Deal by Deal: A Private Equity Podcast

A proposed FTC rule will change how companies do business — and how law firms give advice for the foreseeable future. On this episode of the Deal-by-Deal podcast, host Greg Hawver invites guest Holden Brooks, a partner at McGuirewoods, to share insights on recent developments for noncompetes and restrictive covenants based on the recently proposed rules. The current review period will invite comments; challenges in federal courts are likely. If approved, companies will need to be in compliance within 180 days. Holden says that companies need to begin preparing for a new landscape. “Getting wise about alternatives to noncompetes, being smart about using noncompetes that are narrowly tailored, and thinking about the long-term,” she says. “What's your strategy in a world where noncompetes may not exist or may be more vulnerable? What kind of opportunities does that present?” Later on in the episode, the conversation pivots to private equity investment in the energy space with McGuirewoods partners Tom DeSplinter, Eddy Daniels, and Brian Kelly. They review the opportunities for independent sponsors in the energy space and within the Inflation Reduction Act.  Meet Your HostName: Gregory HawverTitle: Partner at McGuireWoodsSpecialty: Greg represents private equity and strategic clients in a wide variety of change-of-control transactions, minority equity investments, domestic and cross-border acquisitions, recapitalizations, joint ventures, and corporate reorganizations, as well as advising clients on day-to-day corporate matters. Connect: LinkedInAcquired KnowledgeTop takeaways from this episode The rules for noncompetes are changing. The government had been signaling in the past year that it is looking to make changes to noncompetes. The proposed rule by the FTC takes the position that noncompetes are harmful and should be banned. Holden expects that, in the next 60 days, both sides will weigh in with comments, and challenges to the rule that may arise that affect the final outcome. Businesses need to review how they are using noncompetes. No matter what the FTC outcome is, there is going to be more scrutiny and focus on noncompetes going forward. Businesses need to consider how they can keep their noncompetes narrow, if they can use other protections instead of a noncompete, and weigh their long-term value before implementing them. The Inflation Reduction Act provides opportunity through tax credits. The act extends the tax credit scheme further than was initially expected and opens up opportunities in new areas for energy, like batteries that were previously excluded. It also expands on how to monetize tax credits so they don’t always have to be marketed to a tax investor. ContactConnect with us on Facebook, Twitter, Instagram, YouTube.This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action. 

Join hosts Greg Hawver and Jeff Brooker for the second episode of a two-part series discussing critical issues and best practices for term sheets. This episode focuses on the equity term sheet between the independent sponsor and the equity capital provider. Learn about common pitfalls, what to keep in mind when negotiating terms and how to ensure alignment of investor interests.Meet Your HostsName: Gregory HawverTitle: Partner at McGuireWoodsSpecialty: Greg represents private equity and strategic clients in a wide variety of change-of-control transactions, minority equity investments, domestic and cross-border acquisitions, recapitalizations, joint ventures, and corporate reorganizations, as well as advising clients on day-to-day corporate matters. Connect: LinkedInName: Jeff BrookerTitle: Partner at McGuireWoodsSpecialty: Jeff focuses his practice on advising private equity funds, venture capital funds, and other institutional investors and strategic acquirers in connection with mergers and acquisitions, early- and late-stage investments, leveraged buyouts, recapitalizations, management buyouts, and secondary transactions.Connect: LinkedIn ContactConnect with us on Facebook, Twitter, Instagram, YouTube.This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action. 

Greg Hawver and Jeff Brooker discuss best practices for M&A deal letters of intent in this episode. They share advice on crafting an LOI, including what terms to include and missteps to avoid. They also highlight the importance of understanding what an LOI can be used for. The chapter descriptions cover topics such as negotiating exclusivity, crafting a LOI for M&A, asset deal vs equity deal, rep and warranty insurance, and the importance of leverage and competitiveness in M&A.

There’s a secret on how to secure more — and better — deals as an independent sponsor: build relationships and trust with your lenders. This may seem fairly obvious, but the reality is as the market has become more concentrated with traditional private equity funds, we’re losing this important part of dealmaking. And as the market remains uncertain, those relationships are going to be crucial for survival as an independent sponsor.Approaching lenders as partners ensures a better outcome and establishes an “understanding that the lender is going to work as a partner to the extent that they can and [make] sure that the deal is done,” said Brian P. Coughlan of McGuire Woods’ Corporate and Private Equity Group.In this episode of Deal-by-Deal, the hosts are joined by Brian, as well as Joe Rodgers of Source Capital, LLC, to discuss how to approach debt lenders and how to get the most out of those deals. They also explore the state of the current lending market, and how independent sponsors should approach deals in a time of uncertainty. Featured GuestsName: Joe RodgersTitle: Managing Director at SourceCapital, LLCSpecialty: As managing director at SourceCapital, a lower-middle-market investing fund, Joe helps lead the credit strategy arm of the investment team.Connect: LinkedIn Name: Brian P. CoughlanTitle: Partner at McGuireWoodsSpecialty: As a partner in McGuireWoods’ Corporate and Private Equity Group since 2017, Brian represents investment funds and strategic acquirers in connection with mergers, acquisitions, investments, divestitures, and other strategic and financial investment activities, with a particular focus on debt financing structures.Connect: LinkedInAcquired KnowledgeTop takeaways from this episode Approach debt deals as a partnership. As debt equity becomes more commoditized by a growing concentration of traditional private equity funds, one of the most important parts of the process is getting lost: relationship building. As the market continues to spiral into uncertainty, strong relationships with a variety of lenders could be a deciding factor in securing a deal. Get early leads from your debt providers. Debt lenders love looking at deals at every stage of the process. But as an independent sponsor, communicating with your providers early on will give them more time to prepare and iron out any potential issues, giving you a better chance of winning the deal.The cost of deals may be going up. We still don’t know how the market will be permanently impacted by the economic tumult of recent years, but we do know that good deals are still going to happen. Independent sponsors should be prepared that costs of those deals will go up, but they might not necessarily remain high forever. ContactConnect with us on Facebook, Twitter, Instagram, YouTube.This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

Facilitating introductions between independent sponsors and capital partners who can fund their deals is the first step in a successful M&A scenario. Knowing how to efficiently leverage relationships and get in front of the right people is key to getting deals done. Christian Berger joins this episode of Deal-by-Deal to share how introductions play into business development and his approach to the process. “We [make introductions] to help our clients, prospective clients, and others in our network meet each other and find opportunities that they otherwise wouldn't have seen,” Christian explains. Ultimately the goal of making introductions is to complete successful private equity partnerships. Also on this episode, get insights into the best way to approach finding introductions. Christian shares how to calculate the number of introductions you might need by sharing his three assumptions for finding investors, and outlining what a capital firm considers a strong deal. Christian and Greg also share details on the upcoming McGuireWoods Independent Sponsor Conference in Dallas. The conference is an opportunity to see firsthand what makes McGuireWoods a collaborative firm that knows how to leverage relationships to make the right introductions.  Featured GuestName: Christian BergerTitle: Partner at McGuireWoodsSpeciality: Joining McGuireWoods in 2015, Christian focuses on helping new and existing clients in the firm’s private equity practice. He has received a number of industry awards, including the Most Innovative Law Firm in the Business of Law from the Financial Times in 2018, and Executive of the Year by Legal Sales and Service Organization in 2018.Connect: LinkedIn Acquired KnowledgeTop takeaways from this episode ★ The investor introduction process. Facilitating investor introductions is part of business development. It’s a way to connect with clients who are doing M&A deals that need legal counsel. A firm like McGuireWoods helps guide independent sponsors to get a clear understanding of the opportunity and find the right investors for their unique position.  ★ Attributes that make an independent sponsor attractive to a fund. These funds are looking for someone who has an attractive opportunity requiring capital that matches the needs of their fund. It’s common to see single transactions in the 20 million dollar range, with many private equity firms looking to make 10 transactions out of a single fund. It’s important to have a clear identity that allows firms to match what you need with the box they’re looking to fill. ★ Three assumptions when finding investors for a deal. First, what is the target check size for the investors? Secondly, what percentage of investors will accept an introductory call from an independent sponsor? Third, how many investors will be willing to invest in a deal? Asking these questions allows you to work backward and determine how wide you need to cast your net. ContactConnect with us on Facebook, Twitter, Instagram, YouTube.This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

Independent sponsors have evolved to become a separate asset class offering value to the ecosystem within the realm of private equity.On this episode of Deal-by-Deal, hear McGuireWoods’ Jon Finger share his insights on the evolution of independent sponsorship and recent noteworthy developments. There have been larger deals, more hybrid structures, and an increased interest in first-time funds from within the independent sponsor space.With his experience in the independent sponsor space, Jon offers advice for emerging fund managers looking to raise their first committed fund.“Having a broad set of references from different parts of the deal ecosystem is important to show LPs,” Jon says of the key steps independent sponsors need to prepare for when raising a first-time fund.Also on this episode of Deal-by-Deal, Jon and Jeff review what independent sponsors need to consider when it comes to their current deals. Including if they can roll them into a fund: “One of the key pieces is the deal pipeline, and providing LPs with that demonstrated ability to put money to work in a meaningful fashion relatively quickly,” Jon explains.  Featured GuestName: Jon W. FingerTitle: Partner at McGuireWoodsSpeciality: Jon’s practice focuses on private equity and corporate transactional matters, including mergers and acquisitions, fund formation, securities offerings, and corporate governance initiatives.Connect: LinkedIn Acquired KnowledgeTop takeaways from this episode ★ The independent sponsor space is maturing. Over the past decade, the independent sponsor space has moved from individuals making deals at country clubs to being a valuable part of the ecosystem. As independent sponsors have matured, the deals have grown in value and begun to encompass more hybrid structures. ★ The criteria to become a successful independent sponsor fund manager. More and more independent sponsors are looking to raise committed funds. To be a successful emerging manager, an individual will need to have previous successful exits, the ability to articulate their ESG focus, and the support needed to scale the fund. ★ Key steps to consider when raising a fund. Reference checks are extremely important to LPs and for any independent sponsor considering raising a fund, it’s important to have a diverse lineup of references ready. Also, consider what investors are right for your fund and which backgrounds or specialties will drive the most value for you.ContactConnect with us on Facebook, Twitter, Instagram, YouTube.This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

There’s a lot that companies need to consider when deciding to pursue independent financial backing. The decisions companies make when striking deals almost always come back to control — a factor that has a significant impact on the future of the company. Depending on how much control the backer negotiates, different scenarios could lead to backers gaining significant veto rights, board control, or a total loss of management fees.The process is complex and involves many moving pieces. That’s why we brought Alexander Horn and Anne Croteau — seasoned independent sponsor deal negotiators — on today’s episode of the podcast.“A financial investor is going to want to have some control over any big corporate decision above a certain monetary threshold. [But] they don't want to get into the day-to-day and they don't want to get into the nitty-gritty … that's not their focus. It takes them away from their main focus, which is finding additional investment,” says Anne. On this week’s episode of Deal-by-Deal, Anne and Alex walk us through what considerations should be made when discussing independent sponsor deals and what’s at stake.Featured GuestsName: Alex HornTitle: Partner at McGuireWoodsSpecialty: Alex is focused on private equity and other finance transactions. In the past, he has represented business development companies (BDCs), small business investment companies (SBICs), and other private debt funds.Connect: LinkedIn Name: Anne CroteauTitle: Partner at McGuireWoodsSpecialty: Anne is focused on private equity and other financing transactions, mergers and acquisitions, and general corporate matters. She has represented lenders in first lien, unitranche, second lien and mezzanine credit facilities, equity co-investments, and kickers. She has experience advising on intercreditor relationships, capital structures, and complex restructurings.Connect: LinkedInAcquired KnowledgeTop takeaways from this episode ★    Negotiations are all about control. Different types of partners will have different outcomes and control issues: a family office might offer pure equity while a lender like a small business investment company will instead require significant equity backing. The type of partner will determine the level of control it has over your company: for example, large-scale and influential financial backers are likely to require significant control of your board as well as asking for veto rights and involvement in major financial decisions.★    Corporate sponsors generally don’t want to be involved in management. While corporate sponsors might have a significant amount of control, they don't want to be involved in the daily details. An independent sponsor’s main job is to find good investments.★    Consider the interests of every financial backer. Dealing with equity backers and debt financial backers could result in conflicts of interest if the interests of all parties are not taken into consideration when these deals are initially made. In some cases, management fees could be lost or a debt could go into default.Episode Insights[00:29] Meet our guests: Anne and Alex, longtime partners at McGuireWoods, join us on the podcast to discuss a topic that comes up in every deal: determining fair distribution of control between independent sponsors and capital providers.The issue was a recent point of discussion at the 2022 McGuireWoods Independent Sponsor Conference.[01:40] The basics: Anne and Alex explain the two typical kinds of partners involved in independent sponsor deals. Each comes with its own unique control issues.[03:13] The desire for control: Anne explains when independent sponsors will expect significant control of a company, particularly when making sizable investments.[05:50] Veto rights: How should independent sponsors think about and negotiate veto rights with sponsored parties? Can different circumstances call for different veto rights? What’s the proper scope?[08:53] Board takeovers: It’s possible for financial backers to take over the board of the company they are supporting, but it doesn’t happen right away. So what triggers takeovers? And what should sponsors keep in mind when negotiating these types of provisions?[14:28] When both parties agree: It is possible for board takeovers to be a mutually agreed upon decision. Anne’s seen this particularly in lower to middle market companies.[17:27] Backer involvement: Corporate sponsors don’t always want to have deep involvement in the management of a company. Ann and Alex explain why.[21:56] Management fees can be fragile: If independent sponsors lose control, management fees can be significantly reduced or completely shut off. Alex and Anne explain what kind of financial impact they can have and what companies should consider when drawing up a loan agreement.[29:06] Regaining control: Can independent sponsors get control back after losing it? Under what conditions is that possible? Anne has been asking herself these questions amid some recent cases. She tells us why the loss of control is often a “one-way switch.”[33:14] Connect with us online: To learn more about today's discussion and our commitment to the independent sponsor community, please visit our website.ContactConnect with us on Facebook, Twitter, Instagram, YouTube.This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

In this final episode of Deal by Deal for 2021, Matt Heinz, Partner & Co-Practice Leader, Transaction Liability at Lockton Companies, joins the podcast to share the outlook on representations and warranties insurance.As the fourth quarter of the year comes to a close, Matt has insights into how the robust M&A activity we’ve seen will impact the insurance market moving forward, as well as the challenges those in the industry are facing.“We've arrived at a scenario where we have more demand than supply from the insurance market,” Matt says on this episode — referencing how demand combined with the increasing claim environment is leading to an increase in prices.Also on this episode, a presentation excerpt from McGuireWoods Partners Greg Hawver and Jeff Brooker from the McGuireWoods Independent Sponsor Conference in October. The presentation titled, “What is Market with Respect to Independent Sponsor Deal Economics?” covers the independent sponsor survey. The excerpt in this episode covers the portion on closing and management fees.Meet Your HostsName: Gregory HawverTitle: Partner at McGuireWoodsSpecialty: Greg represents private equity and strategic clients in a wide variety of change-of-control transactions, minority equity investments, domestic and cross-border acquisitions, recapitalizations, joint ventures and corporate reorganizations, as well as advising clients on day-to-day corporate matters.Connect: LinkedIn Name: Rebecca Brophy Title: Partner at McGuireWoodsSpecialty: Rebecca focuses her practice on advising private equity funds, other institutional investors, and strategic acquirers in connection with mergers and acquisitions and other complex business transactions. Connect: LinkedIn Name: Jeff BrookerTitle: Partner at McGuireWoods Speciality: Jeff focuses his practice on advising private equity funds, venture capital funds and other institutional investors and strategic acquirers in connection with mergers and acquisitions, early- and late-stage investments, leveraged buyouts, recapitalizations, management buyouts and secondary transactions.Connect: LinkedInMeet Your GuestName: Matthew HeinzTitle: Partner & Co-Practice Leader, Transaction Liability at Lockton CompaniesSpeciality: Matt’s name is synonymous with ​​transaction liability insurance for M&A professionals across the country. He has served as both an underwriter and broker during his time in the industry. Before joining Lockton, Matt served as a Senior Managing Director and Co-Practice Leader of Aon’s North American transaction liability team. Connect: LinkedInAcquired KnowledgeTop takeaways from this episode★    An increase in demand and in claim activity has led to increased RWI prices. After more than 12 months of robust M&A activity, we’re seeing cases where insurance representation and warranties insurance market (RWI) carriers are not able to service all of the available deals in the market. Due to the increase in demand, carriers have to be more selective in the deals they want to underwrite. They are also charging more for their time.★    While constraints due to deal caps are going away in Q1 2022, human capital constraints are not. As we move towards January 1st, those looking to structure a deal and secure RWI can look forward to any cap constraints being removed once we hit the new year. However, Matt explains that there will still be a constraint on the human capital available to underwrite and structure RWI meaning some of the current crunch we’re seeing in the market will continue into the new year.★    Fees are unlikely to go down in 2022. The general sense is that while fees might stabilize in 2022 they are not going to go back down to the sub 3% fees seen previously in the industry. The prediction is that RWI fees will stabilize around the 3 to 4% range for the foreseeable future.Episode Insights[05:45] High demand: Matt shares how a hot insurance market and an increase in claims is pushing RWI prices up while insurance carriers also get to be more selective in the deals they underwrite.[06:08]: The insurance market is getting more challenging: Today it is more difficult to get deals below 50-75 million in enterprise value, particularly if they are lacking audited financials. However, Matt notes that he believes reports of the M&A and RWI markets shutting down for Q4 are somewhat exaggerated.[08:25] Carriers may be restricted by limit caps: Matt explains that insurance carriers may have a premium cap that when reached causes them to limit the new deals they take on as they manage their exposure in a particular market or industry. Not all larger carriers will have these same reinsurance restrictions.[10:48] RWI premiums have increased: Looking at inclusive amounts for insurance including the premium, taxes, underwriting fees, and broker fees (if applicable), the rate has traditionally been 3-4% of the limit of liability assuming a policy equal to 10% of the enterprise value on a deal. Today this price has increased about a hundred basis points up to around 4 to 5%[11:39] Underlying cyber insurance is crucial: Matt says RWI carriers do not want to take on all of the cyber exposure and carriers are now more careful about ensuring companies have existing cyber insurance in place at an adequate limit.[15:28] Reps are no longer purely seller friendly provisions: Matt explains that claim activity for carriers around contract reps have caused them to re-look at how reps are written so they are no longer as seller-friendly as they were a year ago.[17:44] Start early on challenging deals: Matt says that if you have a potentially challenging deal, including those in the $50-75 million range it’s important to line up RWI well in advance of your signing date and to make sure you have a well connected broker.[20:39] Human capital constraints aren’t going away: While the capacity constraints Matt referenced earlier in the episode will be lifted in January 2022, the human capital issue and need for more experienced professionals working on these deals will continue to be a concern.[24:24] Consult with an attorney on closing fees: Jeff notes that there are many different ways to structure closing fees and each comes with a different risk so you need to review what works best for you and your comfort level before making a decision.[25:34] Closing cost calculus: Jeff says that the majority of closing fees are calculated based on the aggregate enterprise value of the deal, if the deal is valued at 50 million, then that is what the calculation is based on.[27:17] Closing fees: Greg shares that according to their survey results, in the majority of deals, there are no fees paid to the equity capital partner. Sometimes, PE firms are an exception.ContactConnect with us on Facebook, Twitter, Instagram, YouTube.This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

You could do very well in large-cap, private equity by consistently generating solid returns at scale and volume. It’s great for large institutions and PEs that have the time and resources to compete at slews of auctions and zoom through portfolio after portfolio to close deals, quarter after quarter.After years in this kind of environment, Harry Eichelberger of Archimedes Health Investors found independent sponsorship in physician provider services to be more exciting, more personalized, and more entrepreneurial. On this episode of the podcast, he discusses his approach to healthcare investment and how he came to focus on physician services.Also on this episode of Deal-by-Deal, hear from McGuireWoods Partner Holly Buckley on digital healthcare and healthcare IT.“We will continue to see an increase in traction on deals in healthcare IT, and there’s going to be a real race to consume the valuable assets in that sector,” Holly says.The demand has never been greater for fully invested, sustainable healthcare. COVID just brought it all to the forefront. Yet considering the events of the past year and a half, the healthcare niche is even more relevant than ever for the independent sponsor.Meet Your HostsName: Rebecca BrophyTitle: Partner at McGuireWoodsSpecialty: Rebecca focuses her practice on advising private equity funds, other institutional investors, and strategic acquirers in connection with mergers and acquisitions and other complex business transactions.Connect: LinkedIn  Name: Holly BuckleyTitle: Partner at McGuireWoodsSpecialty: Holly focuses her practice on corporate healthcare transactional work and regulatory matters. She primarily counsels private equity funds and healthcare clients and is Chair of the firm’s Healthcare Department. Connect: LinkedInMeet Your GuestName: Harry Eichelberger Title: Founder and Managing Partner of Archimedes Health InvestorsSpecialty: Harry was a healthcare private equity, growth capital, and venture capital investor before founding Archimedes Health Investors, a private equity firm, focused on healthcare, in 2015.Connect: LinkedInAcquired KnowledgeTop takeaways from this episode★    For a successful physician practice management venture, focus on alignment. The healthcare space went through two major rollups, one in the 1990s and one in the early 2000s. During those years, the relationship between management and physicians was strictly transactional, and during these downturns, their bonds quickly ruptured. When management treats physicians like true partners, they share incentives, are invested in each other’s progress and are positioned for long-term growth.★    Bet on Healthcare IT. COVID brought the forward movement of healthcare IT and digital healthcare, but this sub-sector of healthcare has been gaining traction for some time due to demographic shifts. These include: aging Baby Boomers, a declining workforce, the ever-present need to do more with less, and increased demand for telemedicine and other remote solutions. In short, the opportunity for digital health innovation is only expected to grow. Episode Insights[00:47] Independent sponsorship in healthcare: McGuireWoods Partners Rebecca Brophy and Holly Buckley discuss the transition from PE to independent sponsorship within the healthcare space with Harry Eichelberger, Managing Partner at Archimedes Health Investors.[02:54]: Bigger, faster funding: Funds in mature PE are raising more money and dispersing it more quickly.[4:01]: The sweet spot: To Harry, lower-middle and growth equity are the most exciting healthcare areas because there is a need for the capital, expertise, and strategy an independent sponsor can offer.[6:27] Dig into business models and alignment: Archimedes is deliberate about which health care spots it chooses to fund. The mid-2000s taught Harry and his colleagues valuable lessons about paying attention to long-term alignment with business models: how do companies bring value to their customers and how are they paid for? Radiation oncology was operating in a reimbursement environment positioned to fail when cuts were instituted, for example.[8:59]  History repeating: In the 1990s, physician practice management (PPM) models often failed because the physicians and the management companies were not aligned. The PPM provided little oversight or systems to help physicians operate their practices to adapt to market fluctuations. It was focused on quick money and IPOs, so it wasn’t built to last.[11:14] A different approach: Archimedes partners with physicians by tying their compensation to productivity instead of paying them a fixed salary. They create sharing mechanisms so that doctors can have access to IT, investments, systems, and management services. They also create alignment through equity ownership of the parent company. [13:28] The individual advantage: Many big, institutional sponsors are prohibited from looking at smaller deals. Not so for the individual sponsor, and starting small is an opportunity to grow a business the way you want to, not according to a pre-existing set of constraints and policies.[15:27] Start small: Find deals. Conduct due diligence. Raise capital. This is the basic playbook for starting out as an individual sponsor. It’s extremely challenging, so keeping your ambitions modest in the beginning makes the most sense.[17:41] Present as an entrepreneur, and use your relationships: Harry found CEOs took him more seriously when he emphasized that working with them was his own venture, rather than part of a cushy job with a PE firm. He was also fortunate to have many strong contacts from his days in the PE world that he could leverage.[18:46] Lean is nimble: Without the usual hours-long, extended meetings and flurry of memos that PE brings to mind, the individual sponsor can get more done in less time.[20:54] Proof in crisis: During the most devastating moments of the pandemic, some healthcare companies showed up. Others didn’t. This underscored the importance of company culture. Archimedes was in the middle of due diligence when COVID-19 hit, and Harry says this turned out to be a great opportunity to see how the company they were evaluating responded to stress.[24:27] 2021 outlook: Harry and Rebecca are both seeing delas being pulled forward. They discuss the deal outlook for the rest of the year and beyond and underscore why having the right partner is critical.[28:28] Next big investment areas: Harry and Holly talk about what specific areas of healthcare they are bullish on. Harry likes physician services, while Holly is focused on opportunities around healthcare IT and digital health.ContactConnect with us on Facebook, Twitter, Instagram, YouTube.This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

The end of the COVID-19 pandemic seemed to be on the horizon until the Delta variant showed up, bringing with it the potential to shake up the deals market once again.As the end of the year approaches, dealmakers have to navigate the ongoing unknowns of the pandemic along with the other factors that are tightening the pressure valve on M&A this year.“I suspect this year is going to be just as tight [as last year], if not tighter,” Rebecca Brophy says on this episode of Deal by Deal, talking about the haste at which dealmakers will need to get things closed while operating under a breakneck volume of deals.Also on this episode, hear from DuneGlass’ Ryan Graham and Daniel Hosler about why they made the switch to independent sponsorship from private equity: “We tried to build something a little more founder-centric,” Ryan says.With their focus on healthcare services and medical practices, Ryan and Daniel share their thoughts on healthcare investment opportunities. Meet Your HostsName: Gregory Hawver Title: Partner at McGuireWoods Specialty: Greg represents private equity and strategic clients in a wide variety of change-of-control transactions, minority equity investments, domestic and cross-border acquisitions, recapitalizations, joint ventures and corporate reorganizations, as well as advising clients on day-to-day corporate matters. Connect: LinkedIn Name: Rebecca Brophy Title: Partner at McGuireWoods Specialty: Rebecca focuses her practice on advising private equity funds, other institutional investors and strategic acquirers in connection with mergers and acquisitions and other complex business transactions. Connect: LinkedIn Name: Jeff BrookerTitle: Partner at McGuireWoods Speciality: Jeff focuses his practice on advising private equity funds, venture capital funds and other institutional investors and strategic acquirers in connection with mergers and acquisitions, early- and late-stage investments, leveraged buyouts, recapitalizations, management buyouts and secondary transactions. Connect: LinkedIn Meet Your GuestsName: Thomas J. DeSplinterTitle: Partner at McGuireWoods Speciality: Tom is an accomplished dealmaker and partner in the firm’s M&A and Corporate Transactions Department. Connect: LinkedIn  Name: Ryan Graham Title: Managing Partner and Founder at DuneGlass Capital Speciality: Ryan focuses on identifying and implementing cost reduction and growth opportunities to drive meaningful improvement to the bottom line. He has deep operational expertise with a track record of growing EBITDA through revenue and margin improvement.Connect: LinkedIn Name: Daniel HoslerTitle: Managing Partner and Founder at DuneGlass Capital Speciality: Dan has operational and deep deal experience, having started three companies and spending 15+ years in private equity. He knows the universe of buyers, what private equity looks for in a deal, and how to make operational improvements to increase the value of a medical asset. Connect: LinkedIn Acquired KnowledgeTop takeaways from this episode ★    As the duration of the pandemic remains unknown, don’t expect a repeat of 2020. The Delta variant of the coronavirus has changed the course of how we thought the pandemic would end. Rising cases and potential lockdowns have the power to shake up M&A deals, but that doesn’t mean anyone should panic. Nobody wants another wave of lockdowns. Additionally, the anxiety that caused deal flow to plummet when the pandemic first started isn’t likely to repeat.★    In a seller’s market, independent sponsors have a bit more leeway to get creative. Because of how strongly biased the market is toward sellers right now, it’s hard for buyers to set very many conditions about the deals they make. But independent sponsors have a leg up due to their personal relationships with buyers that allow for more thoughtful transactions. Right now, it’s a bonus to be flexible!★    The rest of the year is going to be busy. There is a general consensus that the next few months are going to be a busy time for M&A — the QV market is particularly backed up. It’s not quite yet at the point where people are turning away work, but getting deals closed before the end of 2021 is going to be very tight. Episode Insights[01:41] Independent sponsor networking: McGuireWoods Partner Greg Hawver previews the fourth annual Independent Sponsor Conference, which will be in Dallas in October.[08:16]: Keep your finger on the pandemic pulse: Jeff says that he doesn’t think purchase agreement language is going to completely change with the new wave of the pandemic, and that the tools we’ve previously developed will likely still stand. But he points out that it’s a fluid situation.[12:22] Less fear of the unknown: Rebecca points out that, while the COVID-19 Delta variant is posing challenges to the market, she would be surprised if deals froze as much under a potential Delta lockdown as they did at the beginning of the pandemic. Now, people know what to expect a little bit more.[16:20] Gearing up for a busy season: Gregory, Rebecca and Jeff all say that they’re seeing less legal bandwidth to help independent sponsors close out deals during this busy market. Thanks to possible changes in tax law, getting over the initial pandemic slump, the continued trend of retiring baby boomers, and more, dealmakers are in for a packed end of the year.[22:21] The political backdrop: Gregory says that although the election of President Biden took place last year, people are now starting to wonder if he will enact some of the tax regime changes he said he would. New tax codes would have an impact on deals.[28:06] Keeping an eye on healthcare macro trends: Daniel says that DuneGlass looks at large healthcare macrotrends when deciding which deals to pursue. One macro trend he mentions: As baby boomers age, demand for joint replacements is likely to surge.[29:08] The golden age of biotech: Daniel says that even though he’s not a biotech investor, all healthcare investors and independent sponsors should become more familiar with the world of biotechnology. Even if you’re working in the middle market, you’ll be able to pick up on trends throughout the healthcare industry by paying attention to emerging technologies.[30:56] Why go the independent sponsor route: Ryan talks about why he and Daniel wanted to make DuneGlass an equity partnership fund that invests in small, founder-owned companies that can make a difference in the healthcare industry and in the lives of the people starting the companies.[42:47] Learning from mistakes: Daniel says that he and Ryan pay attention to the mistakes that both of them made at private equity firms. They’ve developed a specific playbook to look at management services under the guidelines of, and they make sure to take it into consideration with every new decision they make.[44:22] The future of independent sponsorships: Daniel says that he sees the rest of the investing world catching up to the benefits of the independent sponsor model, and sees a future in which this model becomes more and more dominant in the deal-making sphere.ContactConnect with us on Facebook, Twitter, Instagram, YouTube.This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.