The Battle for Deals Deepens

Jeff White (pictured above), senior vice president, business development at private equity fund Skyview Capital, knows first-hand about the challenges facing private equity (PE). In a revealing conversation, he shares insights into how his firm’s portfolio companies have dealt with the multitude of challenges brought on by the COVID-19 pandemic as well as subsequent lockdowns and travel bans.

To tie in with this edition’s Spotlight feature on special purpose acquisition companies (SPACs), Jeff discussed how well-capitalized blank-check companies have impacted M&A deal flow as well as valuations and how private equity is now differentiating itself in this tighter field of competition. The discussion wrapped up with an outlook on the coming months.

Jeff has been actively involved with all M&A efforts at Skyview Capital since its inception. He has decades of experience that encompass private equity, investment banking and executive management. He has held critical positions at many distinguished firms, such as Merrill Lynch and Platinum Equity Holdings.

Prior to Skyview Capital, Jeff was an integral part of Platinum Equity’s USD 8 billion global business development and M&A team. After Platinum Equity, Jeff established and continues to successfully head up Skyview Capital’s business development team. In addition, he is responsible for driving growth through acquisitions by identifying, negotiating and assessing all transaction opportunities within the M&A and business development team. Jeff is also a member of the firm’s investment committee. Recently, Jeff expanded his role to work more closely with Alex Solanti, founder, chairman and CEO of Skyview Capital, to spearhead the firm’s global M&A, strategic alliances and corporate development strategy.

SS&C Intralinks: Hello, Jeff. Thank you for taking the time to talk to us. With the pressure of the pandemic slowly easing, tell us how the private equity industry has been affected by it?

Jeff White: The pandemic has had a huge impact on the industry overall. We were in the middle of an upward trajectory when things came to a sudden halt. Initially, processes took longer and longer but as the pandemic wore on with no apparent end in sight, deals started breaking up and lots of transactions were lost. We found ourselves just sitting on the sidelines, waiting. But it was not just deals that fell apart. Without being able to travel, network at conferences and meet people informally, our ability to originate deals was also compromised. We, therefore, shifted our attention to our portfolio companies.

Talk to us about the impact of the pandemic on your portfolio companies.

I think every fund has taken a large hit on their portfolio companies. To give you a few examples, we own a call center business, Continuum Global Solutions. The pandemic meant that a good portion of our employees had to work from home, which could have an impact on confidentiality and privacy issues surrounding its clients. By contacting clients and openly talking about some challenges we were facing, we were able to find a workaround, but it was definitely a challenging time. Not surprisingly, our cybersecurity business Fidelis Cybersecurity fared much better. Meanwhile, our food manufacturing and distributing business Passport Foods saw a shift within its client base. Things are starting to even out a little, but they were challenging times. Retail and hospitality, anything with a heavy emphasis on brick-and-mortar operations, had a tough time. And yes, it has all had an impact on our holding periods.

Moving along to one of the hottest topics in M&A at the moment, how concerned are you about the emergence of special purpose acquisition companies (SPACs)?

Yes, even with the slight declines in SPAC activity that the press has been reporting, they are still quite obviously parties we run into. We are currently in 15 processes and have exclusivity in three. Once we find ourselves at the letter of intent stage and we are aware of more than one SPAC in the running, we are significantly less excited about the process as, to put it bluntly, they can overpay. In the recent past, there have been a few instances where we were outbid, and we just couldn’t understand why. We figured out, if someone just blows past you like that in an auction, chances are it’s a SPAC.

How do you differentiate yourself against SPACs?

We take the approach of working out precisely what the seller is looking for. If they are looking for a maximum valuation, then we don’t have much leverage over the SPACs in the market. But if they are looking for industry expertise and ways to create value in the future, say, by doing add-on deals, then we may well be the right fit for them. So having good relationships with the sell-side advisory teams so you can work out these nuances really helps to secure deals.

Have you had to adjust your approach to compete with them?

I don’t think we have. We have always been very detail-orientated in our offering. The one change we have recently tried to make is to shorten the time frames to get deals done more quickly. Making speed and certainty-of-close cornerstones to our bid are factors that we have been relying on heavily to get deals over the finishing line.

How do you feel about the SEC-proposed changes to SPACs and the reported slowdown in SPAC activity?

On that, I can only comment based on my reading on the topic, not actual experience. But, yes, if those rules come into force, it will slow down. But the same would happen if SPACs don’t in fact deliver on their promises to their investors.

Moving away from SPACs now, could you share your views on valuations and how concerned are you about a developing valuation bubble?

A bubble implies an upcoming crash, and that I don’t see. What I do see is a lot of highly priced companies and a lot of cash chasing good deals. So, the question we need to be asking ourselves is: Does the price reflect the actual value of the business? And in some cases, I don’t think so; in some cases, it makes more sense to pass on that opportunity, find something cheaper and then grow that value. But no, I am not expecting a crash.

Looking ahead, what do you see as the greatest opportunities for the industry, and what are its biggest challenges?

On the challenges front, I see an overvalued deal market, regulation that might be enacted and any COVID-19 variant we may need to deal with. Also, debt keeping up with equity in transactions as we are seeing more and more equity being pumped into deals. On the opportunities side, I actually see the whole market as an opportunity. There are a number of businesses that have been negatively affected by the pandemic. Therefore, they present a real opportunity for PE funds to acquire at a lower valuation now and get a great return on their investment a few years down the line. I see some real bargains to be had. I think we could be entering a golden age for private equity investments.

Jeff, thank you very much for sharing your expertise with us. Stay safe and well. 

Thank you very much for having me.

As featured in the Q3 2021 SS&C Intralinks Deal Flow Predictor.