What presidential election? PE executives at InterGrowth mostly mum on Trump

It was business as usual this week at ACG’s Intergrowth. The economy, the state of healthcare and the influx of large funds into lower-middle- market deals were some of the themes discussed at the conference, which is considered a Mecca for M&A dealmaking.

About 2,000 middle-market M&A professionals, including private equity executives, investment bankers and attorneys, descended on the Hyatt Regency in New Orleans from May 2 to May 4 to network and hear various leaders opine about the state of the economy. (InterGrowth 2017 will be held in Las Vegas.)

“The American economy is amazing,” said Joe Linnen, a senior partner with Jordan Co. “We’re seeing companies that were started three to four years ago that are on fire.”

“Healthcare is going to be very good,” said Matt Thompson, a principal with Enhanced Equity Funds. “The regulations are written now. Access will improve, costs will come down.”

One topic that produced surprisingly little discussion at Intergrowth —outside of a panel — was the potential result of the U.S. presidential election and its impact on M&A.

Donald Trump, the 69-year-old New York billionaire, became the presumptive GOP nominee this week after Ohio Gov. John Kasich bowed out of the race. He followed Sen. Ted Cruz of Texas, who also dropped his presidential bid on Tuesday.

“The idea of a Donald Trump presidency gives me immense pause,” said Charlie Gifford, general partner of New Heritage Capital.

Another banker, speaking anonymously, said he had two small children and was “terrified” that he had to tell them what was going on.

Bret Madole, a partner with law firm Carrington, Coleman, Sloman & Blumenthal LLP who attended Intergrowth, said a Trump election scared him not only from a deal perspective but also in regards to the country’s safety.

“Way too much uncertainty will come into play,” Madole said in an emailed response to questions from Buyouts. “And, as they said yesterday, do we really want to worry on a daily basis if that’s the day Trump calls Putin fat and WW III is started?!”

For the most part, the majority of executives attending InterGrowth were silent on the pending election.

One GP had some different reasons for the lack of political commentary. Anyone who confessed they supported Trump was “toxic,” this GP said. “Most PE guys are reeling a bit,” the source added. “In an industry where we are paid to credibly predict the future, I think everyone has been wrong so far about ’16.”

Going down market

One topic that did produce discussion was the influx of large funds into smaller M&A deals.

Executives at InterGrowth pointed to Francisco Partners Management LP, which is launching the Agility fund to invest in smaller tech deals, Buyouts reported May 2. Agility has a $500 million target, the story said.

Thoma Bravo in February also closed its Discover fund at $1.074 billion, Buyouts has reported. Last week, Buyouts reported that lower middle market mergers rose in the first quarter as several large PE firms switched their focus to smaller deals.

James Bunn, head of investment banking at Raymond James, said some larger funds are creating small and mid-cap funds to take advantage of smaller deals. He pointed to Carlyle Group, which has created “fund families.”

“We will increasingly see firms take minority positions where before [it was] only a majority,” said Bunn, who spoke on the May 4 panel The Evolution of Private Equity. “This feels like a more permanent shift,” he said.

New Heritage’s Gifford agreed that a number of bigger funds are creating smaller funds to do smaller deals. He said he recently saw a $3 billion fund put a bid on a company with $15 million of EBITDA. “Think of the resources they could bring to bear. It’s unfair,” said Gifford who spoke on May 3rd’s Strategy, Valuation and Integration: Securing M&A Success in 2016.

Also speaking on the Evolution of Private Equity panel were Patrick Severson, a principal at Vista Equity Partners, Pam Hendrickson, COO of Riverside Co, and John Black, head of growth equity at H.I.G. Growth Partners. Severson pointed out that his firm had raised several smaller pools. Vista’s Foundation funds typically invest in small-cap companies.

“We grew up in the smaller world,” Severson said. H.I.G.’s Black said all of his firm’s 19 funds are focused on the “mid or small market.”

When asked if large firms have the cultural DNA to come down market, Hendrickson said: “They don’t. They frequently hire teams. They import that talent.”

Action Item: More photos from InterGrowth 2016:  http://bit.ly/1SPNDmo

Photo of Donald Trump (c) between Sen. Marco Rubio (l) and Sen. Ted Cruz (r) before the start of the Fox Business Network Republican presidential candidates debate in North Charleston, South Carolina, on January 14, 2016. Courtesy Reuters/Chris Keane