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Continuity Plans in an Age of Natural Disasters

Private-equity firms in southern Florida and Houston likely have renewed appreciation for the Boy Scouts of America motto, “Be Prepared.”

As the winds calm down and floodwaters recede in the wake of Hurricane Irma, many private-equity investors across southern Florida continue to cope with widespread power outages. In Houston, firms and their portfolio companies face a massive cleanup after Hurricane Harvey devastated the area last month. But those firms that implemented and tested effective business continuity and disaster recovery plans could have experienced the disruption a bit less acutely.

Unless they are registered as broker-dealers with the Financial Industry Regulatory Authority, private-equity firms typically aren’t required to develop and maintain written business continuity plans to address an emergency or other significant business disruptions. However, that may soon change. Last year, the Securities and Exchange Commission proposed a new rule that would require registered investment advisers to develop such plans, although the rule hasn’t yet been finalized.

Whether or not such plans are required, recent events only underscore their importance.

“If you’re any kind of business, and you don’t have some kind of continuity plan, whether it’s an informal, semiformal or a formal one, you’re making a huge mistake,” said James Cassel, chairman of Miami-based Cassel Salpeter & Co., an investment bank that has helped private-equity firms shop deals.

Continuity plans typically include tasks for providing alternate work locations to employees, implementing backup data systems and data recovery plans, and crafting emergency communications procedures, as well as educating employees on actions they should take in the event of an emergency.

Mr. Cassel said his firm engaged its continuity plan before Hurricane Irma hit Florida and has been in touch with employees who have evacuated to places as far away as Mobile, Ala., and Mexico. Although the firm’s Miami office is still closed because of flooding in the building, he added the bank remains operational, thanks partly to steps it took to stay in communication with employees.

Meanwhile, Sun Capital Partners, which is based in Boca Raton, Fla., formalized its business continuity plan after Hurricane Wilma hit Florida in 2005, according to Managing Director Scott Edwards. This time around, the firm officially activated its plan on Tuesday, Sept. 5, roughly five days before Hurricane Irma hit the Florida Keys.

“We were watching the storm as early as two weeks ago,” said Mr. Edwards.

As part of its continuity plan, Sun evacuated a pre-identified team of personnel that is responsible for keeping the firm’s day-to-day operations going during emergencies. It also closed its Boca Raton office Thursday, Sept. 7, through Monday, Sept. 11, and instructed employees to dial into a hotline it set up to help ensure that employees are safe. As of Tuesday, Sept. 12, Sun’s Boca Raton office had reopened with power restored, and employees are gradually making their way back, Mr. Edwards said.

He recommends all firms adopt some sort of plan for responding to severe business disruptions, many of which can be impossible to predict.

“Have a plan that’s helpful and practice it, talk about it, and when you put it in place, go early,” said Mr. Edwards of Sun Capital.

Firms that don’t do so will likely discover the cost of failing to “be prepared” only after it is too late.

Source: Wall Street Journal