COVID-19 has brought unprecedented change to the world. Experts from Lincoln’s industry and service groups and 16 countries share here the implications resulting from COVID-19. Because news and information about the virus shifts often, this microsite will be updated frequently to share the latest - or evolving - perspectives from Lincoln's investment banking advisors.

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Industry:

Business Services

Consumer

Energy, Power & Infrastructure

Healthcare

Industrials

Technology, Media & Telecom

Service:

Capital Advisory

Joint Ventures & Partnering

M&A

Valuations & Opinions

Coronavirus (COVID-19) has brought unprecedented change to the world. Experts from Lincoln’s industry and service groups and 16 countries share here the implications resulting from COVID-19.

Because news and information about the virus shifts often, this microsite will be updated frequently to share the latest - or evolving - perspectives from Lincoln's investment banking advisors.

Click the arrows next to each section to read the full perspectives.

Lincoln International has created a Playbook to support business leaders in documenting and articulating their COVID-19 response. To request a copy, click here.

Capital Advisory Group – Financing Market Update

Although some traditional lenders are well-capitalized and will be able to deploy capital for new transactions, the market will continue to struggle in a number of areas.

Capital Advisory Group – Financing Market Update

 

April 1, 2020 ​ | ​ Click here to download a printable version of this perspective

Private Credit Market Issues Amidst COVID-19

The current COVID-19 crisis is presenting numerous challenges for traditional middle market lenders.

Aggressive Revolver Draws

During the two weeks leading up to 3/31, many borrowers drew down on their revolvers; the unprecedented level of revolver draws caused a significant drain on lenders’ capital

Many middle market lenders indicate that their aggregate revolving facilities are 70%+ drawn, compared to a normal-course average of ~20% and prior peaks of ~40% during the Financial Crisis of 2008

Portfolio Underperformance

Due to expected portfolio underperformance and forthcoming company liquidity concerns, lenders are preserving capital in anticipation of requests to support challenged borrowers

Many more defaults are expected at 6/30, compared to 3/31, since the crisis began so close to the end of Q1

Potential for Deferral of Interest and/or Principal Payments

While 3/31 passed with fewer than expected interest and principal payment deferrals, the underlying issues did not disappear and will have to be addressed at 6/30 (or sooner)

Lenders could face significantly higher interest and/or principal deferrals at 6/30, causing them to conserve liquidity

Reduced Availability for Credit Funds

As portfolio company underperformance weighs on the valuation of middle market loans when “marked-to-market,” lenders are expecting covenant defaults and/or reduced availability on fund-level credit lines due to shrinking borrowing bases, negatively impacting the funds’ liquidity

Some lenders have already begun to pursue strategies to shore up liquidity (e.g. rights offerings)

These concurrent and systemic issues are leading to tightening liquidity across the private credit markets.

Although some traditional lenders are well-capitalized and will be able to deploy capital for new transactions, the market will continue to struggle in a number of areas:

Resulting Credit Market Activity

With a wide range of challenges facing traditional lenders, unconventional capital providers will drive a wave of private credit activity for the remainder of 2020.

Shorter-Term Remedies

Amendments and forbearances, either on a standalone basis or in conjunction with:

  • Capital infusions*
  • Bridges*
  • Rescue financings*
  • Fairness opinions

*Provided by sponsors, lenders, or third parties

Medium-Term Fixes

  • Restructurings
  • Lender-driven M&A
  • Structured capital solutions

Longer-Term Solutions

  • Refinancings
  • Dividend recapitalizations
  • Acquisition financings
  • Company sales

This surge of activity will bring a complex set of challenges that are the focus of Lincoln’s Capital Advisory Group.

Lincoln Has Expertise Across the Entire Capital Spectrum

Through its full-service platform, Lincoln maintains the capability to assist companies across the entire spectrum of capital needs.

Liability Management

  • Forbearance
  • Amendments / Waivers
  • Maturity / Reporting Extensions
  • Consent Solicitations
  • Negotiating Capital Injections from Existing Stakeholders

Capital Raising

  • Bridge / Rescue Financing
  • Structured Capital Solutions
  • Private Debt Alternatives
  • Refinancings
  • Growth Financing
  • Acquisition Financing
  • Dividend Recap

Financial Restructuring

  • Debt for Equity Exchange
  • Chapter 11 Restructuring
  • Out-of-Court Restructurings
  • Strategic Alternatives Review
  • Distressed Debt Buy-Back

Mergers & Acquisitions

  • Sell-Side Advisory
  • Buy-Side Advisory
  • Distressed M&A
  • 363 Asset Sales

Valuations & Opinions

  • Portfolio Valuation
  • Fairness Opinions
  • Solvency Opinions

Lincoln can help sponsors and borrowers weather the storm while positioning them for long term success.

Why Lincoln?

Lincoln’s Capital Advisory Group is uniquely qualified to guide clients through uncertain times and towards optimal outcomes.

Full Suite of Capabilities to Address All Borrower Needs

  • Capital Raising
  • Liability Management
  • Restructurings
  • M&A Advisory
  • Valuations & Opinions

Superior Track Record of Success

53 Deals Closed in the ​ ​ ​ ​ ​ ​ Past Three Years

Zero Hung Deals in the ​ ​ ​ ​ ​ ​ ​ Past Three Years

Lockstep Collaboration Across the Lincoln Platform

  • Seamless Cross-Functionality Across Teams
  • Senior-Level Attention with Every Engagement
  • Significant Industry Knowledge and Expertise

Engaging Lincoln allows sponsors and companies to successfully navigate challenging market conditions and ensure the best possible outcome.

How to Approach Your Q2 Private Company Valuations

Given the limited portfolio company data, the fair value of investments on these private companies as of March 31 primarily reflected expectations of performance as well as the shift in market dynamics and was not based on actual fundamental performance.

How to Approach Your Q2 Private Company Valuations

 

June 22, 2020 ​ | ​ Click here to download a printable version of this perspective

Q2 is all about ensuring you do not “Double Count” Q1 valuation considerations but rather “True-Up” analyses with incremental findings and new information

As the first quarter ended on March 31 and COVID-19 took hold globally, businesses were disrupted and stay-at-home orders were implemented leading to an unprecedented shock across the global economy. As investment professionals of private equity and credit funds scrambled to understand the impact of COVID-19 on each portfolio company, chief financial officers were faced with the task of marking-to-market their portfolio company investments in accordance with fair value accounting standards (ASC 820 / IFRS 13).

As a result of the pandemic, the credit markets experienced spread increases and the stock markets experienced significant valuation declines. Unlike prior reporting periods, it was clear that almost every company was going to be negatively impacted by COVID-19 in the first quarter, but there was no financial information that reflected its impact. Therefore, given the limited portfolio company data, the fair value of investments on these private companies as of March 31 primarily reflected expectations of performance as well as the shift in market dynamics and was not based on actual fundamental performance.

In the upcoming second quarter (June 30) valuation process, there is greater visibility as to the impact COVID-19 is having on businesses. However, along with greater visibility also comes new challenges. This article seeks to answer common valuation questions we are receiving regarding preparing second quarter valuations.

What is the appropriate financial metric to consider when estimating enterprise value?

Unlike the first quarter, updated post-COVID forecasts are expected to be prepared for most medium and higher COVID impacted businesses. With this new information, chief financial officers along with investment teams will be faced with the question of evaluating which financial metric – trailing, forward or a blend- is indicative of future run-rate expectations.

To date, our Valuations & Opinions Group has observed that the average decline in revised 2020 earnings forecasts is approximately 20%1. As a result, market participants will need to assess whether the revised earnings estimate for these portfolio companies are temporary or permanent.

ASC 820 and IFRS 13 mandate that fair values should reflect all information that was known or knowable as of the valuation date. As such, when available, we would advise that both trailing and forward indicators of business performance be factored into one’s valuation analysis. However, if the forward earnings indicator does indeed reflect the “new normal”, then relying on this forecast more heavily may be prudent.

And while we recommend one consider all available information, including revised earnings forecasts, in your analysis, of importance is reconciling the impact this new information may have on enterprise value to ensure one does not double count what was already factored into the first quarter analysis. Said differently, just because a new 2020 forecast is available in the second quarter does not mean valuations will change materially. Instead, one must confirm whether enterprise values in Q1 already factored in expected declines or increases in earnings when reconciling the change in concluded enterprise value between the two quarters.

When estimating enterprise value in Q2, what is the right valuation method?

Lincoln, consistent with AICPA’s Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies guide released in 2019, recommends using multiple valuation methods to estimate enterprise value. Ultimately the level of information and the view a market participant would take should dictate which approach or approaches are best to rely upon.

The following chart depicts each method and the key considerations in the second quarter.

Income Method (“DCF Analysis”)

A DCF Analysis is a powerful valuation technique as it accounts for the free cash flow a company will generate into perpetuity. As such, we recommend that chief financial officers collaborate with investment professionals and their portfolio management teams to develop a post-COVID long-term forecast. Of consideration is that while lower-COVID impacted businesses may only require an update to the 2020 cash flows, higher COVID-impacted businesses could see significant changes to the long-term growth and margin expectations. In these instances, it may be appropriate to build a multi-scenario model which accounts for downside, base, and upside cases to properly capture all potential outcomes.

By in large, when a post-COVID forecast is available, the DCF Analysis could be viewed as a superior approach to other methods because it not only encompasses the company’s future earnings, but the timing as to when cash flows will be generated and the liquidity necessary for the company to achieve them.

In addition to the forecast itself, the discount rate is of equal importance. The discount rate used will likely need to be adjusted given the current low levels of risk-free rates and that certain indicators such as beta and the equity risk premium may only reflect pre-COVID levels.2

Lastly, in instances where post-COVID forecasts are not available, but an Income Method is relied upon, consideration should be given to (a) lowering the weighting of this method or (b) reassessing the discount rate of cash flows given the risk in achieving a stale forecast.

Guideline Public Company Method (“GPC Method”)

It is well known that private company enterprise values are less volatile than public company valuations. However, changes in guideline public companies (“GPC”) may prove to be a good directional barometer for determining EV rather than an absolute indicator. These differences were evidenced by Lincoln’s proprietary middle market index which measures changes in enterprise value of private companies. While in the first quarter of 2020 the enterprise value of private companies declined by approximately 7.5%, the S&P 500’s enterprise value declined approximately 15%. As a result, we do not believe that changes in the stock prices of GPCs should be reflected on a one-for-one basis when valuing a private company.

Through early June, we observed that the public equity markets have rebounded. When assessing the degree of the rebound one should account for in a particular company’s valuation, chief financial officers and other investment professionals should consider how much the GPC Method impacted fair value in the first quarter and a consistent approach should be taken when establishing enterprise value in the second quarter.

Additionally, unlike the first quarter, post-COVID revised forecasts are being prepared. In these instances, the use of a forward valuation multiple in the valuation analysis should be considered.

Guideline Company Transactions Method (“GCT Method”)

From the onset of the pandemic, global M&A markets stalled as buyers and sellers alike re-assessed the impact the virus would have on earnings. Since this time, however, the M&A markets have begun to re-open, and sale processes are commencing.

In the second quarter, consideration should be given as to whether transactions are resuming in each industry and if the post-COVID multiples have deviated from historical levels. As such, if an industry is not active today with limited visibility on post-COVID multiple levels, consider a lower weighting or eliminating this methodology until the M&A market for that industry opens.

How does one assess the reasonability of post-COVID forecasts?

As post-COVID earnings forecasts are prepared and the shape and timing of recovery is estimated by portfolio company management, chief financial officers must assess the reasonability of achieving these revised forecasts. According to S&P CapitalIQ, as of June 1, 2020, over 70% of US public companies either removed guidance or have yet to report 2020 earnings estimates, so the outlook for public companies is still highly uncertain. While public equity analysts’ forecasts are available, the lack of public company provided earnings estimates makes it even more challenging to compare the impact of private company revised forecasts relative to GPCs.

The following considerations should be taken into account in making such assessment:

Review consensus estimates prepared by public equity analysts of GPCs to compare both the shape and the timing of recovery relative to the subject portfolio company.

Compare historical growth and margin trends of both the subject portfolio company and the GPCs to determine the reasonability of revised forecasts.

Consider differences in sources of liquidity between private and public companies as recovery times could be impacted by the support the sponsor and lender group have for private companies.

How does liquidity impact valuations?

With the shock waves of COVID-19 impairing the liquidity of many businesses, Lincoln observed that revolvers were drawn at unprecedented levels. More specifically, in the first quarter, of the companies which drew their Revolvers, ~40.0% drew down 100.0% of their outstanding commitment.3

As investment professionals bifurcate higher impacted, liquidity stretched, portfolio companies from those that were not, certain incremental borrowings and government aide were precautionary in nature. In fact, from a valuation perspective, the incremental borrowings should not be viewed as an impediment to equity value as cash would sit on the balance sheet and not be utilized for operations.

In contrast, for those portfolio companies which will require incremental liquidity to return to their base case earnings level, this additional capital should be factored into the enterprise value and equity value, all other things being equal, should decline. Said differently, fair value accounting standards suggest that a market participant would identify the working capital shortfall and adjust its purchase price accordingly to account for the liquidity need.

Ultimately, in the second quarter, it is likely that there will be greater clarity on the liquidity runway of each business. In practice, one should only adjust the valuation for the incremental shortfall identified between the first and second quarters, in essence “truing-up” any incremental capital needs relative to those considered in the Q1 valuation.

Lincoln Perspective:

There are subtle but significant differences between valuing privately held companies between the first and second quarters of 2020. As additional financial information has become available during the second quarter, the liquidity outlook coalesces, and the public markets rebound, it is important to assess the valuation impact of this new information and in particular understand whether the business performance has been in-line with, better or worse than expectations reflected in the first quarter fair values. The real challenge, this quarter, is to reflect only the new known or knowable information received during the second quarter in order to avoid double counting any impact from COVID-19 already reflected in the first quarter fair value of portfolio company investments.

1​ Lincoln International Valuations & Opinions Proprietary Database

2​ Given that beta is generally based on a trailing time series of historical stock prices and equity risk premiums may be computed annually at the end of the year, relying on historical data to compute the cost of equity will inadvertently omit or ignore the economic impact of COVID.

3​ Lincoln International Valuation & Opinions Proprietary Database, 2020 Q1

Trends in the European Debt Markets & Valuation Implications

Daniele Candiani​ | Managing Director, Milan

Aude Doyen​ | Managing Director, London

Joaquin Mateos​ | Managing Director, Madrid

Richard Olson​ | Managing Director, London

Serge Palleau​ | Managing Director, Paris

Dominik Spanier​ | Managing Director, Frankfurt

Lenders are honouring existing commitments with negligible retrades; however, debt and equity investors are cautious when reviewing new opportunities.

Trends in the European Debt Markets & Valuation Implications

April 2, 2020 ​ | ​ Click here to download a printable version of this perspective

Lender Sentiment

Lenders are honouring existing commitments with negligible retrades; however, debt and equity investors are cautious when reviewing new opportunities. Lenders remain focused on their existing portfolios and are in regular communication with management teams and sponsors to assess the impact of Covid-19. Government measures are helpful but unlikely to be sufficient for most companies. Many portfolio companies are drawing on revolver and delayed draw facilities as they seek liquidity to support operations and bridge the interim volatility.

Impact of the COVID-19 Crisis on Valuation Approach

Given extreme market volatility, Lincoln has opted to more heavily weight the income approach as opposed to a market approach (which is an unreliable indication of intrinsic value at present) when valuing credit positions of debt funds.

European Equity Markets: Sector Return Indices (EUR)

>1,000

portfolio company valuations in the last month

~50-150bps

indicative margin increase in first lien

~2.0%-6.5%

valuation declines in private credit

~150-200bps

indicative margin increase in subordinated debt

~€34bn

fundraising by European debt funds in 2019

~50%

lenders that would consider committing fresh liquidity

Valuation Best Practices

Valuations must be considered on a company-by-company basis; Apply consistent treatment across high/medium/low Covid-19 impact names, and take care not apply both EBITDA haircut and lower multiples

Sponsor support can significantly mitigate downside valuation pressure; Government support remains untested; Care must be taken in forecasting liquidity capacity

The vast majority of illiquid positions will not experience the same magnitude of volatility as the public markets; However they will directionally follow trends

Considerations for Business

Ensuring sufficient liquidity to operate is critical in current environment. Companies are looking at ways to improve liquidity

  • Should we draw down our RCF in full?
  • Do I need existing lender support to implement factoring and new financing options? What are these options?
  • Which banks are truly open for business?
  • What about disposals, equity, quasi-equity?

There is no ‘one size fits all’ solution. Lincoln can assist in identifying and executing on a strategy

The next weeks and months will undoubtedly bring challenges but there are a range of options and potential solutions available. We can offer you a Debt & Valuation presentation to discuss the latest developments, please do not hesitate to get in touch with Lincoln’s Capital Advisory Team at www.lincolninternational.com/services/capital-advisory.

Disclaimer:​ Information herein is provided for information purposes only and no reliance should be placed on it for any purpose. No representations or warranties are made or given in respect of any information in the document, including as to its accuracy or sufficiency for any purpose. Nothing in the document constitutes advice or an offer to provide services.

Fairness Opinions in Capital Infusion Transactions

Lenders are preserving capital in anticipation of the deteriorating credit quality of their existing borrowers and the effects this will have on fund-level credit facilities.

Fairness Opinions in Capital Infusion Transactions

May 8, 2020 ​ | ​ Click here to download a printable version of this perspective

The economic ripple effects of COVID-19 are already being felt in private equity (PE) portfolios around the world. While some portfolio companies are expected to successfully weather this challenging time without requiring incremental capital by working through liquidity constraints with lenders, other companies will face existential distress. In the middle of this spectrum are companies that need to raise incremental capital to survive COVID-19.

Those companies may not be able to turn to their incumbent bank or non-bank lenders, which are facing liquidity challenges of their own. Lenders are preserving capital in anticipation of the deteriorating credit quality of their existing borrowers and the effects this will have on fund-level credit facilities. In addition to struggles with traditional lending options, many of the Small Business Administration (SBA) options included in the CARES Act are not currently available to private equity portfolio companies due to SBA Affiliation Rules.

The rescue capital providers who are open for business include special situation investors that specialize in distressed situations who can close quickly. But speed comes at a high cost: not only is this capital expensive from a return perspective, but may come with a board seat and a voice at the table on top of the complication of the capital structure with the introduction of structured equity or mezzanine debt.

As an alternative to a third-party funded capital infusion, portfolio companies may choose to raise capital from their private equity sponsor.​ The advantages to this sponsor funded recapitalization are clear: avoidance of new stakeholders, lack of information asymmetry, speed to close, ability to put capital to work in a challenging environment and lower transaction costs. However, the drawbacks to these affiliate party transactions are also clear and present challenges for GPs to navigate. In circumstances where a portfolio company is owned by a fund that is fully drawn, the GP may choose, despite the inherent conflicts, to fund the capital infusion from a newer vintage successor fund.

The risks of cross-fund investing are enhanced in the current environment due to (i) difficulties in determining the COVID-19 impact on portfolio company value today in part due to uncertainty surrounding the timing and magnitude of the recovery, and (ii) the substantial dilution to the predecessor fund which is often inherent in distressed capital infusion transactions. As a result, now more than ever sponsors are turning to independent financial advisors to assist in the valuation and security structuring process, and to provide a fairness opinion for the benefit of the GP, LPACs, funds and other investors.

Common affiliate party transactions include:

  • New capital being invested in a predecessor fund portfolio company by a successor fund
  • New capital being invested in a portfolio company where there remains a significant minority investor
  • Mergers of portfolio companies, potentially owned by different funds
  • Transactions involving companies where the GP is ​ invested in the debt and equity in the same portfolio company
  • Debt for equity exchanges
  • Backstopped rights offerings

The benefits of an independent fairness opinion to GPs and portfolio company board members include:

  • Conflicts of interest mitigation
  • Discharge of GP’s fiduciary duties to funds and portco shareholders
  • Improve transparency and disclosure for LPs and LPACs and demonstration of the transaction rationale
  • Demonstration of best corporate governance practices
  • Establish a line of defense in potential SEC investigations of affiliate party transactions

The Lincoln Difference:

Lincoln’s Valuations & Opinions Group, as part of an investment bank with highly active M&A and Capital Advisory Groups, brings real world experience and deep industry expertise to every one of its Fairness Opinion engagements. In addition, the portfolio valuation work we perform on behalf of over 100 alternative asset managers has earned Lincoln a sterling reputation and credibility within the institutional LP community.

Partnering to Survive Today - and Thrive Tomorrow

The record levels of dry powder at the beginning of 2020 led to predictions of robust M&A activity. However, COVID-19 has thrown investors and businesses a curveball.

Unusual Solutions for Unusual Times

Partnering to Survive Today - and Thrive Tomorrow

April 1, 2020 ​ | ​ Click here to download a printable version of this perspective

The record levels of dry powder at the beginning of 2020 led to predictions of robust M&A activity. However, COVID-19 has thrown investors and businesses a curveball.

Debt financing is proving harder to access during COVID-19. Many businesses entered the pandemic already highly leveraged. New, more expensive debt is less attractive. Many transactions in progress were underpinned by pre-COVID-19 forecasts that now look like works of fiction. Some deals are being delayed, some threatened altogether. Businesses are seeking alternative solutions. We believe that partnering should be considered alongside other, more typical solutions.

Partnering opportunities differ, depending on company scale and situation:

Near-Term Capital Need:​ A partnership with a strategic could provide much-needed liquidity, but also potential access to non-financial benefits (a salesforce, distribution channels or a robust supply chain).

Positive alternative to going “on hold”: ​ A technology company putting an exit on hold until valuations stabilize could boost the speed of value recovery by partnering intelligently with the right corporation.

Access to Previously Out of Reach Opportunities: Corporates keen to extend technology capabilities have been reluctant to invest while valuations were sky-high. Now, in return for valuable cash and cooperation, formerly unwilling sellers may consider the right partnering deal.

“Essential” and “non-essential” business partnerships: Working together now could provide a lifeline and generate competitive advantage as we emerge from the crisis.

Partially liquidating non-core assets: ​ Releasing cash through a partial stake sale to a company whose long-term commitment could generate faster value recovery post-Covid-19.

Cost- and resource-saving consortia: Looking at ways to share manufacturing, distribution or property infrastructure—though this might prove complex to execute at speed.

Done thoughtfully and well, such options can provide an antidote to current challenges and create a platform for speedier recovery and growth. Lincoln International is the only global investment bank offering specialist partnering advice from experienced experts. These expert services are offered to all Lincoln’s clients alongside our broader capabilities, including M&A, Debt Advisory, Valuations & Opinions, and Restructuring Services.

Better Together… or Apart? Solutions for Struggling Joint Ventures and Minority Stakes in Portfolio Companies

As the world battles COVID-19 and businesses experience cash constraints, underperforming joint ventures and minority stakes will come under the microscope.

Better Together… or Apart? Solutions for Struggling Joint Ventures and Minority Stakes in Portfolio Companies

May 5, 2020 ​ | ​ Click here to download a printable version of this perspective

As the world battles COVID-19 and businesses experience cash constraints, underperforming joint ventures and minority stakes will come under the microscope. Following evaluation, there are usually two basic options:

Exit the partnership – if the contract and circumstances allow; or

Maintain the partnership, with an agreed plan to address problems and improve profitability.

Other reasons to exit joint ventures or sell minority stakes include:

Partner strategies diverging or markets changing so that the common interest underpinning the original business case no longer exists; or

A joint venture or minority stake – initially acquired as part of a larger acquisition - becoming value-dilutive.

As with divorce, deciding to re-set or exit a joint venture or sell a minority stake is not a step that a wise individual undertakes lightly. Options which align with business objectives must be weighed against what is feasible and most likely to succeed. Non-traditional leverage mechanisms, including those based on culture and environment, can be critical in negotiating an exit or agreeing on a turnaround plan for an underperforming but strategically valuable joint business.

Many corporates are familiar with these challenges; however, they can be equally relevant to private equity firms. Often, portfolio companies have entered joint ventures or bought minority stakes before the PE firm was involved. When planning their exit, PE investors need to keep the following in mind:

Uncontrolled joint ventures can negatively affect valuations. Before selling, seek to take operational control, exit or otherwise change the structure.

Exiting is not easy—the other party will understand your motivation, so they will push for top dollar prices in return for a timely, straightforward deal.

Like neurosurgery, these are delicate processes, requiring quick, accurate diagnosis and a treatment plan unique to the specific situation. For this reason, they equally merit specialist guidance from an expert team.

While some businesses are exploring the dissolution of joint ventures and sale of minority stakes at this time, others are looking to enter new ones. When planned thoughtfully and executed well, the latter can provide an antidote to current challenges and create a platform for speedier recovery and growth, as detailed in last month’s perspective Partnering to Survive Today – and Thrive Tomorrow.

Safeguarding the Smart Grid: Why Partnering Makes Sense for Utilities & Infrastructure and Cybersecurity Companies

While protecting against cyberattacks is top-of-mind for nearly every business, for critical national infrastructure and utilities any failure of defenses means loss of those basic services on which all of us depend at work and at home.

Safeguarding the Smart Grid: Why Partnering Makes Sense for Utilities & Infrastructure and Cybersecurity Companies

May 27, 2020 ​ | ​ Click here to download a printable version of this perspective

The threat of cyberattacks has increased across the globe, with organizations seeing a 67% increase in the last five years. While protecting against cyberattacks is top-of-mind for nearly every business, for critical national infrastructure and utilities any failure of defenses means loss of those basic services on which all of us depend at work and at home.

Historically, high technology sector valuations have deterred many, including infrastructure and utilities companies, from pursuing cybersecurity acquisitions. More affordable for most is some form of partnership, with the infrastructure and utilities company gaining heightened security and the cybersecurity company gaining valuable financing and / or channels to market. Such partnerships can also be structured flexibly, allowing for the fast-moving nature of the cyber market and the threats at hand.

Lincoln Perspective:

Cybersecurity is a very hot topic in utilities and infrastructure: 54% of utility professionals globally across gas, water, solar and wind report they expect at least one cyberattack on critical infrastructure within the next year. However, only 42% rate their cybersecurity readiness as high, indicating an urgent need. As the cost of buy-as-a-service cyber protection contracts escalates, a partnering option can help protect profitability as well as the asset base.

Some common challenges encountered in partnerships:

Quality assurance – Cybersecurity is a complex, dynamic field where expertise is rare and expensive. Any company contemplating a partnership must ensure the cybersecurity partner has the necessary technical expertise and professional capacity.

Retention​ – Retaining cyber talent is extremely challenging, even for the best-known companies, in this highly competitive industry. It is important for partners to ensure they lock in capability and understand what this will cost.

Culture – By their very nature, most top-class cybersecurity firms are entrepreneurial, innovative and dynamic, while many are also relatively small. It is vital to nurture and maintain an environment in which top cybersecurity talent will thrive, and this can be tough in large, compliance-dominated utilities and infrastructure companies which are often state- or semi-state-owned.

Playing to each partner’s strengths​ – Engineers in utilities and infrastructure companies know exactly how their systems and on-the-ground facilities work. Cybersecurity experts understand how hackers think and what to look for to find previously unidentified vulnerabilities. It is this combined experience which can lead to innovative forms of cyber protection.

Ultimately, for those who create a successful partnership, we believe the scope of the joint business could be extended to provide a service to other companies—diversifying and creating a new revenue stream, with potential to spin out or IPO a cyber business at a later date. This, in turn, could make such deals attractive to Private Equity investors.

What is the opportunity for Private Equity?

Investing or co-investing in a cybersecurity partnership in utilities and infrastructure can present PE investors a cost-effective way to obtain a stake in high-growth tech companies alongside a more established, predictable and well-financed utilities or infrastructures player. Whether it be a new three-way partnership or partnering an existing cybersecurity portfolio company with a utility player, the PE house can build a valuable asset without providing a large amount of funding and with built-in supply contracts (e.g. to the utility partner and its affiliates). Cybersecurity is typically a high-growth market, with investments often generating strong returns. While the space remains highly competitive, in the current climate this particular approach could enable PE firms to deploy less capital with less risk and a range of exit options.

Awakening of the Health Care Consumer

Several significant trends in health care consumer behavior have been solidified and accelerated by COVID-19, ensuring they remain relevant long after the pandemic fades—and generating highly attractive and timely opportunities for private equity investors.

Awakening of the Health Care Consumer

May 13, 2020 ​ | ​ Click here to download a printable version of this perspective

Since the beginning of the Information Age, there has been discussion around the importance, emergence, and empowerment of the health care consumer. This has been enabled and driven by rapid acceleration of technology, and scientific and medical advances. Technological advances have created the ability to access, share and store information as well as monitor personal biostatistics about nutrition, activity, ailments, and illnesses through the internet. Scientific and medical innovation has pushed personalized medicine from the future of medical care into a daily reality. These factors have allowed ordinary people to be more proactive, informed and engaged in decisions about their own health. Armed with information, today’s health care consumer is part patient and part medical practitioner; in a sense, the consumer now wears the stethoscope and white coat. While these trends have been in motion for a generation, the present pandemic has accelerated and assured their permanence. Whether turning on the TV or scrolling through social media, people are bombarded by COVID-19 updates everywhere they turn.

In this 24/7 news cycle, health care brands, from biopharmaceutical giant Gilead Sciences to clinical laboratories Quest Diagnostics and LabCorp, have transformed into household names. People are asking more critical questions about their exposure to COVID-19 and are willing to adopt a preventative approach, taking supplements such as probiotics and vitamins to improve their health. With non-essential businesses shuttered, the pharmacy has become an essential resource second only to the grocery store. These are just a few examples of how the pandemic has brought products and services that support healthy living to the forefront of consumers’ minds.

While people suffering from chronic illnesses that require lifestyle changes and disease management products such as diabetes, Inflammatory Bowel Disease, or asthma, have long been more diligent consumers of health care, the global pandemic has motivated otherwise healthy people to become more informed and engaged in their health than ever before. With the World Health Organization, epidemiologists, and local governments pressing the public to improve their health and wellness routines in the fight against COVID-19, a wider range of the populace is now engaged in their health. Essentially, COVID-19 has acted as a uniting force, causing consumers to share information about symptoms, ways to improve their health, and tips to keep the virus at bay.

In short, more consumers are taking their health into their own hands—and engaging digitally with like-minded peers—to improve their holistic well-being. This consumer’s greater engagement in health care is likely to become engrained for the long-term.

Lincoln Perspective:

Several significant trends in health care consumer behavior have been solidified and accelerated by COVID-19, ensuring they remain relevant long after the pandemic fades—and generating highly attractive and timely opportunities for private equity investors. The following trends, based on consumers increasingly taking charge of their own health care, will generate tremendous value creation opportunities over the next several years and beyond.

The Wellness Movement – Companies across industries have long aspired to drive wellness within their employee base, as insurance companies have introduced incentives to companies and employees for progress toward holistic well-being. The definitions of a consumer, participant and patient have merged as even healthy individuals actively manage their personal health. With much of the world staying home to prevent the spread of an infectious disease, more consumers are taking advantage of technological tools that assist them in improving their wellness, including wearables that track physical activity and sleep patterns. Essentially, COVID-19 will increase the size of this “worried well” population, or those who are healthy but actively engaged in their well-being.

The Rise of Preventative Health​ – Patients historically only sought medical help when something was wrong, with the health care system working on a model of offering treatment, not prevention. Today, the system has migrated from sick care to well care, focusing on promoting a healthy lifestyle and regular wellness visits that will help people avoid ailments altogether and spot issues early. In this climate, consumers are relying on products like probiotics, which have seen usage rise a striking 36% according to the Nutrition Business Journal, supplements, home diagnostic tests and OTC medical products to better understand their personal needs that will foster a healthy lifestyle. The importance of the pharmacy, but also the internet, with patient forums, medical information, and the long-tail of specialized products, have been critical for better understanding personal health needs.

Precision Medicine​ – Medical providers are increasingly implementing precision medicine, tailoring care to patients’ personal health needs and making specific recommendations that align with genetic, environmental, and lifestyle factors. Providers understand that the execution of customized preventative measures and treatment plans help avoid catastrophic events and improve the patient’s outcome while easing the burden and cost on the health care system. Consider the trend of consumers ordering, and self-paying for, home DNA tests, which can reveal genetic risk factors and help inform clinical monitoring, preventative surgery, and treatment plans. The power of the consumer will help push evolving regulatory trends and corporate strategies to allow for more in-home, patient-centric medical care and access. The willingness of knowledgeable patients to proactively gather their biostatistical data as well as self-pay for select medical products and participate in clinical trials comes at a time when companies are striving for patient-centric solutions and accessing the patient in the home or workplace.

Peer-Influenced Health Care – People are increasingly harnessing their own decision-making power and turning to peers, influencers, and advocacy groups as they look to make health choices for themselves. Because consumers are relying less on their clinical advice and making more health care decisions based on peers (whether through patient registries, disease state advocacy groups or online forums), it is more important than ever for companies to market directly to patients. Direct-to-consumer startups are often outpacing well-established players by harnessing the power of influencers, testimonials, and reviews. Creating a consumer facing brand is a real value lever that companies can pull to accelerate mind share and market share.

Many of the above trends were already in motion, but companies were shifting at a measured pace alongside the market in general. The solidification of these trends and the consolidators looking to accelerate strategies through acquisition will highlight the demand for scarce and novel platforms that are effectively filling their sails with these now enhanced tailwinds. Many established private and private equity owned businesses have the potential to adapt their current business models to benefit from the push into patient-centric, engaged-consumer models. The current pandemic is permanently increasing consumers’ engagement in their own health, creating sustainable opportunities for investment in health products and service brands that capitalize on these increasingly indelible trends.

Sectors to Watch – CROs, eClinical, clinical trial logistics, home health, pharmacies, hub services, supplement/probiotic brands, supplement manufacturing, CDMOs, OTC pharmaceuticals and medical products, DTC lab testing, wearables, medical supplies

E-commerce and the Compression of Retail Disruption

E-commerce went from being the disruptor shopping channel to, for many product categories, the only available option leading to increased adoption and more frequent use.

E-commerce and the Compression of Retail Disruption

May 14, 2020 ​ | ​ Click here to download a printable version of this perspective

In recent years, the consumer shopping experience was already experiencing rapid upheaval with e-commerce growing from 6.5% of total retail sales in 2014 to 11.0% in 2019(1); COVID-19 only accelerated the disruption traditional brick and mortar retail was feeling. Businesses are shuttered and employees are working from home, while people are following social distancing and shelter in place guidelines nationwide. E-commerce went from being the disruptor shopping channel to, for many product categories, the only available option leading to increased adoption and more frequent use. While the current crisis is temporary, the effects on consumer shopping habits will be long-lasting.

E-commerce has proven to be a resilient sales channel, often growing despite declines in broader retail sales and even through periods of economic softness. The current crisis highlights this theme: while U.S. Q1 retail sales data is not yet final, e-commerce sales are expected to increase meaningfully, driven by categories such as online grocery (100% sales growth since the start of March(2)) and home products (Wayfair for example has seen its growth rate double as more consumers invest in home offices). Meanwhile, brick and mortar sales are expected to plummet, as evidenced by a 60% reduction in foot traffic in March(3). The convenience of e-commerce has never been questioned, but now we must recognize its criticality in a time of crisis. The business model and infrastructure are exceptionally well situated to handle market and environmental disruption.

The Online Social Experiment

Customer acquisition and retention has always been the biggest hurdle for the adoption of e-commerce, and the most expensive part of the equation for all direct-to-consumer platforms. In return though, once consumers have been “retrained”, there is tremendous purchasing behavior momentum. In today’s shelter-at-home and online world, an interesting social and economic experiment is taking place. Massive shifts in consumer purchasing behavior that would have occurred over many years have now taken place in weeks. Consumers, many of whom are new to online shopping, are relying on e-commerce for the purchase of goods and food, almost to the exclusion of the brick and mortar channel. Take online purchases of alcohol: in the first week of April, e-commerce alcohol sales through platforms like Instacart and Drizzly grew 441% year-over-year, dwarfing total alcohol sales which grew 26.2%(5). Many of these purchases are by new customers – Drizzly in particular has seen new customers grow to 33% of overall sales(6). The net outcome is that any historical reluctance to buy online has gone to the wayside and ecommerce will be incorporated into normal shopping behavior go forward.

Lincoln Perspective:

E-commerce businesses will benefit immensely from a lasting influx of customers as a result of newly learned shopping behaviors; those with a future liquidity event in mind should measure and quantify retention of new customers to illustrate the magnitude of the benefit and the “stickiness” of their platform.

Heightened Importance of an Efficient Supply Chain

Those looking to benefit from the robust e-commerce tailwinds should consider the challenges faced even by strong online platforms during this crisis. Maintaining an efficient supply chain is critical in normal times. In the current environment, this became the single greatest bottleneck for many e-commerce businesses. Consider that many companies rely on Chinese suppliers for their primary source of supply, and that many companies were already experiencing production slow downs due to the Chinese New Year. That typical holiday respite extended well beyond expectation once factories were closed as part of China’s pandemic response. Geographic concentration of suppliers is not a new issue; the recent tariff wars caused concerns but were not painful enough to force many companies to increase supplier diversification. Going forward, companies looking to best position themselves for continued operational success and an eventual liquidity event should invest in supply chain diversification to avoid future region-specific challenges.

Further underlining the importance of a strong supply chain and infrastructure (ie, fulfillment, distribution, shipping and logistics) is the accelerated adoption of e-commerce and the “stickiness” of those customers. Winning e-commerce businesses in the recovered economy will be able to support what is anticipated to be a permanent increase in online sales. For companies lacking the necessary infrastructure and resources, it will be critical to prioritize this investment as demonstrated by hiring surges from Amazon (175,000 new hires), Instacart (300,000 new hires) and Walmart (200,000 new hires). In all cases, the inability to meet demand is a problem. Zeroing in on the many business selling on Amazon however can be crippling. If a product goes out of stock on the platform, Amazon’s algorithm demotes the product and removes sponsored ads, causing plummeting visibility and creating a long, challenging road to recover the previous sales rank.

Lincoln Perspective:

The best positioned e-commerce businesses will view their supply chain as both a key strength and a growth opportunity; investment must continually be made to ensure minimal disruption even in challenging times, and to fully capitalize on the growth driving the category.

Spotlight: Amazon

As Amazon makes up 39% of U.S. online sales, so too will we devote 39% of this article to the 800-pound gorilla. Companies evaluating e-commerce marketplaces consistently choose Amazon as it continues to present a huge opportunity for sellers with its well-invested infrastructure and volume of shoppers. Additionally, Amazon’s FBA service provides significant leverage to small business and eliminates the logistical headache of fulfillment. However, Amazon also poses a threat to sellers that must be weighed. Educated sellers are well aware of the risks: it enforces punitive inventory policies described above; it has been long rumored and now recently validated that Amazon gathers and leverages what was thought to be proprietary seller data to improve sales of its private label products. Now the marketplace’s recent unilateral actions around sales of essential and non-essential goods highlight one more reason to be wary of the marketplace. Though well-intentioned, sellers of products deemed non-essential lost fulfillment support and experienced near total elimination of sales on the platform. This only emphasizes the importance of partnering with multiple marketplaces to avoid the total loss of e-commerce sales in the event of a similar action.

Lincoln Perspective:

Amazon’s industry-leading logistics, distribution and fulfillment network and unmatched audience make it impossible to ignore, but it is becoming increasingly impractical to rely solely on Amazon.

Implications for M&A

Well-capitalized buyers are looking to accelerate their recovery and invest in recession resistant business models. E-commerce businesses able to thoughtfully articulate a strategy to capitalize on bolstered secular trends in the online economy will achieve premium outcomes, unencumbered by the impact of reduced valuations across other sectors.

For e-commerce businesses eying a future sale, investing in the supply chain infrastructure should be considered a defensive and offensive priority. This will position the business for stronger operational performance in downturns while enabling greater capture of the sales opportunity driven by e-commerce tailwinds. Strategic investments in the supply chain today will be rewarded with strong interest from buyers and meaningful value creation in a future sale process.

Sources: (1) Federal Reserve Bank of St. Louis | (2) Digital | Commerce 360 | (3) Coresight Research | (4) SIGNIFY’D | (5) Nielsen | (6) CNN | (7) Freightos.com

Aerospace & Defense Trends Amidst Turbulent COVID-19 Period

COVID-19 has rapidly altered the public commercial aerospace market to an even greater degree than the 2008 Great Recession or 2003 SARS epidemic, and significantly impacted the supply network of private aerospace businesses and the ability to invest in these companies due to the uncertainty of returning to a period of sustained normalcy.

Aerospace & Defense Trends Amidst Turbulent COVID-19 Period

April 6, 2020 ​ | ​ Click here to download a printable version of this perspective

As commercial airlines have made significant cuts to their capacity due to global travel restrictions and demand reductions, coupled with facility shutdowns of OEMs and major suppliers, the commercial aerospace industry is experiencing an unprecedented disruption to the system. COVID-19 has rapidly altered the public commercial aerospace market to an even greater degree than the 2008 Great Recession or 2003 SARS epidemic, and significantly impacted the supply network of private aerospace businesses and the ability to invest in these companies due to the uncertainty of returning to a period of sustained normalcy.

Commercial Aerospace: Historial Crisis Performance

1) Commercial Aerospace Index includes AAR, Airbus, Boeing, HEICO, Safran and Triumph. Each time series has been indexed at the share price as of the first trading day during the initial year of each crisis, and compares share price fluctuations through the end of the following year.

Below, we provide perspectives on questions that are top of mind for aerospace & defense investors, as they seek to navigate a market of unparalleled complexity in terms of their ability to put money to work. We will continue to provide updated information and insights as the situation evolves.

Question: What are the key developments and milestones towards a U.S. recovery to look out for in the 2nd Quarter?

A peak in COVID-19 cases and a declining rate of new infections, such that the business community and general public can be comfortable with the beginning of a recovery in epidemiological terms. While the passing of the COVID-19 apex is not likely to be followed by a rapid recovery in domestic travel, it is certainly a key prerequisite to the resumption of travel at a muted pace. China, for example, had flattened the curve and lifted travel restrictions nearly two months after the initial quarantine restrictions were put in place. This was followed by a pronounced pickup in domestic travel and, most recently, the cautious lifting of lockdown restrictions. While the situation across Asia continues to evolve, the travel response following the flattening of the curve was a positive data point.

In accordance with the above, a declining window of potential shutdowns and facility disruptions, both voluntary (e.g., Airbus and Boeing) and involuntary. While most aerospace & defense companies continue to operate as essential businesses, suppliers are adjusting to shelter-at-home orders and brace for potential COVID-19 diagnoses causing disruption at one of their facilities.

The impact of the government stimulus package working its way through the aerospace industry, increasing liquidity. This includes the $80+ billion earmarked for aerospace, as well as the broader $350 billion SBA support program. ​ A key consideration will be whether – following the additional SBA guidance on April 3 – there are further updates to the implementation of affiliation rules that could allow for private equity portfolio companies to participate. Over the 2nd quarter, we expect increasing visibility on what companies’ liquidity needs actually are, both in the public and private sector. ​

Increased clarity on the extent and duration of any reductions to commercial aerospace build / delivery rates over the coming months and years. On the other hand, a potential return to production of the MAX in the coming months would provide a key growth catalyst for the industry and provide incremental liquidity to weather the COVID-19 disruption. Certain suppliers have already leaned out their cost structure as a result of the MAX grounding in 2019 and, in doing so, inadvertently positioned themselves to handle a disruption of this magnitude.

Question: What aerospace & defense deals are happening now and in the near-term within this unique environment?

In general, many traditional auction processes are largely on-hold; however, certain active processes and pockets of opportunities remain and will continue to move forward in Q2:

  • One-off, proprietary discussions between motivated buyers - particularly where the buyer can fund all cash or otherwise does not require new LBO financing - and privately-owned businesses in search of a partner for growth, and private equity-owned “A” assets
  • Defense, space, and government services-oriented businesses, which are less affected by the dislocation of the commercial aerospace market
  • Processes whereby the seller / advisor are guiding towards a prolonged bid date to allow for a longer evaluation period (virtual, no in person meetings), more market visibility and the return of LBO financing
  • Minority equity, debt, structured capital and potentially control transactions to support the liquidity needs of suppliers requiring a solution beyond operational initiatives and the stimulus noted above. ​ Significant capital has been raised by alternative investors for these strategies over the past few years.

In Q2, depending on the state of financing markets, corporate balance sheets and the progression of the COVID-19 curve, we may see launches of a select few aerospace & defense auction processes, generally starting with businesses that have proven their resilience through the disruption and resultant strength in their 2020 forecast, and where their most logical buyers are also in a better position to execute a deal. In conjunction with this wave, we may see the restart of certain processes that went on hold in March.

When the broader M&A market window returns, we expect a wave of new processes given the pent up supply of new deals that had completed preparation and that otherwise would have launched in 1H 2020.

Industrial Technology Leaders are Likely Buyers for First Wave of Post-Pandemic Industrials M&A

The COVID-19 pandemic has already brought significant changes to the deal-making landscape. While regular-way deal activity has ground to a halt, strategic Industrial Technology buyers largely remain “open” and accessible.

Industrial Technology Leaders are Likely Buyers for First Wave of Post-Pandemic Industrials M&A

May 11, 2020 ​ | ​ Click here to download a printable version of this perspective

The COVID-19 pandemic has already brought significant changes to the deal-making landscape. While regular-way deal activity has ground to a halt, strategic Industrial Technology buyers largely remain “open” and accessible.

For private equity investors and private companies eager to reach potential buyers for a mid- or post-pandemic sale, the current climate presents an opportunity to lay the groundwork for a deal or make a connection for a future discussion.

Here are some insights on how Industrial Technology corporates are currently managing COVID-19 and approaching M&A:

Operations Challenged by COVID-19, Demand Forecasts

Corporates are in a similar position to private equity firms and private companies when it comes to their operations during this time. As the pandemic has impacted supply chains and reduced demand, operators are heads down on their businesses, managing the health crisis on their factory floors to protect employees and implementing cost reduction plans.

While most businesses have been deemed essential, some corporates are questioning whether they truly want to be. With the ability to stay open, they are producing. But—save for much-needed supplies for safety, treatment and testing—questions remain surrounding demand conditions in the latter half of 2020. With many plants still open, there may be a growing supply-demand imbalance on the horizon. April ISM Manufacturing Index data shows contraction, but the drop-off was less than anticipated. Corporates expect reverberations from COVID-19 to be felt at least through end of year.

Now’s the Time to Lay the Groundwork for M&A

With the spread of COVID-19, corporate development teams’ actionable opportunities have slowed significantly despite strong cash positions and considerable flexibility. Although stock prices, trading multiples and cash balances remain historically favorable, challenges impeding progress include difficulty ensuring C-suite support and the optics of spending capital on an acquisition while reducing headcount.While few corporate development teams are proactively calling targets, many have time on their hands and thus are open to inbound conversations and investment opportunities, particularly those aligned with long-term strategic priorities. These teams are finding ways to be proactive and pragmatic to build relationships and buy now—or tee up deals for once the external environment improves.Key questions remain around post-COVID-19 EBITDA adjustments and valuation multiples. Will this be viewed as a lost quarter that can be thrown out, or will there be a more granular look at the adjustments? We expect that growth-focused strategics will likely take a market-based, yet longer-term view for high quality private equity-owned and privately held businesses.

The Lincoln “Industrials 301” stock price index is down 19% YTD2...

...EBITDA trading multiples are off 2+ turns, but remain in double digits...

...and liquidity remains strong3

~$18.5 billion

Aggregate cash and cash equivalents

1 | Companies in the index include: 3M, AMETEK, Barnes, Carlisle, Caterpillar, Colfax, Columbus McKinnon, Deere, Donaldson, Dover, Eaton, Emerson, Flowserve, Fortive, General Electric, Honeywell, Hubbell, IDEX, Illinois Tool Works, Ingersoll Rand, ITT, Littelfuse, Nordson, Parker-Hannifin, Pentair, Rexnord, Rockwell Automation, Sensata, Stanley Black & Decker and Textron

2 | Index calculated on market value-weighted basis

3 | Total dollar value represents the sum of cash and cash equivalents across every Lincoln Industrials 30 company; the latest available data for each constituent was used in the calculation

Lincoln Perspective:

When Industrials deal making activity picks up again, we expect the first wave of post-COVID M&A to look very different from M&A in 2018 and 2019. The first wave of Industrial Technology M&A will be driven by well-capitalized corporate buyers and private equity backed strategics.

In the current environment, those looking to sell can plant the seeds for future relationships by building relationships with the best potential buyers now. By investing the time today, PE investors and private companies can improve their likelihood of a strong business outcome either now or down the line.

Here is what else we expect:

Talking to (or “Zooming”) strategics now will pay off: Private equity and private companies looking to sell have an opportunity today to take advantage of corporate development availability in order to either a) transact in a highly strategic manner near term, or b) introduce the business, develop a relationship with corporate decision makers and tee up a deal for 2021.

Sale processes will be targeted: Broad auctions will not be a fixture in this first wave of renewed Industrials M&A activity. The sale process will be more focused, thoughtful and targeted with pursuit of selected strategic-oriented buyers.

First-rate companies will sell for first-rate prices: Just as we saw following the Great Recession, we expect that – despite market dislocation -- the market will speak. ‘A’ businesses – including those that exhibit market leadership, have a favorable cost-of-product to cost-of-failure ratio, provide a solution customers need, earn a margin commensurate with the value provided and exhibit growth as a result – will always trade for ‘A’ multiples.

Logical, not transformational M&A: With lower risk tolerance, transformational acquisitions will see enhanced scrutiny. Corporates will be more likely to pursue logical add-ons in order to broaden product sets, expand customer relationships or access complementary geographies.

What is more, we are starting to see industrial technology corporates and private equity-backed strategics “create” sellers out of sidelined firms—both by working to preempt recent engagements and by working their hit list of targets.

Outlook of COVID-19 Impact on Global Medtech M&A / Business Development

Business development sentiment coming into 2020 was extraordinarily strong, so even in light of COVID-19, assuming we do not experience a second significant lockdown, we see activity returning to above average levels in 2021.

Outlook of COVID-19 Impact on Global Medtech M&A / Business Development

April 29, 2020 ​ | ​ Click here to download a printable version of this perspective

The Current Environment - Commentary

COVID-19 is delivering a true one-two punch to the economy. The first punch stunned global markets with a complete shut-down of activity, but coming out of March (Asia) and April (N. America and Europe) we are seeing the first signs of a return to consciousness, albeit with waning optimism for a V-shaped recovery. Now comes the second punch, which brings a constrained level of economic activity along with real uncertainty around how lasting the effects will be.

Through our survey and accompanying discussions with global representatives from large med tech strategics, executives of medical device outsourcing firms, and senior partners of active private equity firms in the medical technology sector, there are some clear areas of general consensus, but to be expected pockets of differing views based upon one’s exposure to the cascading events triggered by the virus. Providers of respiratory products, ICU equipment, COVID-19 related Dx testing, telehealth and chronic disease management products have been more insulated, and many have flourished. In contrast, companies with greater exposure to elective surgery products (a debatable definition) have been more negatively impacted, with initial signs only in the past week or two that procedure volumes are beginning to pick-up. ​ Although we are just at the beginning of Q1 earnings announcements, this contrasting impact has been clearly demonstrated in the stock price performance of several publicly traded companies shown in the graphs to the right.

COVID-19 / Chronic Disease Related

Elective Surgery Related

Share price performance measured from S&P record high date of February 19, 2020 through U.S. market closing April 27, 2020

Encouragingly, the market expects to see a significant rise in procedure volumes in the coming weeks, driven by lockdown easing, patients’ healthcare needs and care providers’ eagerness to experience relief from substantial lost earnings. OEMs and MDOs are collaborating closely to ensure supply chains are healthy and prepared to meet the increase in demand. The reality is that while certain medical device categories are struggling to keep up with demand, significant inventory has been built up in many other categories. After the initial increase in procedure volumes, the question will be: in the near-term do volumes return to pre-COVID levels and do we witness a return to growth, or do volumes settle into a steady state at lower levels for some time due to residual economic and COVID-driven living conditions? The ramp back to a more normalized healthcare environment will dictate the ramp in business development activity, but no surprise we have already seen a precipitous decline globally, as shown in the graph below.

2020 vs. 2019 YTD Global MedTech M&A Activity

Source: Capital IQ, Mergermarket, Pitchbook and company press releases

Lincoln Perspective

As was suggested in responses to question 3 in our survey (pre COVID-19 expected deal activity), 2020 expectations were high, and through February global deal volume was up nearly 13% yr/yr (44 vs 39 deals), and if trends were to continue, March would likely have performed similarly. Instead we saw an approximate 77% and 46% yr/yr decline in activity in March and April, respectively (with a few days left in April to reduce the decline). With regards to the impact and consequences to business development activity going forward, below are some of our initial takeaways and perspectives:

Business development sentiment coming into 2020 was extraordinarily strong, so even in light of COVID-19, assuming we do not experience a second significant lockdown, we see activity returning to above average levels in 2021

COVID-19 has illuminated weaknesses and opportunities, and for many companies we anticipate a thorough review of overall business development strategies and instances of pivots; for instance, (i) companies weighted/concentrated in elective procedures may look to diversify through the pick-up of chronic condition products or telehealth platforms; (ii) manufacturing supply chains may see increased reshoring or near-shoring to ensure local demand needs are met; and (iii) global market diversification may make geography an even more important factor in business development decisions leading to a broadened buyer and target universe for many sellers and buyers

Healthcare and medical technology business development activity will return more rapidly towards pre-COVID-19 levels vs. other industries Lincoln covers, with PE (already active), MDO and then OEM coming back online in that order

Interestingly, PE demand remains high; however, supply of deals has declined as sellers steady their businesses and reassess market timing

Even when business development activity picks up, valuation gaps between buyers and sellers will contribute to suppressing activity through the remainder of the year – with the tightening credit markets being the largest contributing factor

Relative to historical numbers, a small number of acquisitions will be announced in the coming months, but with the large majority having already been engaged pre-COVID-19. Until travel restrictions (which are limiting on-site diligence, management team meetings, case observations, etc.) are lifted, we see new deal activity remaining suppressed

Sellers most likely to be acquired by an OEM should look to the public markets and public communications for which types of organizations are faring the best in the recovery as an indicator for when relevant target buyers will be likely to engage

From a timing standpoint, the majority of respondents were split fairly evenly between business development activity returning to normal levels between 4-6, and 7-12 months; at the earliest this suggests late summer (Aug), with a mid-point at year-end

Related to timing around launching a process, the majority of respondents suggested to prepare and launch after the first real evidence of the COVID-19 crisis subsiding, with the second most respondents suggesting to wait until there is clarity around a second wave – unsurprisingly, COVID-19 related medical milestones will be the largest influencer in the ongoing sentiment related to this question over the summer, stay tuned…

We want to thank all of the respondents for their participation and contributions to the survey, and hope everyone is staying safe. Furthermore, we hope this data is informative as we all look to come back online in person and return to a more normalized ecosystem within the medical technology community.

Global Survey Participation

  • Lincoln International conducted an online survey regarding the impact of COVID-19 upon business development and M&A activity
  • Between April 9 and April 21, 2020 Lincoln canvassed over 300 individuals globally within the medtech community active in business development / M&A
  • Strong global participation across medtech original equipment manufacturers (OEMs), medical device outsourcing companies (MDOs) and private equity firms with a meaningful focus on the medtech sector (PE)

Q1

What type of organization do you represent?

Q2

In which geography are you located?

No Surprise, COVID-19 Will Have a Negative Impact on 2020, but MedTech is Not Closed for Business

  • Pre-COVID, respondents expected a strong year for M&A and business development, with 78% anticipating very high or high activity, and no respondents expecting below average activity
  • Post-COVID, that figure has dropped to 32%, with an additional 2 in 5 respondents anticipating below average or low activity in this post-COVID climate

Q3

Pre Covid-19, how active would you rate your expected medical technology business development activity was going to be in 2020 (e.g. M&A, investments, partnerships, etc.)?

  • MDOs (87%) and PE (85%) expected greater than average 2020 activity relative to OEMs (70%)
  • European respondents (93%) expected greater than average 2020 activity relative to respondents in North America (75%) and Asia (70%)

Q4

Post Covid-19, how active would you rate your expected medical technology business development activity will be for the remainder of 2020?

  • Post-COVID-19, response by organization type has meaningfully shifted - PE have the highest 2020 expectations (58% Average to Very High), followed by OEMs (57%) and MDOs (47%)
  • European respondents continue to have the highest expectations (67% Average to Very High), with Asian respondents next (60%), followed by respondents in North America with the lowest expectations (51%)

In-Progress Deals Expected to Get Done; Mixed Views on New Activity

  • Approximately two-thirds of respondents expect either i) no change, or ii) near-term re-engagement, on “in-process” deals, while just 1% said “in-process” deals are on hold and uncertain to resume
  • However, while 44% of respondents report they are active and prepared to do new deals, more than half expect new deals in 2020 to be the exception or they are unlikely, and in some cases unwilling, to submit indications of interest

Q5

Which of the following best describes the status of your in-process medical technology business development and acquisition activities?

Most common response by organization:

  • OEMs “no change” (41%)
  • PE “temporary pause” (46%)
  • MDOs “reengage once normal business resumes” (53%)

Most common response by geography:

  • North America “reengage once normal business resumes” (39%)
  • Europe “no change” (47%)
  • Asia “temporary pause” (40%)

Q6

Which of the following best describes the status of your organization engaging in new medical technology business development and acquisition activities in the near-term?

  • PE respondents appear to be most prepared to do new deals in the near-term (58%), followed by MDOs (40%) and OEMs (35%)
  • The most common response by European (53%) and North American (43%) respondents was “active and prepared to do new deals”, while for Asian respondents (40%) it was “active, but will be on an exception basis”

Advise Launching Sale Processes Once Market Stabilizes

  • 78% recommend high quality medtech companies launch a process either upon material signs of a recovery (47%) or once the risk of a broad second wave has passed (31%)
  • ~70% predict business development activities will return to normal levels between 4-12 months (Aug at the earliest and Dec at the midpoint)

Q7

If you were in the board room of a high-quality medical technology company, what advice would you give about launching a process?

  • MDO respondents were most likely to recommend launching a process upon signs of a recovery (60%), while OEM respondents were most likely to recommend waiting for a longer period of time (49% recommended waiting until risk of second wave subsides or until 2021); PE respondents fell in between
  • Asian respondents were most likely to recommend launching a process upon initial signs of a recovery (70%), while North American respondents were most likely to recommend waiting for a longer period of time (51% recommend waiting until risk of second wave subsides or until 2021); European respondents fell in between

Q8

What is your prediction for when business development activities will return to normal levels across the medical technology industry?

  • Responses for all three groups were fairly consistent, with a slightly more optimistic view of the market returning in the 4-6 month time period by MDO and PE vs. OEMs which were relatively more weighted more towards 7-12 months
  • Geographically, there was minimal difference in views on when business development activity will return to normal

Amid Majority Expectations of a U-Shaped Recovery, Medtech Valuations Expected to Fall ~20%

  • 51% of respondents expect a U-shaped recovery, with the remainder of respondents relatively evenly distributed among a V-shaped, W-shaped and L-shaped recovery
  • On average, respondents expect valuations 1 year from now to be 19% below pre-COVID levels, with responses ranging from a 0% reduction to a 50% reduction

Q9

What is your expectation for the type of recovery ahead?

  • While a U-shaped recovery was the highest percentage response across organization type, MDOs appeared to be most optimistic (80% V- or U-shaped), while PE had the lowest expectation of a V (12%) and highest expectation of an L (19%); OEMs and PE each had a total of 35% of respondents split between W- and L-shaped recoveries.
  • 59% of North American and 60% of Asian respondents expect a U-shaped recovery and in total 76% (North America) and 80% (Asia) expect either a V- or U-shaped recovery; in contrast, only 20% of European respondents expect a U-shaped recovery and 67% expect either a W- or L-shaped recovery.

Q10

If valuations for acquisition targets were 100% pre-COVID-19, where do you believe valuations will be 1 year from now?

  • On average, PE respondents are slightly more optimistic, expecting valuations 1 year from now to be only 17% below pre-COVID levels, while OEM and MDO respondents expect valuations to be down 20%.
  • On average, European respondents expect valuations 1 year from now to be 16% below pre-COVID levels, with North American respondents next (down 20%), followed by Asian respondents (down 21%).

Looking to 2021, Assuming COVID-19 Crisis Subsides, Anticipate High Volume of M&A Activity to Resume

  • While the outlook for 2021 is significantly below respondents’ pre-COVID 2020 deal activity expectations, 53% expect high or very high levels of M&A activity in 2021, with another 36% expecting average levels

Q11

Pre Covid-19, how active would you rate your expected medical technology business development activity was going to be in 2020 (e.g. M&A, investments, partnerships, etc.)?

  • MDO respondents expect the highest level of activity (60% high or very high, with no below average responses), followed by OEMs (55% high or very high, 35% average); PE respondents were least optimistic (46% high or very high, with 20% anticipating below average or low activity).
  • European respondents expect the highest level of activity (60% high or very high, 33% average), followed by North American respondents (53% high or very high, 35% average); Asian respondents were least optimistic (40% high or very high, with 20% anticipating low activity).

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

The COVID-19 pandemic will cause organizations across all sectors of the economy to reevaluate their strategies as it relates to the degree of investment in human capital technology adoption and timelines. ​

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020 ​ | ​ Click here to download a printable version of this perspective

Over the last decade, organizations around the world have debated the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. Focus was put on transitioning to remote work while ensuring employees remained engaged. Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of some parts of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch. The sheer speed and scale of these changes has been especially challenging as instead of having the luxury of small scale test runs with time and resources to perfect, management teams are upgrading across divisions and geographies concurrently, amidst daily changes in government guidelines across every jurisdiction in which they operate.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the continued adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020

Over the last decade, organizations around the world have debated ​ ​ the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. ​ During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. ​ Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. ​ Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. ​ Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. ​ Focus was put on transitioning to remote work while ensuring employees remained engaged. ​ Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. ​ These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. ​ Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. ​ Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. ​ Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. ​ Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. ​ Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. ​ In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. ​ Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. ​ The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. ​ However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. ​ Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. ​ A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. ​ Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020

Over the last decade, organizations around the world have debated ​ ​ the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. ​ During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. ​ Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. ​ Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. ​ Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. ​ Focus was put on transitioning to remote work while ensuring employees remained engaged. ​ Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. ​ These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. ​ Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. ​ Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. ​ Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. ​ Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. ​ Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. ​ In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. ​ Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. ​ The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. ​ However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. ​ Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. ​ A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. ​ Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020

Over the last decade, organizations around the world have debated ​ ​ the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. ​ During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. ​ Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. ​ Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. ​ Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. ​ Focus was put on transitioning to remote work while ensuring employees remained engaged. ​ Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. ​ These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. ​ Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. ​ Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. ​ Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. ​ Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. ​ Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. ​ In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. ​ Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. ​ The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. ​ However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. ​ Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. ​ A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. ​ Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

Anticipated Investment in Human Capital Technology to Drive Innovation and M&A

As anyone that has attended the HR Tech conference over the last few years can attest to, the amount of investment money that has flowed from growth equity and venture capital firms into technology and software businesses focused on the human capital sector has risen dramatically. Advances in emerging technologies such as artificial intelligence and machine learning and utilization of big data and sentiment analysis are allowing organizations to better understand employee experiences and perspectives. Adoption of social media, mobile and other networking and collaboration tools have been at the forefront of deploying relevant, dynamic methods of connecting with employees. These organizational trends have permitted considerable innovation and attracted an influx of capital not seen in the sector before.

The COVID-19 pandemic will cause organizations across all sectors of the economy to reevaluate their strategies as it relates to the degree of investment in human capital technology adoption and timelines. While there are several global players with scale that dominate the headlines, the HR technology landscape is comprised of private point solution providers that stand to capitalize on these sector tailwinds. Knowledgeable technology investors with an interest in the sector will be able to identify attractive opportunities and look to partner to drive innovation and growth as the human capital landscape continues to shift.

Anticipated Investment in Human Capital Technology to Drive Innovation and M&A

Source: Sierra-Cedar

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020

Over the last decade, organizations around the world have debated ​ ​ the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. ​ During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. ​ Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. ​ Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. ​ Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. ​ Focus was put on transitioning to remote work while ensuring employees remained engaged. ​ Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. ​ These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. ​ Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. ​ Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. ​ Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. ​ Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. ​ Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. ​ In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. ​ Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. ​ The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. ​ However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. ​ Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. ​ A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. ​ Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020

Over the last decade, organizations around the world have debated ​ ​ the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. ​ During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. ​ Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. ​ Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. ​ Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. ​ Focus was put on transitioning to remote work while ensuring employees remained engaged. ​ Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. ​ These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. ​ Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. ​ Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. ​ Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. ​ Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. ​ Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. ​ In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. ​ Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. ​ The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. ​ However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. ​ Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. ​ A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. ​ Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020

Over the last decade, organizations around the world have debated ​ ​ the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. ​ During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. ​ Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. ​ Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. ​ Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. ​ Focus was put on transitioning to remote work while ensuring employees remained engaged. ​ Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. ​ These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. ​ Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. ​ Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. ​ Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. ​ Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. ​ Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. ​ In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. ​ Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. ​ The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. ​ However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. ​ Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. ​ A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. ​ Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020

Over the last decade, organizations around the world have debated ​ ​ the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. ​ During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. ​ Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. ​ Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. ​ Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. ​ Focus was put on transitioning to remote work while ensuring employees remained engaged. ​ Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. ​ These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. ​ Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. ​ Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. ​ Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. ​ Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. ​ Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. ​ In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. ​ Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. ​ The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. ​ However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. ​ Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. ​ A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. ​ Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020

Over the last decade, organizations around the world have debated ​ ​ the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. ​ During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. ​ Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. ​ Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. ​ Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. ​ Focus was put on transitioning to remote work while ensuring employees remained engaged. ​ Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. ​ These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. ​ Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. ​ Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. ​ Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. ​ Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. ​ Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. ​ In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. ​ Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. ​ The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. ​ However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. ​ Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. ​ A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. ​ Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

Seven Software M&A Takeaways for Life After COVID-19

Much as we see pent-up demand for other products and services that have been unavailable for a lengthy period of time, we anticipate the dearth of M&A activity today will drive a substantial increase in demand for new investments.

Seven Software M&A Takeaways for Life After COVID-19

May 8, 2020 ​ | ​ Click here to download a printable version of this perspective

As technology investors consider where to be active amidst the COVID-19 crisis and the months that will hopefully follow later this year, we are increasingly being asked what “the market” will look for in new investments. Given the amount of scrutiny that we expect to be placed on business performance through and immediately following the C-19 crisis, we wanted to share thoughts around the business profile and attributes that will resonate most loudly with potential buyers as we eventually enter our “new normal.”

Observations and Recommendations of Crisis Period Business Actions and Performance

The seven items listed below can serve as loose guides to rally your teams around common goals that will not only serve you well through the crisis but will also provide future benefits as you position your business for a potential sale or capital event in the months post-crisis.

Recognize the Growing Distinction Between "Must-Have" and "Nice-to-Have" Solutions

As customers have instinctively frozen or severely tightened budgets in response to the crisis, we have already seen the early days/weeks of a slowdown in new software purchases. Solutions that drive business performance and have a discernible return-on-investment (“ROI”) are still able to close new business while others are struggling. An increased focus on ROI-driven messaging can accelerate sales velocity in an otherwise difficult selling environment. If not already a key element of your sales process, endeavor to quantify the critical elements of your value proposition, embed them into your sales and marketing materials and use your sales team to convey the message to your clients.

Renew Your Focus on Customer Success and Retention

Customer retention and the resulting contribution to recurring revenue and cash flow are of utmost value to software businesses in any environment. In a crisis environment, protecting that cash-producing asset becomes absolutely critical. Not only does maintaining or improving retention protect immediate-term cash flow, but it also reinforces the must-have nature of a company’s product offering. A focus on increasing usage, rapidly responding to help inquiries and maintaining flexibility on contract and payment terms will accentuate the value of your solution and drive loyalty. As the crisis abates, investors will understand why new client acquisition will have slowed for a period, but your ability to maintain or improve client retention will demonstrate better than almost any other metric why your solution is essential to your clients.

Maximize the Value of Your Existing Base

In a period when landing contracts with new clients is extremely challenging, the ability to cross-sell or upsell to an existing customer base that already trusts your business as a partner can offset shortfalls elsewhere. Happy customers that already know you and are actively using your solution can and should be much easier to sell additional functionality and/or additional users. While you may need to tread lightly to avoid the perception that you are overly aggressive, now is the time to nurture those relationships and be vigilant in recognizing and seizing opportunities to sell additional products or functionality. Along with gross client retention, your ability to demonstrate positive net retention metrics will validate a “land and expand” strategy and reinforce the “must-have” nature of your solution better than almost any other metric.

Be a Partner to Clients Through the Crisis – It Will Pay Dividends Later

A far-ranging group of providers have made their solutions available for free for a period to help both existing customers and prospects manage their businesses and/or serve their clients effectively through the challenges of quarantines and stay-at-home orders. Businesses that really deliver value to these “trial” customers, both through their products and their services, should convert a healthy percentage of those accounts to paid subscriptions in the next budget cycle. While used by many successful companies (e.g., Slack or Spotify) well before the C-19 crisis, this “product-led” strategy will demonstrate the power of your software and serve as a highly effective lead generation device at a time when your potential clients are struggling to justify additional expenditures.

Manage Cash Carefully

As the old saying goes, get cash when you can, not when you need it – other strategies will be costly. Balance the need to take care of your customers with the need to preserve and manage your own cash needs and avoid having to go in search for cash at a time when it will cost more than it has in over a decade. Not only do you avoid problems during the crisis, but you will maintain greater strategic flexibility and more control over your future exit options post-crisis. Areas where you should be spending time include: conducting a thorough analysis of areas where you can reduce variable costs, carefully managing accounts receivable while remaining a partner to your customers, revisiting material capital expenditure plans and, if you are not profitable, your burn rate. Remember that, while valuable, future MRR and ARR cannot fund today’s payroll and operating expenditures.

Upgrade Your Team at All Levels

In a dislocated employment market, with unemployment numbers not seen in generations, senior leaders have a once-in-a-lifetime chance to find upgraded talent at almost all positions. Take advantage of the opportunity and position your business for even stronger performance as markets and economies reopen. Tap into the network that you have built as well as your broader ecosystem to find the candidates that are not only qualified, but who will be outstanding fits within your corporate culture. Avoid candidates looking for “any port in a storm,” and focus on long-term teammates that will help you create value in the months and years ahead.

Track Crisis Response Actions to Facilitate a Future Narrative

Investors will take a critical eye to the decisions and actions of management teams as their businesses entered and then navigated the C-19 crisis. Tracking specific actions taken and their eventual impact on revenue or costs will enable teams to later articulate their thought processes and how their decisions enabled the continued growth and stability of the business.

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020

Over the last decade, organizations around the world have debated ​ ​ the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. ​ During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. ​ Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. ​ Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. ​ Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. ​ Focus was put on transitioning to remote work while ensuring employees remained engaged. ​ Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. ​ These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. ​ Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. ​ Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. ​ Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. ​ Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. ​ Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. ​ In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. ​ Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. ​ The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. ​ However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. ​ Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. ​ A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. ​ Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020

Over the last decade, organizations around the world have debated ​ ​ the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. ​ During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. ​ Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. ​ Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. ​ Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. ​ Focus was put on transitioning to remote work while ensuring employees remained engaged. ​ Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. ​ These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. ​ Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. ​ Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. ​ Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. ​ Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. ​ Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. ​ In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. ​ Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. ​ The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. ​ However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. ​ Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. ​ A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. ​ Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020

Over the last decade, organizations around the world have debated ​ ​ the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. ​ During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. ​ Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. ​ Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. ​ Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. ​ Focus was put on transitioning to remote work while ensuring employees remained engaged. ​ Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. ​ These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. ​ Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. ​ Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. ​ Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. ​ Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. ​ Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. ​ In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. ​ Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. ​ The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. ​ However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. ​ Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. ​ A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. ​ Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

The "Right" Time to Enter the Market May Be Sooner Than You Think

The market will be increasingly focused on putting money to work as we exit crisis mode, and businesses that conform to the profile here will be highly sought after in a post-COVID-19 environment. Those that are prepared to move quickly once the economic engines are revving up and financing markets are again moving fluidly will have the advantage of being ready to sell a hard-to-find asset at a time when those assets will be most prized.

What to Expect Post-COVID-19

Much as we see pent-up demand for other products and services that have been unavailable for a lengthy period of time, we anticipate the dearth of M&A activity today will drive a substantial increase in demand for new investments. As a category, we continue to see software providers outperforming other sectors and much better positioned to weather the C-19 storm.

Moreover, we believe software businesses that perform well through the crisis period will be particularly wellpositioned to access the market and will likely receive a premium as a result. Those that can clearly articulate their ability to perform, or even outperform, through the crisis period and line up well against the key metrics below should strongly consider accessing the market as the crisis begins to abate:

While these metrics attempt to calculate and quantify business performance, what they really point to in our current environment is a management team’s ability to confront and quickly navigate unexpected circumstances. At the same time, they will reflect the importance of a product to its customer base and the level of loyalty created in that customer base through trusted relationships and consistently high levels of service.

*Similarly, businesses that experienced some softness in new business briefly but rebounded quickly will also be rewarded.

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020

Over the last decade, organizations around the world have debated ​ ​ the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. ​ During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. ​ Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. ​ Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. ​ Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. ​ Focus was put on transitioning to remote work while ensuring employees remained engaged. ​ Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. ​ These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. ​ Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. ​ Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. ​ Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. ​ Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. ​ Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. ​ In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. ​ Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. ​ The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. ​ However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. ​ Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. ​ A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. ​ Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020

Over the last decade, organizations around the world have debated ​ ​ the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. ​ During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. ​ Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. ​ Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. ​ Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. ​ Focus was put on transitioning to remote work while ensuring employees remained engaged. ​ Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. ​ These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. ​ Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. ​ Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. ​ Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. ​ Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. ​ Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. ​ In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. ​ Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. ​ The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. ​ However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. ​ Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. ​ A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. ​ Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

COVID-19 Puts Spotlight on Organizational Investments in Human Capital Technology

April 20, 2020

Over the last decade, organizations around the world have debated ​ ​ the strategic merits and pace of investments in technology focused on the challenge of attracting, engaging and retaining talent. ​ During a period of substantial economic expansion and low unemployment, companies were faced with a smaller available labor pool who had elevated expectations of their employers. ​ Accordingly, organizational strategies about human capital shifted from purely administrative in nature to a focus on engaging and optimizing talent to drive productivity. ​ Leveraging investments in technology, data and analytics has allowed organizations to more effectively address this strategic challenge.

In addition to the profound societal and economic disruption of COVID-19 which is still rippling around the world, unemployment in the US is nearing 20 million and management and HR professionals have been forced into crisis mode. ​ Ensuring the health and wellbeing of employees while constructing a viable, frequent communication strategy was paramount. ​ Focus was put on transitioning to remote work while ensuring employees remained engaged. ​ Effectively dealing with employee concerns and uncertainty while maintaining the viable continuity of business operations became a juggling act. ​ These dynamics are still playing out within organizations globally, but strategic investments in technology have allowed some to respond more proficiently than others.

The length and magnitude of the current global pandemic still needs to play out before any return to employment normalcy can be determined. ​ Regardless, the trend towards digital transformation in managing an organization’s human capital has been accelerated as a result. ​ Leadership will be more acutely focused on how technology can allow their businesses to adapt and be more resilient as the current crisis recedes while allowing them to be better prepared for “black swan” organizational disruptions in the future.

Rapid Transition to Remote Work

Aside from the massive displacement of the workforce created by the COVID-19 pandemic and virtual shut down of the economy, the most pronounced impact the current pandemic is having on organizations is the shift, in most cases, to a fully remote workforce. ​ Despite remote work becoming more prevalent in recent years, the current crisis has positioned it as an integral part of life essentially overnight and companies have had to develop policies and invest in technology on the fly. ​ Those that weren’t prepared are rolling out new tools, rules and training programs, in some instances from scratch.

One key takeaway for organizations from the pandemic will be to reevaluate their disaster and crisis recovery plans. ​ Strategic investments in HR technology that more efficiently facilitate remote meetings, communication and collaboration will be a priority. ​ In addition to popular solutions from Zoom, Slack and Microsoft Teams, companies that facilitate remote employee collaboration and learning experiences such as Absorb Software, Inkling, Mersive, SocialChorus and others can stand to benefit from these shifting workforce dynamics.

Lastly, the adoption of mobile-enabled technology and applications across the spectrum of human capital use cases will continue to rise as value is placed on flexibility and connectivity across organizations globally.

Adaptive Talent Acquisition Strategies

Attracting highly qualified talent has posed a challenge for organizations during the recent high growth, low unemployment economic environment. ​ Companies have had to get creative with employee-focused perks and additional non-pay related benefits to attract top talent with multiple employment options. ​ The current crisis has caused massive unemployment virtually overnight and provides for a unique situation for businesses to revamp their current hiring roadmaps. ​ However, for those organizations that are still hiring during this period of uncertainty, effective recruitment and evaluation of talent remotely has posed challenges.

Rather than conducting in-person interviews, businesses are investing in and more heavily relying on intelligent technology that provides a virtual screening and interviewing experience, such as solutions from businesses like HireVue and Spark Hire. In some instances, organizations are shifting their entire recruitment strategy online and depending on data-driven talent evaluation tools to source a broader depth of talent than has been available in recent years. ​ Programmatic employee recruitment platforms, such as offerings from Appcast, Joveo, Pandologic and Perengo, had already been gaining significant traction in the market prior to the COVID-19 outbreak. This trend will likely continue as a result of the current crisis and result in businesses being more open to an agile, modern and technology-driven approach to talent evaluation and recruiting going forward.

Lasting Impact on Workforce Health & Wellness

The lasting impact of the COVID-19 pandemic on organizations and employees will be myriad, but one long-term consequence will be a greater focus on employee health and wellness, and the utilization of technology to deliver benefits and assistance. ​ A multitude of mobile apps and online programs have been developed in recent years to facilitate benefits for employees ranging from telehealth / virtual healthcare, mental health support and nutrition / fitness, to financial counseling and assistance in facilitating charitable / community giving. ​ Employers will continue to invest in technology that efficiently promotes employee well-being as a key aspect of driving motivation and the overall employee experience.

Teaching Without Classrooms: Education Investing in a COVID-19 World

Much like online instruction and assessment solutions, cloud-based tools that function well in a world where virtually everyone is working from home to maintain social distance are poised to perform well in the weeks and months ahead.

Teaching Without Classrooms: Education Investing In a COVID-19 World

April 3, 2020 ​ | ​ Click here to download a printable version of this perspective

Despite significant gains in online, or distance, learning over the last ten years, COVID-19 has enormously and irrevocably altered the education landscape in 2020. Technology adoption in primary and secondary schools, widely viewed as consistently trailing higher education institutions by five to ten years, has been forced to leap forward with almost no warning.

As recently as the first week of March, schools in the United States were operating normally, and COVID-19 was still largely a China-centric phenomenon. Then a small outbreak in the Seattle area became significant and immediately life-threatening. When news broke that a Rice University researcher returned to the U.S. carrying coronavirus after a tourist trip to the Nile in Egypt, Rice canceled classes to deter the spread of the virus. Literally within days, domino after domino began to fall as universities extended spring breaks and then quickly elected to move classes online the rest of the semester. The same scenario played out across Europe and South America.

It did not take long for that same ripple effect to roll through primary and secondary school systems as well. State and federal governments across the globe were soon requiring schools to close in an effort to halt the potentially exponential growth in new cases of coronavirus. As a result, schools, school districts and higher education institutions suddenly had to adopt online education for their entire student populations.

Rapid Transition to Virtual Classrooms

Because many colleges and universities have provided online programs for several years, they were in a much better position to quickly shift their classrooms to a virtual setting. Purpose-built technologies from leading providers, including Echo360 and Panopto, are already “battle-tested” and ready for wider deployment. Similarly, enterprise-level learning management systems from Instructure, Blackboard and D2L promised that their solutions were ready to facilitate fully online instruction. Given their history with online programs, many higher ed institutions at least knew what tools they needed and, in most cases, already had relationships with those vendors.

Primary and secondary schools, on the other hand, are being forced to make snap decisions on technology purchases simply to keep students from going multiple weeks without instruction. Some of these makeshift solutions (e.g., Zoom, Skype, etc.) may help schools get by for a short period, but most were not built to serve as true virtual classrooms. Schools and educators should be commended for doing their best under unprecedented circumstances, but many of the tools being utilized today will inevitably be replaced by more powerful, tailored solutions in the weeks and months ahead.

Need for Secure Online Solutions

Providers that are positioned to provide solutions to the problems schools have now and in the future will experience a dramatic acceleration of growth. Despite dealing with capacity constraints of their own, remote proctoring solutions (e.g., ProctorU, Examity) have already grown quickly because of the increased number oof the dramatic increase in the number of courses being delivered online.. Now, those providers are experiencing demand they could never have foreseen.

Secure remote assessment providers, such as ExamSoft and PSI, will also be critical in ensuring the validity of end-of-term exams and other mission-critical assessments. This will be true not only for colleges and universities, but increasingly for professional exams and certifications. It will also be true at the secondary school level where seniors are not likely to set foot in a classroom again prior to graduating and younger students are preparing for high-stakes assessments that will substantially contribute to college applications this fall. We have already seen the difficulty schools and assessment providers face as they wrestle with moving to pass / fail grading or potentially eliminating standardized assessments from application requirements.

COVID-19 will fully tip the scales toward online delivery of high-stakes assessments. The ACT has been preparing for online delivery—the first optional online exam dates are currently set for the fall of this year—but with the March and April, and potentially May, dates being canceled globally, ACT will likely be forced to accelerate plans to deliver an online solution now. The College Board, publisher of the SAT college readiness assessment, faces a similar situation. Incorporating tools like remote proctoring and remote exam delivery systems may be the key to enabling that acceleration, particularly in a world where everyone is being asked, if not required, to socially distance.

EdTech Will Lead New Industry Investment and M&A

Much like online instruction and assessment solutions, cloud-based tools that function well in a world where virtually everyone is working from home to maintain social distance are poised to perform well in the weeks and months ahead. While school systems will rely heavily on core systems (SIS, LMS, ERP, etc.) through the crisis, they will also need to adopt new technologies. Tools that can help schools better communicate with their constituents, that create safe learning environments when students return to school, and that establish additional flexibility for teachers and students to interact will gain substantial momentum in the near term.

We are learning more about COVID-19 seemingly by the hour. At the same time, students everywhere are, by necessity, learning how to learn with instruction delivered via technology. Thankfully, the tools exist to keep schools operating and students learning. Savvy education investors will identify providers of those tools and partner with them to not only deliver effective education solutions but also to build more successful companies. Successful operators will ultimately be able to also grow through acquisition, offering a broader suite of solutions, improving student outcomes and creating more efficiencies in the back office. In the wake of COVID-19, EdTech investors will continue to turn to M&A to grow their offerings and develop innovative solutions.

Time to Get In: Resiliency & Continuation of the “Electronics Super-Cycle” Power Investor Interest in EMS

While the pandemic is creating challenges for many industries, the electronics manufacturing services (EMS) sector has proven resilient as electronics are integral to supporting the smart technologies that make this interconnected world possible.

Time to Get In: Resiliency & Continuation of the “Electronics Super-Cycle” Power Investor Interest in EMS

June 23, 2020 ​ | ​ Click here to download a printable version of this perspective

Now more than ever, digital connectivity is critical as COVID-19 creates physical distance between people and businesses.

The electronics super-cycle is driven by demand for the connection of everything. While the pandemic is creating challenges for many industries, the electronics manufacturing services (EMS) sector has proven resilient as electronics are integral to supporting the smart technologies that make this interconnected world possible. The pandemic has not stopped innovation for 5G, IoT, Industry 4.0 and other smart technologies driving the world of tomorrow.

Before, during and after the pandemic, the electronics super-cycle will continue to drive long-term sustainable growth for the EMS industry and companies throughout the electronics value chain.

Resiliency of EMS Shines Through the Pandemic

Electronics can be found in almost everything, from ovens to heart monitors and cellphones to aircrafts, touching all industries. The diversity of customers allows EMS companies to quickly shift to meet evolving needs and capitalize on pockets of demand.

The EMS business model benefits from positive cash generation driven by the ability to manage working capital at a high velocity. In a down market where many companies need to conserve cash, EMS companies are generating higher degrees of cash, which can be redeployed to more robust pockets of demand.

Innovation is the mother of necessity, and the pandemic has spurred innovation as EMS companies rise to meet the needs stemming from COVID-19. Whether it be automated carts in grocery stores, driverless cars for contactless delivery, or sensors to enable temperature checks, EMS companies are precipitating digital transformation and connectivity across industries that rely on electronics.

Because of their ability to produce essential items, EMS sites were able to stay open with new safety measures in place during the pandemic. Currently, Lincoln International found that many EMS companies are operating between 60-90% of planned capacity. Looking forward, the majority expect operations to return to normal by mid-summer while 75% expect business to return to normal by the beginning of Q4 2020, according to a recent IPC industry survey.

Keeping companies operating, even at a reduced capacity, is beneficial to the economy as EMS is ingrained into the fabric of industries around the world. For example, in the U.S. EMS directly contributes to more than 1.3 million jobs, according to the IPC. For every job that it directly supports, there are three jobs that are indirectly supported—totaling approximately 5.3 million jobs. This equates to $700 billion annually or 3.7% of U.S. GDP.

Lincoln Perspective:

COVID-19 has slowed many industries, but it has not stopped EMS. EMS organizations are continuing operations and adapting, as necessary.

For private equity firms looking to deploy the capital they have amassed, this remains an attractive area for investment. Lincoln International identifies three trends PE investors should pay attention to in the EMS industry:

Time to get in: The resilience of the industry, diverse customer base, working capital dynamics, and the electronics super-cycle are driving long term growth in the EMS industry. Since we are still in beginning of the electronics super-cycle, now is the time to get in.

Opportunity for cash return: EMS has historically traded in a tight range of multiples, but has been trading up, now in the high single digits as a multiple of EBITDA. This industry offers attractive opportunities to achieve a meaningful return. EMS companies are able to generate significant cash, allowing PE firms to more quickly pay down debt leverage and drive equity value for their investors. Dividend recapitalizations are also a viable approach to increasing returns for shareholders.

Fragmented industry with buy and build opportunities: Tariffs and tensions between the U.S. and China, and now the COVID-19 pandemic have demonstrated the value in diversifying your physical footprint across geographies. In a fragmented industry with customers seeking regional supply chains, buy and build strategies that enable EMS companies to diversify across geographies have given management the flexibility to shift production to alternative geographies in times of business interruption. We’re seeing more opportunities anchored around PE investors building global or national platforms to ensure business continuity and reduce supply chain risks for OEM customers.

Freight Forwarding Outlook

COVID-19 also brings increased demand for the expedient manufacturing and transportation of some desperately needed resources that are flying off the shelves in hard hit regions and essential to treatment in local hospitals.

Getting from A to B: A Roadmap to Freight Forwarding

March 17, 2020 ​ | ​ Click here to download a printable version of this perspective

Read Gaurang’s comments on this topic in Bloomberg News’ Financial Post

With the rolling in of a new decade came the inking of a “phase one” trade deal between the US and China, finally beginning to draw escalating tensions and tit-for-tat tariffs to an anticlimactic close. The trade war left ripple effects throughout the global freight forwarding space. Last year saw weaker year-over-year performance from top freight forwarding companies as retailers and manufacturers worked through excess inventory accumulated during significant pre-buying activities in 2018 to avoid the impact of potential tariffs. With diminished industrial manufacturing output during the “hangover” in 2019 in the US, but also in key European economies such as Germany, air freight forwarding volumes saw consistent year-over-year declines throughout 2019, whereas sea freight forwarding volume growth remained positive, albeit significantly below the prior year.

The trade wars also reshaped the geographical landscape of the freight forwarding space as some retailers diverted their manufacturing away from China and to countries like Vietnam with favorable manufacturing capacity and cheap labor. In Europe, near-shoring continued to remain a popular solve with European production moving to Central and Eastern Europe or Northern Africa and some US companies turning to low-cost and nearby Mexico. With the shifting of shipping geographies and increased uncertainty, cross border M&A activity slowed relative to historical levels as many players focused on domestic opportunities while concurrently developing longer term strategies to diversify their footprints in attractive markets abroad to reduce the potential impact of future trade disruptions.

With the start of this decade has come a new factor bringing uncertainty to the space: the spread of COVID-19 from China around the globe. As factories have shuttered and supply chains have shifted, the geography of contagion has rapidly and continuously altered manufacturing and logistics plans. Yet, COVID-19 also brings increased demand for the expedient manufacturing and transportation of some desperately needed resources (i.e. respirators, masks, cleaning supplies, medications) that are flying off the shelves in hard hit regions and essential to treatment in local hospitals.

M&A Opportunities Still Abound in Freight Forwarding

Consolidation is nothing new in the freight forwarding space, with ample opportunity still ahead.

The global forwarding space remains deeply fragmented. In European road forwarding, for example, the top 10 players only hold 10% of market share overall. Even in the more consolidated global air and ocean freight forwarding space, the largest players hold just 41% of the market—leaving the majority ripe for consolidation.

Consolidation appeals to investors looking to enhance their bottom line by:

Building economies of scale – with scale comes the purchasing power and ability to achieve higher capacity and utilization

Expanding global footprints – forwarders can expand their geographical footprint to new destinations

Building end-to-end service capabilities – some use M&A to expand their trade lanes, specialty skills (e.g., transporting perishables) or in order to move toward becoming an end-to-end provider with a global supply chain

The market is likely to continue to undergo this flight to scale, which will force small-to-medium sized players to seek larger platforms to remain competitive as requirements to invest in technology, infrastructure, broader footprints and service capabilities accelerate.

Four factors to look for in a target:

Scale per trade

Automation

End-to-end service quality

Sales force effectiveness

Tech Disruptors Shake Up Freight Forwarding Space, Making Waves for Traditional Players

 

Another factor fueling disruption in the freight forwarding space is the emergence of tech platforms looking to eradicate the biggest customer pain points in the industry: price opacity and tedious manual processes.

Many digital freight forwarding start-ups, such as Convoy, Flexport, Turvo and Freighthub, have received significant venture and PE funding amidst record high valuations. The disruption that these innovative players are causing threatens to drastically change the traditional forwarding landscape with pure brokers exiting the market and longstanding traditional forwarders who are slow to embrace the change being displaced by rapidly growing and well-funded new entrants.

But the new innovations that digital startups are bringing to the industry—rate discovery, clear price transparency, track and trace for containers, etc.—also present a ripe opportunity for investors looking to buy and build freight forwarding platforms that can weather the storm of disruption.

Increasingly, we’re seeing traditional freight forwarders embracing technology by either internally developing their own solutions to remain competitive (e.g., Kuehne&Nagel/Freight-Net, Agility/Shipa Freight, Maersk-Damco/Twill Logistics, etc. ) or making strategic investments or forging partnerships with others to stay viable (e.g., DBSchenker/uShip, Maersk/Ali Baba’s One Touch, Geodis/Upply, etc.).

Ultimately, large incumbents that invest in digital technology appear to be best-positioned to prevail combining the benefits of digital with “real-world” door-to-door contract logistics expertise. But at the same time, there will be digital platforms gaining attractive scale in segments of the market, especially the ones that require more standardized services. Many incumbent mid-market players, on the other hand, distinguish themselves by special regional or industry expertise, addressing complex needs such as protective packaging, immediate pickup or temperature control. Still, it will be imperative for them to invest in digitization, enabling efficiency gains as well as interfacing with shippers and carriers directly as well as via the various emerging digital eco-systems.

One takeaway of digitalization seems crystal clear:​ consolidation may be on the horizon. The many emerging startups in the logistics and transportation space will be acquired by investors hungry to build innovative growth platforms for the future and capitalize on the benefits of supply chain optimization. This will allow them (i) to build critical mass both in terms of shippers as well as logistics services providers and (ii) to add relevant tools for enhancing transparency, visibility, collaboration and improved utilization of transport assets.

Lincoln Perspective:

In the near term, COVID-19 will certainly have an impact on the pace and volume of M&A activity in the logistics and transportation industry, as well across many other sectors, but the magnitude is difficult to predict as current events are unprecedented and evolving on a daily basis. While we don’t know what the full extent of what the impact will be, historically uncertain economic and market conditions have reduced M&A activity. However, we expect this unprecedented climate to more severely disrupt mega-deals vs. the middle market.

Our expectation is that there will be a pause in activity, but deals will still get done this year, most likely in later quarters. With record levels of dry powder on the sidelines, private equity still faces pressure to put their capital work. Some may even benefit from the thinning of the herd to acquire good businesses at great values.

There is no doubt that the logistics market has been significantly impacted by COVID-19’s spread, including both airfreight and container shipping. While it is indeed impossible to predict implications in the time before a vaccine comes to market, a silver lining may include:

The current shortage of air cargo capacity in the belly of passenger planes may create opportunity for well-versed forwarders and other emergency logistics players.

Further, e-fulfillment, contract logistics and last mile businesses could be seen as a field benefitting from the demand (e.g. Amazon just announced plans to hire 100,000 warehouse and delivery workers.)

Last, there will be a substantial re-stocking taking place in the future to the benefit of air freighting.

Looking ahead at the longer-term, we do believe that opportunity remains for PE investors and corporates looking to consolidate the forwarding space down the line:

PE, get ready to buy and build:​ The fragmentation of the forwarding industry offers an attractive backdrop for executing a buy-and-build strategy. The key is to develop a focused thesis to invest in specific verticals to establish scale and market leadership. It is more challenging to build a successful platform that is a copy-cat player in many niches, without clear differentiation/leadership in any particular one, as it can be difficult to compete with larger competitors. This approach is also optimal for creating synergetic exit opportunities. It is particularly appealing to overseas corporate serial acquirers seeking external growth complementing (i) regional presence or (ii) skill sets, while (iii) showing sound protection against commoditization.

Corporates, don’t miss out on middle-market targets:​ While many corporates may be seeking larger scale acquisitions, there are actionable targets that can help to:

  • fill a white space in the market
  • expand to targeted regional geographies (for example, many European players want increased exposure to Asian trade lanes)
  • build scale to negotiate a price advantage; with scarcity of transformational deals for the top players, they often have to look to the midmarket to build their size
  • increase exposure to (cross-border) ecommerce verticals
  • add capabilities in value-added services for specific verticals in addition to forwarding, driving
  • differentiate against the backdrop of commoditization observed in a pure “port-to-port transport organization”

Building Products Trends

While the impact of COVID-19 on construction related end markets is still unclear, trends that were in motion before the crisis are becoming more pronounced and may be accelerating.

Initial Building Products Impact from COVID-19

March 27, 2020 ​ | ​ Click here to download a printable version of this perspective

While the impact of COVID-19 on construction related end markets is still unclear, trends that were in motion before the crisis are becoming more pronounced and may be accelerating. Homeowner mobility has been declining for years as the implied years between homeowner moves has increased from 12.0 years in 1999 to 19.6 years in 2018. While housing turnover has slowed, residential repair & remodel (“R&R”)

performance has continued to grow as there has been a nesting effect. A survey conducted by John Burns Real Estate Consulting recently concluded that the #1 reason to invest in a kitchen remodel is that the owner can “no longer stand looking at the current kitchen.” COVID-19 will accelerate nesting and its impact on businesses exposed to R&R.

A separate trend we expect to accelerate is the acceptance of building products being purchased online for small ticket R&R projects (<$5,000) that are easily shipped. E-commerce has been a developing channel in recent years for many building product verticals but managing channel conflict with distributors or retailers has been challenging. As building products manufacturers have advanced their e-commerce efforts they have built some powerful digital platforms that can take an omni-channel approach to balancing the concerns of all channels. We expect companies with advanced digital platforms to potentially accelerate e-commerce sales, the convenience of which may sustainably change channel mixes going forward.

Overall, Lincoln’s view is that building products manufacturers and distributors will be challenged in this crisis, however as a result of generally modest leverage multiples and high cash flow in recent years we expect the sector will weather the storm. Business models will be tested and those who perform well will have more value to potential acquirers once the crisis ultimately clears.

Healthcare Growth Trends

Investors have an opportunity to move into select healthcare segments with accelerated growth drivers, deploying their dry powder into industries which will see unprecedented demand during the crisis.

COVID-19 Pandemic Could Accelerate Recent U.S. Healthcare Growth Trends

March 24, 2020 ​ | ​ Click here to download a printable version of this perspective

One hundred years after the 1918 Spanish Flu, the world is facing another pandemic: COVID-19. Government and healthcare officials are working around the clock to flatten the curve and slow the spread of coronavirus.

In the United States, the number of infected patients continues to rise as regulators enable more test availability and capacity to frontline healthcare workers. To help accelerate the availability of tests, the Food & Drug Administration (FDA) announced a new policy​ last Monday that makes diagnostic tests developed by commercial manufacturers more widely available in laboratories. This solves a critical need as the number of positive coronavirus cases in the U.S. grows daily, putting additional pressures on the healthcare system.

In response to the outbreak, researchers developing COVID-19 vaccines are progressing through clinical trials on an accelerated basis as numerous regulatory changes aim to streamline life sciences protocols. President Donald Trump also invoked the Defense Production Act, which, if the full authority of the law were to be used, would allow the government to direct companies to manufacture necessary equipment and offer financial incentives and assistance to expand private industry production. Additionally, Centers for Medicare & Medicaid Services (CMS)​ took action—last week CMS lifted Medicare telehealth regulations permitting doctors to practice across state lines, if they have an equivalent active license from another state, expanding patient access to telehealth services.

Impediments, of course, still exist. While testing capacity has expanded, hurdles remain in the test kit and component supply availability, as well as kit distribution, and biospecimen collection and logistics. Though telehealth services and other remote patient engagement and access solutions may now have a broader mandate and operational flexibility, their success hinges on their ability to scale in a way that ensures seamless care coordination. The safety and health security of all healthcare professionals is paramount to meeting the rapidly escalating demands for care the world is encountering.

Lincoln Perspective:

As the world battles the pandemic, M&A activity in many sectors has slowed. Yet private equity groups (PE) have an opportunity to consider select healthcare segments with accelerated growth drivers, deploying their dry powder into industries which may see unprecedented demand during the crisis—and potentially permanently shift the way Americans receive medical care in a post-COVID-19 world. Consolidators interested in healthcare should take note of the following six drivers and themes:

Critical Diagnostic Tests or Components, and Pharmaceutical Ingredients

COVID-19 Impact:​ More COVID-19 tests will be made available to patients displaying symptoms through the FDA’s new policy. However, as more tests are administered, there will be a race to stay ahead of the supplies needed to make the tests—reagents, RNA extraction kits and swabs—to avoid a shortage. Some manufacturers are reworking tests in anticipation of the shortage, but this is not sustainable long term. Companies, like European manufacturer Qiagen, are ramping up production, but they face unprecedented demand. Companies like Roche and Hologic, that received approval to manufacture and ship tests through the FDA Emergency Use Authorization (EUA), are also optimizing their plants to rapidly manufacture tests.

Drivers & Opportunity: Middle market PE have long been interested in diagnostic test manufacturers as well as diagnostic component and pharmaceutical ingredient suppliers, but now there is a heightened awareness of those companies. The demand for research and development capabilities, validated manufacturing infrastructure and sourcing knowledge (supply chain diversity/security) is only increasing with the COVID-19 pandemic and is likely to remain robust long after it has passed. The customer base for components and ingredients is typically sticky, as those elements are often “scoped in” with product approvals or researcher preferences, and are steps removed from end-market reimbursement exposure, leading to long-term business sustainability. Despite decades of consolidation, numerous privately-held businesses remain with attractive growth potential and cash flow characteristics.

Unique Lab Testing Infrastructure

COVID-19 Impact:​ The United States is capable of processing thousands of samples​ at a time. Because of the FDA’s recent rulings, key industry players Laboratory Corporation of America Holdings and Quest Diagnostics Inc. can greatly increase the number of tests processed per day. The American Clinical Laboratory Association (ACLA)​ expects to exceed 280,000 tests per week by April 1 nationwide. With patient financial responsibility for the tests being waived, the ACLA has asked Congress to support an emergency laboratory surge capacity fund of $5 billion to ensure labs have the necessary resources needed to fulfill that promise.

Drivers & Opportunity: PE investment in lab services has slowed in recent years due to reimbursement pressures from Protecting Access to Medicare Act (PAMA) and select testing segment-specific issues, both regulatory and reimbursement-related. COVID-19 testing demand could pique private equity interest as clinical lab testing provides a significant amount of data. In a world rapidly moving toward precision medicine, data is critical not just for therapeutic decisions, but also for drug discovery and development, clinical trial patient recruitment, population health management, patient awareness and disease monitoring. The COVID-19 pandemic has thrust the relevance and medical necessity for clinical lab data—whether screening, diagnostic or monitoring—back into the spotlight.

Telehealth & Remote Care

COVID-19 Impact:​ As people around the country—particularly seniors, given their acute vulnerability to the virus—are encouraged to shelter in place, remote care can connect patients with providers digitally in their homes, reducing risk of exposure. The new CMS rules apply to all covered telehealth services in Medicare, not just related to COVID-19, and will help keep Medicare beneficiaries out of doctors’ offices and hospitals as care is delivered directly to homes. The recent changes allow Medicare telehealth services to be performed anywhere in the country, where previously the physician had to be licensed in the state where the patient receiving care lived. CMS has waived this requirement for Medicare patients and many governors have requested a waiver for Medicaid patients as well.

Drivers & Opportunity: Prior to the COVID-19 outbreak, remote care and telehealth services were an attractive investment theme for many healthcare PE groups because of their ability to relieve pressure on hospitals and physician offices as well as accurately manage care in real time. The CMS rules are temporary and expected to revert to previous rules post-crisis; however, the experience of payors, patients and providers in this time may prove to be a catalyst to bring about permanent changes.

Patient Centricity & Specimen Logistics

COVID-19 Impact:​ As the practices of social distancing and remote care are leveraged to connect patients with providers, nurses and biospecimen collection personnel are being physically deployed to the home and workplace to bring screening services and care to patients. Employers are also able to test essential employees before their shifts, which proved an effective preventative strategy in China. What’s more, deploying patient-focused, in-home clinical trial solutions can help support pharmaceutical and biotechnology companies with ongoing clinical trials for continue to access trial participants, maintain continuity and reduce costs. 

Drivers & Opportunity: Patient centricity and specimen logistics have seen a renaissance of PE interest given the benefits and complexities of remote visits. PE and strategic buyers alike have been on the hunt for scarce assets related to in-home or virtual clinical trials, hubs, health economics and outcomes research (HEOR), post-market surveillance, or biospecimen collection and logistics. The COVID-19 pandemic may be the start of removing regulatory barriers permanently and creating accelerated demand for managing patients and participants in a patient-centric manner. Providing care or testing services in a home-based or remote setting—whether for a clinical trial or routine health management—is efficient, cost-effective and beneficial to the healthcare ecosystem.

Patient Engagement and Healthcare Consumerism

COVID-19 Impact:​ Given the criticism related to the slow rollout of tests in the U.S., direct-to-consumer home testing companies have entered the conversation. Everlywell and Nurx, home testing companies, announced the addition of COVID-19 tests to their test offerings. While these companies have indicated that Clinical Laboratory Improvement Amendments (CLIA) certified labs will process the tests, how the FDA will regulate and approve the tests is to be determined. Most recently the FDA updated its EUA guidelines to specifically bar the use of at-home sample collection for COVID-19 tests. Ensuring the tests are approved by the FDA is a risk associated with home testing, as less reputable companies and scammers alike have marketed tests not yet approved by the FDA. With FDA approval, home testing has the potential to become a popular route as Americans become more engaged in their healthcare, individuals seek to minimize patient exposure in overcrowd ERs, and companies look to reduce a strain on the hospitals and physician offices.

Drivers & Opportunity: The COVID-19 pandemic may be the first time a general consumer knows the difference between a screening, diagnostic and monitoring test. Consumers are washing their hands, ordering and paying for in-home test kits, and strictly adhering to their medication and probiotic regiments. Healthcare brands are becoming part of the lexicon as Americans closely follow the COVID-19 updates and become more engaged in their care. As a result, companies that put the patients first and make access to their products or services easier could grow and become more attractive to investors long after COVID-19 moves to the rearview mirror.

Patient-Directed Home Care Providers

COVID-19 Impact:​ Home health and personal care services agencies have traditionally employed a model whereby a single caregiver visits multiple patient residences per shift. Given the highly contagious nature of COVID-19 and its disproportionate impact on the senior population, the home healthcare industry has implemented extreme precautions to avoid putting patients and caregivers at risk and fueling further spread of the virus. 

Investment Thesis & Opportunity: Patient-directed care agencies, by comparison, use a model whereby a single caregiver, typically an immediate family member designated by the patient, is properly trained and supervised for assisting the patient with activities of daily living —bathing, dressing, toileting or feeding—to preserve that person’s independence and ability to age at home. State governments are acting to rapidly accommodate new enrollments in self-directed programs to ensure that eligible populations can be served in their homes and avoid moving people into institutional settings where the virus can thrive. The federal government recently announced an increase in the federal medical assistance percentages (FMAP) to help states offset increased costs related to the expansion of programs such as patient-directed home care.

COVID-19 is rapidly changing how clinicians and other members of the healthcare ecosystem provide patient care, and in the process, the entire healthcare landscape. Regulatory changes implemented during the pandemic may lead to permanent changes in how people receive and interact with their healthcare. At a minimum, these changes will inform discussions about regulations that need to be updated via a more engaged and knowledgeable voting public. In the process, new opportunities in healthcare investment could arise, encouraging deals in certain areas in the coming months.

Interim/Post-COVID-19 Services & Products for Home Care Sector Outlook

COVID-19 continues to introduce uncertainties that affect the short- and long-term outlook for various service and product markets in the home health arena. ​