioned to weather the storm is Pathway Vet Alliance, the veterinary care giant into which the firm recently sold TSG Consumer Partners a stake. 

On the heels of the $2.65 billion transaction, the Austin, Texas, company’s pet hospitals are holding up well as veterinary services have been deemed an essential service in all 50 states amid the covid-19 crisis, PE Hub wrote last week

MSCP, which also owns Manna Pro, a maker and distributor of specialty pet nutrition and care products, will continue to evaluate potential opportunities in animal health, Sack said.  

Other portfolio companies evidencing operational strength include its packaging businesses – both on the healthcare and consumer sides, he said. 

MSCP owns Comar, a healthcare packaging company generating more than $200 million in revenue and targeting select M&A opportunities within the scientific molding, micromolding, silicon and sharps areas, PE Hub wrote in February, pre-crisis. The firm also backs PPC Flexible Packaging, a converter of flexible packaging products primarily in the cleanroom and food end markets.

Other areas, naturally, are less insulated from the economic chaos. MSCP-backed Impact Fitness is a franchisee of Planet Fitness locations, which are currently mandated to close. Elsewhere, Sack said MSCP’s fertility care business, Ovation Fertility, is on sound footing, but strained in terms of new bookings in the short-term. 

Internally, the firm is focused on bringing a host of resources to all of its portfolio companies – whether legal, financial, operational or legislative – with “all hands on deck,” Sack said. In addition, the firm is focused on making sure it understands all of its credit agreements within the portfolio and is in an open dialogue with lenders. 

“If anything, we are broadening the outreach, broadening the information sharing,” Sack told PE Hub.

Action item: Read more insights from Sack on Pathway Vet Alliance. 

Update: This report has been updated to clarify Sack’s first quote.