M&A wrap: Diversis, Gores Group, Axial, Westcott, Morgan Stanley, Riverside

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Diversis Capital Management LP, which invests primarily in software companies, has closed its first fund at $255 million. Diversis is led by managing directors Ron Nayot and Kevin Ma, who co-founded the firm in 2013, and were previously with the Gores Group. The fund will focus on making operationally focused control investments in lower middle market companies, "many that require a true partnership angle that could use both growth capital and operational guidance," according to the firm. "This will be an exciting new chapter for us and we spent a long time preparing ourselves to meet this head on," says Ma. "We’ve built Diversis carefully over the last six years brick by brick and have assembled an extremely specialized, tight-knit team that is well-positioned to take advantage of the software and technology opportunity set in the lower middle market.” The firm has invested in utilization software company Tempo ehf and automotive technology company PureCars Technologies. PE firms are showing an enthusiasm for backing companies that provide software and technology-enabled services, and raising new funds. Thoma Bravo raised its 13th fund at $12.6 billion earlier in 2019, and Siris Capital Group raised its fourth fund at $3.45 billion. Evercore Private Funds Group is Diversis' placement agent and Latham & Watkins is its legal advisor.

Today's active M&A market demands a robust set of tools and services. Enter service providers. From online marketplaces, such as Axial, led by CEO Peter Lehrman (pictured), to offerings that help private equity firms administer funds, such as Frazier & Deeter's FD Fund Administration, the service providers featured in Mergers & Acquisitions' updated annual dealmaker's guide help get transactions done. For the full guide, read: Dealmaker's guide to service providers: Accordion, Axial, BluWave, Frazier & Deeter.

Activity and urgency characterize the current dealmaking environment, say investment bankers and other M&A advisors interviewed by Mergers & Acquisitions. After a record-breaking 2018, forecasts for 2019 remain bullish. Advisors point to a lot of cash that must be deployed by strategic buyers and private equity firms alike; a healthy U.S. economy; and low interest rates. Competition for high-quality targets has never been more intense, especially for technology providers, they report, which means sellers are commanding high prices. It all adds up to a seller’s market. A mood of urgency prevails, as dealmakers seek to close deals quickly, while conditions remain favorable. The advisors interviewed for this story say they don’t see signs of a recession this year; however they are closely monitoring bellwethers, including corporate earnings, wage pressure, global supply chains and slowdowns abroad. They are recommending that clients be prepared for an economic slowdown in the next two years. Specialization is the name of the game, and investment bankers advise clients to seek targets with business-model stability, limited cyclical exposure and a recurring revenue business model. Technology, business services, healthcare, consumer and manufacturing are among the most promising sectors. Read the story: 8 M&A advisors urge closing deals now, while economy stays strong.

DEAL NEWS
The Carl Westcott family office has formed a new private equity firm called Westcott Investment Group. The firm will focus on the lower middle-market. “We have been interested in investing in the lower middle market segment for some time,” says Court Westcott, a manager of the family office. “Our experience investing in operating companies over the years combined with the inherent flexibility of family office capital makes this area a natural fit for investment.”

Morgan Stanley Capital Partners-backed pet care products company Manna Pro is buying Hero Pet Brands, which makes pet nutrition, grooming and cleaning products under the Vet's Best, Natural Care, Bags on Board, Out!, Simple Solution and Buffalo Range brands. Debevoise & Plimpton is advising Manna Pro.

The Riverside Co. has bought La Galvanina SpA, an Italian producer of premium private label and branded mineral water and traditional and organic soft drinks. Advisors to Riverside include: A&O, EY and Alix Partners. Advisors to the target include: BLF Studio Legale, Miranda Pironi and PwC.

High Road Capital Partners has acquired John Henry Foster Minnesota Inc. The target is a distributor of motion control parts, compressed air systems, industrial robotics, and electrical automation products to the industrial, food and beverage, healthcare and consumer sectors. BMO Capital Markets advised the target. Jones Day advised High Road. Financing was provided by Madison Capital Funding.

Bregal Sagemount has invested in Procurement Advisors, a purchasing organization that is focused on the maintenance, repair, and operating supplies sector. Kirkland & Ellis advised the target and Goodwin Procter advised Bregal Sagemount.

Incline Equity Partners has purchased Unified Power, a provider preventative maintenance and repair services for power systems.

Main Post Partners-backed Fortis Solutions Group has acquired Label Technology Inc., a printer of flexible packaging, stand-up pouches, and pressure sensitive labels.

PEOPLE MOVES
Rustin Brown has joined law firm Kirkland & Ellis as a partner. He was previously with Simpson, Thacher & Bartlett LLP, and represents private equity firms in financing across the energy and infrastructure sectors.

John Chapparo has joined Oaklins DeSilva+Phillips as a managing director in the investment bank's healthcare software and technology group. Chapparo was previously with Brown Brothers Harriman & Co.

Andrew Gitkin was hired by Raymond James as a managing director and co-head of the investment bank's healthcare group. He was previously with Piper Jaffray Cos. (NYSE: PJC).

FEATURED CONTENT
Big data, Artificial Intelligence (AI), the Internet of Things (IoT) and 5G are transforming the business world. By embracing these technologies, organizations across the globe are realizing untapped potential in efficiency, customer experience, talent and profitability, and have been able to make better, more streamlined mergers and acquisitions, writes Bank of America Merrill Lynch's Robert Arth in a guest article. Read the full story: Why the middle market needs big data.

Death. Bankruptcy. Depleted oil wells. Those were the cheery words used by Mark Tibergien, CEO of Pershing Advisor Solutions, as he described what’s happening to many wealth management firms in a presentation at the DeVoe & Company M&A Summit in New York City. Read the full story: Pershing’s Tibergien warns RIAs not to rely on M&A for growth.

Bill Ford, chief executive officer of private equity firm General Atlantic, said he doesn’t consider the initial public offering of Uber Technologies Inc. a disappointment despite the plunge in its shares. Read the full story by Bloomberg News: General Atlantic's Bill Ford still bullish on Uber.

Healthcare companies are spending more on information technology than ever before. Private equity firms including: Bain Capital, GTCR, Great Hill Partners, The Riverside Co. and New Heritage Capital, are investing in the innovations most in demand, including big data, SaaS and artificial intelligence, as we explore in depth in Mergers & Acquisitions' feature, Healthcare's must-have technologies. “Healthcare IT is the largest cottage industry in the world,” says Sam Hendler, who leads healthcare IT deals at Harris Williams.“Healthcare IT is a highly fragmented, multi-billion-dollar market with thousands of companies focused on different $250 million to $500 million sub-markets. Savvy investors see there is an opportunity to aggregate assets and build platforms of scale. It’s an incredibly exciting time in healthcare IT.” For recent transactions that showcase the trends, see 5 private equity-backed healthcare IT deals.

Tech dominates dealmaking. The technology, media and telecom, or TMT, sector accounted for about 40 percent of total private equity deal volume and one-third of total capital invested by PE firms over the last five years, according to EY Private Equity. Looking forward, the next five years of M&A activity will be fueled by a whole new set of developments. As one wave of technological innovation crests, another is forming. “With themes such as cloud computing and mobility now mainstream, PE firms are focusing on the next wave of disruption — technologies such as artificial intelligence and machine learning, robotic process automation (RPA), Internet of Things (IoT), robotics, drones, blockchain, augmented reality and virtual reality,” finds the April edition of EY’s quarterly PE Pulse report. Read our full coverage: Smart cities, IoT, AI, robots, edge computing will fuel next wave of tech M&A.

Genstar Capital, Audax and HarbourVest ranked as the top U.S. private equity firms of 2018, based on volume of completed deals, according to PitchBook. Check out Mergers & Acquisitions' profiles of 21 firms that led the league tables. Top private equity firms: Genstar, Audax, HarbourVest.

Also see: Top investment banks in PE-backed deals: KPMG, Houlihan, GS, William Blair.

Excelled. Innovated. Inspired. That’s what the eight winners of Mergers & Acquisitions’ 12th Annual M&A Mid-Market Awards did in 2018. Our awards honor the leading dealmakers and deals that set the standard for transactions in the middle market. In addition to Nike, award winners include: Fortive, TA Associates, the Riverside Co., Harris Williams, Monroe Capital, Goodwin and Luminate Capital Partners' Hollie Haynes. Read our full coverage: Meet the winners of the M&A Mid-Market Awards: Nike, Fortive, TA, Harris Williams.

Mergers & Acquisitions has named 36 leaders the 2019 Most Influential Women in Mid-Market M&A, including Kainos Capital's Sarah Bradley, Kayne Anderson Capital Advisors' Nishita Cummings and Pelham S2K Managers' Venita Fields. All 36 are outstanding dealmakers both inside and outside of their firms. This year, we asked the featured dealmakers to tell their own stories through Q&As, including their advice for women. Related: Meet the 2019 Most Influential Women in Mid-Market M&A.

EVENTS
ACG New York, ACG Boston and ACG Philadelphia are holding the Industrial Conference with Value Creation at the Infor in New York on June 6. The event is part of the Northeast Industry Tour.

ACG Minnesota hosts the the Upper Midwest ACG Capital Connection at the Renaissance Minneapolis Hotel, The Depot, June 10-11.

ACG Boston brings together 700-plus dealmakers for DealFest Northeast and DealSource Select 2019 at the Cyclorama and the State Room, June 12-13.

Exponent Women hosts the Annual Exchange, which brings a trusted network of women dealmakers together for a focused day of robust content and networking, at Second in New York, on July 11. The Exchange provides attendees with opportunities to establish new connections, reinforce existing ones and absorb timely and relevant knowledge from industry leaders.

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