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Why "I Do Not Discuss Politics" is a Dangerous Mindset for Lower Middle Market (LMM) Executives

Written By: Gerald O’Dwyer IIThe PE Guru — Blackmore Partners, Inc | December 10th, 2024

In today’s interconnected world, the mantra “I do not discuss politics” is not just an outdated stance—it’s a potentially costly oversight for executives in the lower middle market (LMM), particularly those leading private equity (PE) portfolio companies. Politics, after all, shapes policy, and policy directly impacts your bottom line and your ability to execute strategies effectively to achieve a successful exit.

Ignoring politics could leave you blindsided by critical shifts in regulation, taxation, trade policies, labor laws, or environmental mandates—all of which influence the industries we operate in. This article outlines why executives must embrace political and policy analysis as part of their strategic toolkit, how this awareness aligns with PE priorities, and offers a practical, actionable model for addressing these challenges.

Why Policy = $$$

  • Regulation Risk: Consider a PE-backed manufacturing company. Sudden changes in emissions regulations could force costly upgrades, jeopardizing margins and valuation at exit.
  • Tax Policy: Shifting tax codes may influence corporate strategies, such as the decision to retain earnings versus distribute dividends.
  • Labor Laws: Evolving workforce regulations could demand adjustments in hiring practices, wage strategies, or benefits packages.

13 Industries as Examples of Policy Impact

  1. Automotive: Regulatory shifts around electric vehicles (EVs) and emissions.
  2. Healthcare: Legislation affecting pricing models or reimbursement rates.
  3. Real Estate: Interest rate changes and zoning policies.
  4. Energy: Renewable energy mandates and fossil fuel regulations.
  5. Technology: Data privacy and security laws like GDPR or CCPA.
  6. Pharmaceuticals: Drug pricing reforms.
  7. Consumer Goods: Import/export tariffs and labeling requirements.
  8. Financial Services: Changes in banking regulations.
  9. Aerospace & Defense: Government procurement policies.
  10. Transportation: Infrastructure spending and trade agreements.
  11. Food & Beverage: Labeling laws and agricultural subsidies.
  12. Retail: Online sales tax legislation.
  13. Construction: Building codes and green certifications.

A Practical Model for Policy Awareness

1. Build a Policy Analysis Framework

  • Identify key policies influencing your industry.
  • Track proposed legislation and anticipated impact timelines.

2. Leverage Tools like PitchBook and Cyndx

These platforms provide real-time data and trend analysis, equipping you with actionable insights to assess risks and opportunities.

10 Ways PitchBook Supports Risk Assessment

  1. Detailed industry reports with real-time policy analysis.
  2. Private and public company financials influenced by policy changes.
  3. Data on M&A trends impacted by regulation.
  4. Venture funding shifts due to tax credits or incentives.
  5. International trade and tariff analysis.
  6. Competitive benchmarking under new policy conditions.
  7. Exit valuation drivers shaped by policy.
  8. Litigation and compliance risks by sector.
  9. ESG metrics impacted by regulatory shifts.
  10. Macroeconomic and policy research.

Cost: $28,000/year (free with select conference access).

10 Ways Cyndx Helps Build Risk Assessments

  1. Comprehensive market mapping to identify exposure to regulatory risks.
  2. Trend analysis in industries impacted by government spending.
  3. Supply chain assessments under shifting trade policies.
  4. Stakeholder insights influenced by political decisions.
  5. Predictive analytics for policy-driven market changes.
  6. Competitive landscape shifts due to legislation.
  7. Labor market impacts by region.
  8. Scenario planning for tax and compliance costs.
  9. Sector-specific risk heatmaps.
  10. Peer benchmarking under new policy landscapes.

Cost: $15,000/year (free with select conference access).

Access Tools at No Cost

If the cost of these tools feels prohibitive, many conferences provide free access to these platforms during their events. Attending a full BlackmoreConnects conference could save you tens of thousands of dollars while equipping you with the knowledge to make informed decisions.

Useful URLs for Reference and Further Learning

  1. PitchBook: www.pitchbook.com
  2. Cyndx: www.cyndx.com
  3. BlackmoreConnects Conferences: www.blackmoreconnects.com
  4. Regulatory Research Tool: www.govtrack.us
  5. Policy Analysis Resources: www.brookings.edu
  6. Industry-Specific Policy Insights: www.bls.gov
  7. Global Risk Tracking: www.weforum.org
  8. Tax Policy Updates: www.taxpolicycenter.org
  9. Environmental Policy Tracking: www.epa.gov
  10. Trade Policy Monitoring: www.trade.gov

Conclusion

Lower middle market executives cannot afford to turn a blind eye to politics. Instead, they must embrace a proactive approach to understanding how policy influences execution and exit strategies. PE investors expect executives to not only know the key drivers in their industry but also to anticipate and mitigate risks stemming from policy changes.

Utilizing platforms like PitchBook and Cyndx, combined with regular participation in PE-focused conferences, provides a clear path for staying ahead of policy risks. By taking these steps, executives not only protect their companies but also position themselves as knowledgeable, forward-thinking leaders that PE firms value.