COVID-19 Changes in the Private Equity Sector

Businesses are unusual owing to coronavirus pandemic. COVID-19 has brought challenges in lives and livelihoods alike. At this juncture where lockdown is still in place, and there is no prediction of the lifting of lockdown in many countries across the globe, the economy prediction cannot be done accurately. We can just speculate how COVID-19 will affect various sectors including private equity firms.

PE firms are working diligently to ensure the safety of employees and customers and supporting portfolio companies. However, as lockdown continues and coronavirus keeps hitting people with no near-future predictions for its management, PE firms are turning to other challenges. COVID-19 has led to uncertainties in the industry.

A few of the changes are briefed here.

COVID-19 Crisis: Changes in the private equity industry

Market sentiment

The recent crash in the economy has compelled the investors to follow the ‘wait and see’ approach to a stable market that can be visualized. Many are cautious in investment decisions, as they are unsure of market-changing into buyer’s or seller’s market. Potential investors are holding cash and looking for a sharp drop in valuations to control any assets on sale with a notion to gain a higher return on capital in the future.

The investors are vigilant in stabilizing their portfolios whereas the sellers are hesitant to part with their assets. There exists a mismatch between the buyer and seller creating a zero-deal making.

Transactions

The transactions at US private equity firms that are in the final stage of execution or negotiations are continuing but at a slower pace. Some transactions have got postponed too, that would be activated as the crisis ends. The team involved are left with new risks like changes in clauses, material adverse change, long stop date, and so forth.

Private equity exits

The deals that got signed before the crisis and structured transactions are moving smoothly, but traditional PE exits have slowed and dropped to 70 percent in May 2020 globally. The reasons behind this fall could be attributed to –

• Difficulty in conducting due diligence – visit the facility or face-to-face interaction not possible
• Lowered valuation- a sudden shift
• Time and management diverted to humanitarian and health-related issues
• Several companies have suffered an economic hit

Companies are unable to exit backed by these causes and require additional time to prepare for exits.

Planning

The recession has exposed the weaknesses in the strategies of man companies and made them rethink. Many companies are rethinking their strategies and envision different customers and competition in the years ahead. Most of them are not reworking on the existing model, but thinking of a new strategy all together with a clear-eyed vision for the future. COVID-19 impact is both positive and negative. Smart companies are adapting to the next new normal as the ambition of the businesses is changing.

Moving forward, let’s see how the coronavirus crisis has influenced private equity careers here.

COVID-19 Crisis: Changes in the private equity career

The influence of coronavirus crisis on human lives and the global economy is still uncertain. PE firms are ensuring that their employees prioritize their and their family’s health and stress levels. Private equity professionals must get upskilled themselves with the new remote technology and back-office infrastructure. They should get engaged in virtual training, telehealth services, and gain appropriate knowledge for the new operating model. They must become tech-savvy too and maintain connectivity with the organization amid critical conditions.

To conclude…

A downturn is an expected norm in the lifecycle of a business or a person. Getting prepared oneself with the changes and quick learning to adapt to the changes is the way. Demonstrating greater efficiency and the ability to scale should be the roadmap for a bright future.