ComplianceSeptember 29, 2020

CT expert insights: Business growth amid the pandemic, with Tom Bohn

In this edition of Expert Insights, Tom Bohn, the president and CEO of the Association for Corporate Growth, talks to us about the state of business growth today, available resources, and what we can hope to see post-pandemic. Tom shines a light on positive elements in the CARES Act as well as oversights that limited the amount and type of businesses that could benefit from it. Tom also discusses mid-market businesses—what they are, who is doing well (and getting creative) despite the current circumstances, and who are faced with the biggest challenges. Plus, Tom weighs in on the pandemic’s effect on private equity and what the long-term impact will be.

Transcript:

Greg Corombos: Hi, I'm Greg Corombos. Our guest this week on Expert Insights is Tom Bohn. He is President and CEO of the Association for Corporate Growth. For many businesses, growth continues to be elusive in this year dominated by the pandemic, but it's not impossible and there are resources to help.

So for the next few minutes, we're going to discuss what Tom sees as the positive impacts of the CARES Act and what improvements ought to be made to that legislation, or in other areas to help businesses and business owners. We also want to get Tom's assessment of how the pandemic is impacting specific sectors and activities in the business community. And, Tom, thanks very much for being with us.

Tom Bohn: Hey, Greg, thanks so much for having me. Really appreciate it.

GC: Well, it's great to have you with us. You testified just last month in a congressional hearing about some of your frustrations mostly in response to the pandemic. But let's start with any positives. What are you hearing from businesses of any size about how the CARES Act, the PPP, or other provisions have helped them over the past several months?

TB: Yes, absolutely, there are some positives. So when the PPP first came out and, what we know is, the PPP provision, which gave essentially grants to businesses of various sizes to keep employees on their payroll, it worked really well. Banks got behind it. Businesses got behind it. The money got into the right hands and it kept a lot of people employed.

The challenge has been, though a couple of things, is that the money ran out. And they didn't have any plans for how do they replenish it because remember, this is supposed to be a maximum three-month thing and here we are well beyond three months and with no end in sight, at least until the end of the year. And a lot of businesses still suffering figuring out where they go from here.

GC: Now, you testified before lawmakers on some of the problems of the system including how the ACG, for example, was not able to qualify for loans including through the Main Street Lending Program. So explain what happened there and other frustrations you've personally had with this and how it's impacted you.

TB: So the Main Street Lending provision was at least as we had heard it from the early days was supposed to be that lending vehicle that was designed to help those who were not able to tap into the PPP or the grants to keep jobs in place. So we were very excited. In fact, we had given a lot of commentary about the Main Street Lending provision of how to set it up, how to utilize it, what types of restrictions could be put in place to make it viable.

And then it came out. And not only did it exclude the same businesses that were excluded from the PPP, but it took even further steps from excluding businesses by putting very tight restrictions on EBITDA. You know, the amount of EBITDA each business had and their time in business. It certainly excluded private equity or affiliated based companies through a number of provisions. It continued to exclude 501c(6)’s.

For us as an association that doesn't do any lobbying, DC based lobbying, and many of us were event based, have really been impacted. So we tried to go through the Main Street Lending provision to support our team and to invest in some new programs and projects and actually hire people. We were completely blocked out of it. So it's like we went out there to talk to our members, and we have just about 15,000 members, and we asked the question, how many of you have tapped into the Main Street Lending Program? What types of loans did you get? And it was crickets. We couldn't find anyone who benefited in a positive way.

That's what Congress is seeing and in that joint congressional testimony I gave for the oversight commission that is supposed to look into all this. So a lot of frustration with that and don't see any real hope that it's going to get corrected in the near future.

GC: What did you hear from lawmakers at that hearing, Tom, that gives you either reason for hope or reason for discouragement. And how have you managed to work around the hurdles that these bad loopholes in these programs have created for you?

TB: Well, I think what gives me hope is that there's an election coming up. And anytime there's an election coming up, elected officials want to put their best foot forward into, at least seem to be doing what's in the best interest of their constituents. So I think there is a possibility that we are able to carve a path towards a second round for kind of a CARES ACT 2, if you will.

I don't think changes to Main Street Lending based on what I heard that day are forthcoming. There are a couple of people on that panel who felt that needs to be completely abandoned and start over. But there were people, Senator Toomey, one of them, from Pennsylvania, who felt that it absolutely needed to be fixed. That it was intended to keep people employed. And we're hopeful that that's going to happen. But you know, it's just not moving quick enough right now.

GC: We're talking with Tom Bohn. He's the President and CEO at the Association for Corporate Growth here on Expert Insights.

Tom, we hear a lot in the headlines, certainly in the early days of the pandemic, but even since then, about the impact on the biggest corporations, and we discussed the challenges facing small businesses right now pretty frequently on this podcast, but let's talk about mid-markets for a little bit. You focus on them quite a bit.

So first of all, for those who aren't super familiar with them define what constitutes a mid-market business and what you're seeing from them in this pandemic, both encouraging and challenging.

TB: Yeah, so essentially, we define mid-market as essentially ten million to just at billion in annual revenue. So it obviously constitutes a huge part of our economy. We think of it as the economic engine for the US economy. Deal flow is definitely out there, but it's out there in particular industries that have, you know, done well through COVID.

So we're seeing really good things in healthcare. We're seeing lots of deal flow happen in veterinary space, believe it or not, a lot of, you know, this was a pet nation before this happened, it's even more so now. So that industry continues to grow, and a lot of money continues to go its way.

The industries, though, that have been relied upon for face to face gatherings and meetings have really, really been hurt. So we see everything in the hotel, motel space, we see restaurants that are predominantly in the middle market really being impacted.

We also see a lot of creativity. So there were breweries in places like St. Louis, that were these large breweries where people would come in and do craft beer and cocktails and that type of thing. And for a long time, they couldn't open. They pivoted to making things like hand sanitizer and other companies making things like face shields. So folks are being really creative, but we're so right now in that 75% economy as they, as they like to call it, because, you know, we still we see about 75% of it there, but we're missing a good 15 to 25% of what it used to be when we were able to meet and gather.

GC: Obviously, some of those businesses that are hit hardest by this—hospitality, restaurants, and so forth—as long as restrictions are in place they are the ones who are going to be struggling the most. I know a lot of them have put everything into takeout options and curbside trying to make up the difference. But as long as we're not back to “normal” what ingenuity are you seeing from them? What sort of different thinking are you seeing to help these and other businesses stay afloat?

TB: Yeah, so I mean, I think that what we're seeing is that this has definitely been the final push, if you will, into an online or an IT-enabled world. And you're seeing that now, certainly in the hospitality space, restaurants more than ever are harnessing the power of Open Table, and Uber Eats and Doordash and those types of things to really keep themselves afloat.

There are restaurants that we've spoken to that said they may not even go back to in-person dining, it's been so successful for them, or at least not in the near future. So anything tech-enabled, we've seen a really positive upside to it and any of the technologies that help it.

So again, in the vet in the medical space, a huge push now on telehealth, telemedicine, whereas before, it was kind of limping along, not really getting any of the traction that you think it would or should certainly, and now it's becoming one of those things that I think customers are going to expect it – they’re going to demand it and there's not going to be any going back on some of them.

GC: It sounds like a lot of these businesses and even sectors are not assuming there's really going to be a return to what used to be normal. You know, we started with a couple of weeks of the pandemic, and then it was a couple of months. And now we're several months in counting. It sounds like a lot of these businesses you're dealing with are planning for a new normal, as opposed to going back to the way things used to be.

TB: Look, things will never be the way they were, but I am bullish and think that there'll be better. So I think a lot of the things we've learned will be utilized on a go-forward basis. So even for an organization that's very live event heavy, we will continue to be live event heavy once we can get back to that. But I think now it's going to be a continuous 365 24/7 touchpoint that really harnesses the power of a lot of this technology that we've now built and put in place to keep the conversations going offline as well.

So there are some, you know, bright spots coming out of this and it's not all bad, but we have a long way to go I think to really get there and I hope Congress gets it. And I can tell you the congressional commission that I testified in front of, and the Fed themselves admitted that they don't really understand the middle market. And the legislation that came from the Main Street Lending provision absolutely showed that.

So there's work to be done there as well, to make sure that policymakers and regulators really understand how businesses run. That's the part I'm so surprised about. They don't.

GC: Wow—if the Fed and lawmakers don't understand what their policies are doing or who they're servicing, that is definitely an area for improvement. Holy cow.

TB: You think about the EBITDA ruling. So you think about you know, you got to have a certain percentage of EBITDA on your bottom line. But if you look at an average middle-market, family-owned business, Greg, you know that they're doing everything they can to minimize their bottom line for tax planning and other types of purposes. So you see that type of thing, you don't have to be an MBA to understand that that's part and parcel of running a small/medium-sized middle market business.

So to put particular things in place like that really encumbers the ability to get the money to the places we need it and to keep jobs which that was the intention. I believe that their intent was absolutely right. I just think that bad policies and some bad perspectives got in the way.

GC: Tom, just in our last couple of minutes here, I want to circle back to something you mentioned earlier that I think we would both consider important and that's the impact that the pandemic is having on private equity. What is the overall effect that the pandemic is having on that and what do you see as the long term impact?

TB: Yeah, so a couple of things. One is we are seeing obviously deal flow has slowed, right. So it's slowed, but you're starting to see it pick up. It's pretty, pretty good. And in certain areas, like I said, certain industries. What we're seeing now because of COVID is a lot more focused on the diligence process. So extended diligence periods, you know, lots of additional legalistic activity covering potential COVID fallout and those types of things. But we also are seeing a lot of people ready to go in and use this is an opportunity to, you know, invest in businesses that are healthy, have been healthy, but are having a temporary impact from COVID.

So, I think a lot of upside too. I mean, at the end of the day, private equity is continuing to grow. There's still a lot of money in private equity on the sideline, and we think the upside is still going to come, you know, but they're also saying there are a number of CEOs saying they won't buy without an in-person visit. So getting that travel back, or at least in some respect is going to be very, very important.

GC: So without as many deals and if this continues for a while, what's the long-term impact of that? You've got already addressed it to some extent. But as you look down the road and there are fewer mergers and fewer acquisitions, how does that domino effect play out?

TB: Well, I think that obviously there is going to be potential for, you know, certainly longer hold times. They're going to hold on to businesses a lot longer than they have in the past, which may not be a bad thing. There's going to be possibly a shift into doubling down or expanding existing businesses and shifting some of the money into looking at the existing businesses or in how do they grow them.

But the folks I'm talking to in the private equity world are actually incredibly bullish right now, still. I'm not seeing the negativity there or the long term concern right now as a short term frustration. But everyone feels confident that come the new year, we're going to start to slowly pivot, slowly, back to the way things were. A combination hopefully of therapeutics but also have a vaccine or vaccines plural that could come into play.

GC: Certainly a lot to watch. And one of the great things about investors, of course, is that they're usually bullish, certainly in the long term. And it's good to see that that's still the case here. Tom, thanks very much for your time today. We greatly appreciate it.

TB: Greg keeps doing a great job, man. Thanks so much.

GC: Tom Bohn is President and CEO of the Association for Corporate Growth. I'm Greg Corombos reporting for Expert Insights. For more information on this topic, please call CT at 844-787-7782.