CSQ Virtual Events

THE STATE OF FINANCE VIRTUAL ROUND TABLE REPORT

COVID-19 has changed the course of the financial world.

Consumption patterns shifted almost ovenight, creating a new normal of challenges for the finance industry. CSQ convened a forum of leaders in government, investment banking and technology to provide actionable intelligence that can help your business and investments navigate these uncertain waters and emerge stronger.

Q2 2020

// Table of Contents State of Finance Panelists

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About the Moderator: Andrew D. Horowitz, CEPA

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Senior Vice President, Rockefeller Capital Management

Panelist: Fiona Ma, Treasurer, State of California

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How the State is Helping Business Re-Build and Adding Affordable Housing

Panelist: Jim Freedman, Chairman, Intrepid Investment Bankers

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How COVID-19 Has Shifted the Flow of Capital Markets

Panelist: Mark Williams, Chief Revenue Officer, Americas Datasite

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How Technology is Helping Businesses Restructure Post-COVID-19

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// State of Finance Panelists

Fiona Ma Treasurer, State of California

MODERATOR

Andrew D. Horowitz, CEPA Senior Vice President Rockefeller Capital Management

Jim Freedman Chairman, Intrepid Investment Bankers Jim Freedman is the Managing Director, Chairman and Founding Principal of Intrepid Investment Bankers, a specialty investment bank that provides M&A, capital raising, and strategic advisory services to the middle-market companies in various industries. He has more than 35 years of investment banking and corporate finance experience and is an expert in the financial aspects of corporate strategy. Freedman has advised numerous middle-market companies in the areas of corporate finance, mergers, and acquisitions, corporate valuation, and strategic decisions.

Fiona Ma is California’s 34th State Treasurer. She was elected on November 6, 2018 with more votes (7,825,587) than any other candidate for treasurer in the state’s history. She is the first woman of color and the first woman Certified Public Accountant (CPA) elected to the position. California is the world’s fifth-largest economy and Treasurer Ma is the state’s primary banker. Treasurer Ma was a member of the State Assembly from 2006-2012, serving as Speaker pro Tempore from 2010 to 2012.

Mark Williams Chief Revenue Officer, Americas Datasite Mark Williams has been Chief Revenue Officer of the Americas at Datasite since 2015. In his role, Williams is responsible for setting and executing estate strategy across the region, including leading over 130 representatives and sales leaders across the United States, Canada, and Latin America. Prior to joining Datasite, Williams held several sales leadership roles in a variety of SaaS companies. Most recently, he served as Chief Revenue Officer at SmartFocus, a cloud-based digital marketing platform provider.

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About the Moderator Andrew Horowitz is a Senior Vice President and Private Wealth Manager at Rockefeller Capital Management. He leads the Horowitz Group and began his career at 13, cleaning boat bottoms. By his early 20s, he had built the business into a national marine and accessory manufacturing company.

Horowitz has exited numerous businesses in his lifetime. He spearheaded the launch of the Estate Management Group, which was then sold in 2011. He spent several years at Morgan Stanley and Merrill Lynch, and now at Rockefeller. He is also an author who has written a book called The Next Step for Business Owners and a frequent lecturer at USC Marshall School.

Horowitz subscribes to the motto, “It’s not my job to make people rich, but to keep them from getting poor. I’ve been following that philosophy for the past 20 years.”

Andrew D. Horowitz, CEPA Senior Vice President Rockefeller Capital Management

“ True wealth has to do with what we call ‘wealth and leisure’ - being able to maintain your wealth and enjoy your activities.”

Andrew D. Horowitz, CEPA Senior Vice President Rockefeller Capital Management

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// Fiona Ma Treasurer, State of California How the State is Helping Business Re-Build and Adding Affordable Housing How has the already challenged housing crisis been impacted by the current conditions in the market?

Because some of our local governments have closed, that is where a lot of the planning and the permits as well as these hearings they’re supposed to have, have been impacted.

We have been trying to continue moving forward, but obviously, there are many market forces out there that are making housing difficult here in California.

Construction is an essential business, so people who are in the building industry can continue to work, and we have expedited a lot of our projects, especially the big road construction projects since a lot of people are not on the roads these days. We have been selling bonds last year and even this year, even during this two-month period. And people have been very receptive to California bonds. So we are putting more money out on the street, trying to keep more people working. And of course, these large infrastructure projects are going to help us as we get out of this pandemic.

If you look at the business and you look at the historical perspective of where we’re at, do you think that there are resources that businesses currently aren’t using? What resources would you point to as great resources for them to use from a government perspective?

My external affairs team has pivoted to putting these resource guides together that are updated and timely.

It’s on my website, www.treasurer.ca.gov, and there’s two buttons. One is our covid19.ca.gov website, which is our health and safety facts, resources at the state level, questions and answers. And then I have a COVID-19 resource button, where we update opportunities, whether it’s grants or loans for small business

es from the federal government, state government, local government, and also private sector is also coming to the rescue to help with all types of programs. Many of the government agencies also provide a loan loss reserve to these banks and financial partners so that they can give out maybe riskier loans, especially during this time, to small businesses. So we have a loan loss program in my office.

The iBank just started a loan loss reserve program. So please also work with your bankers and see whether they are part of our program so that maybe it will allow a little bit more money to flow back into the small business markets.

What should we expect for the next six to 12 months in the commercial and residential real estate markets?

I would say from the State of California, we are working really hard to build more affordable housing, mostly in the new construction space, which is where policymakers are focused at this moment. So we have received about $1B worth of credits to our 4% tax credit program. The federal government also put another $100M into disaster credits so that we can build quicker in those disaster areas—we had a lot of fires out here in California. So I think folks can look forward to more affordable housing. Multifamily new construction is where the priority is for California right now.

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// Jim Freedman Chairman, Intrepid Investment Bankers How COVID-19 Has Shifted the Flow of Capital Markets How is the overall velocity of the M&A market impacted by the current conditions in the market, and where are the opportunities? Specifically, what’s the posture and appetite of various lenders and investors in today’s market?

For the first quarter of this year, M&A is down about 50% from the first quarter of last year. So it’s certainly affected mergers and acquisitions, and it’s affected it in two ways.

One, because companies that were looking to be sold all of a sudden got confronted with this whammy and now are experiencing some very strong headwinds and difficulties.

And second, the actual strategic buyers have now cut back on their acquisition activities, focusing on their own businesses.

Having said that, we also are seeing a fair amount of deals being done, both by strategics who are looking to capitalize on this period of time and to actually become stronger during this situation.

What resources do small and medium-sized businesses have to restructure during this difficult time? What financing or strategic options do businesses have in this current environment?

We still have massive commercial banking resources available. Traditionally and even now, these commercial banks are historically viewed as being a little more conservative.

Certainly cheaper capital, but they’re also regulated, and there are certain things that they can and they can’t do.

For well-capitalized companies, the commercial banks are always there.

about, a lot of these new credit funds, hedge funds, private equity groups, family offices that have been around but now are really focusing, if they don’t have problems in their portfolios that they’re tending to, they’re really looking at this as an opportunity to say, “We can invest in companies right now with a better valuation and better upside than we’ve ever had before.”

Private equity has record levels of dry powder and private capital it needs to deploy. That said, within middle-market M&A, are you seeing PE and other financial sponsors pursuing new opportunities, or rather doing more current portfolio maintenance? Of those still pursuing deals, what sectors are they pursuing, and are they financing deals mostly with debt or equity?

What we’re finding is that it’s very bifurcated. There are many private equity funds that have, just because of bad luck, invested in the wrong sectors, given this COVID situation. So there are folks heavy in retail, heavy in entertainment, heavy in travel, leisure, that are really hurting in their portfolios. And frankly, what they’re telling us is they’re not open for business for new deals. They are really focused on trying to get those portfolio companies to survive in this period of time. So we clearly have that sector.

In addition, though, we do have a lot of private equity funds that have managed their portfolio fairly well and that it is not taking up all the partners’ time to nurse those portfolio companies, and they’re telling us that they’re open for business, they want to do deals, and they think this is an opportunity to be able to find better deals at better valuations.

Families that are involved in family businesses are always looking for ways to increase the value of their business.

What can they do today to prepare themselves properly?

The more you can understand and address what your strategy is and how you’re going to not just survive—but thrive— over the next five years with all these different things going on—with technology, competition—is going to be really, really important. And a lot of folks don’t focus enough on thinking through, “What’s the story?” Investors always want to hear about “What’s the story?” They understand what you did in the last 12 months, but what are you going to do in the next three to five years?

Having said that, as companies start getting more impacted by this situation, then it starts to become more important to pivot to alternatives. And the alternatives are, as we talked

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// Mark Williams Chief Revenue Officer, Americas Datasite How Technology is Helping Businesses Restructure Post-COVID-19 If you currently are in an environment where you have the restructuring that people are going through as a result of the changes in the market, it can be very labor intensive. It can take a lot of time to go through this process. But I know technology can be very helpful when you go through that process. How do you find people’s ability to leverage technology can really impact their ability to go through that process effectively?

I think that’s one of the things that we’ve seen, because as companies have entered into restructuring processes, we didn’t suddenly invent or create a lot of people with restructuring skill sets. So one of the only ways to resolve that at the scale that it needs to be resolved is technology.

We saw a tail-off in M&A activity in April from what was a pretty strong January and February as COVID impacted that. And we saw companies going from monthly reporting and planning to weekly reporting and planning as they looked at their cash positions and as they engaged with their restructuring advisors on how they were going to navigate COVID. And the only way to disseminate that information to all of the relevant parties is through technology. So we’ve seen a pretty strong increase in demand for our products and services.

From your data-driven historical view of new deals across every vertical, what’s your forecast for the next six to 12 months?

I think it comes back to whether this is a V-shaped recovery or a U-shaped recovery, and certainly we do a lot of work in middle market M&A, and a lot of that is supported by private equity. So the leveraged finance markets opening back up is going to play a key role on whether activity is high inside of six months or

whether it’s more U-shaped and it’s pushed out beyond 12 months.I think one of the real drivers that we see, as private equity companies look at their current portfolio and look at potential targets, is how the combination of existing or two or three potential targets being brought together, what kind of value could be unlocked with that play rather than just a single asset using a historical valuation model. And some of those combinations are starting to look quite exciting in terms of what that could look like. And if the leveraged finance markets come back, certainly with the stimulus packages, the amount of money that’s being pumped into the economy, I think we’re pretty excited about what that could mean in the next six months, especially around life sciences, pharma, biotech, medical device.

Are there any thoughts that you have around the technology and how important that could be to a business? I know with Dropbox and lots of other technologies that people think of, oftentimes running the infrastructure of a business that can have huge impacts on efficiency and labor savings.

What’s been your feedback of businesses that have maybe not implemented to their fullest?

I think as companies have faced the work-from-home environment and COVID-19, there’s going to be some lasting impacts on what that looks like. Sometimes tactical decisions have a habit of becoming strategic in a time of crisis. So I think having good technology governance, having a board that has a technology strategy would be really good for any company coming out of this situation.

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