Business is as Usual at Private Equity Firms Amid Covid-19
The coronavirus crisis regarding health is unprecedented in its impact. Economically, there are many unknowns regarding its effect on business activity and consumer behavior as well, if the lockdown extends and persists for an extended time.
In this situation, private equity clients are positive in looking at new investment opportunities in countries recovering from post-COVID-19. Thought the task of transition to remote operation seemed to be daunting as players expect one-on-one interaction, it has become successful and businesses are turning in as usual. People are getting accommodated to make decisions in their living rooms. Virtual meetings are effective as compared to face-to-face meetings.
The best private equity firms are witnessing a growing business opportunity as banks and non-banking financial companies turn reluctant in offering loans. This has become a blessing in disguise for the PE firms. The new normal where there are less travel and more online sharing through collaboration tools like Microsoft Teams or Cisco WebEx is becoming more prominent in all kinds of PE firms irrespective of industry or location.
COVID-19 has just accelerated the digitalization process as the private equity industry was already in the process. Plus, the green theme contributing to the economic recovery is also in focus. Many industries are standardizing their Environmental, Social, and Governance (ESG) criteria to meet the norms.
Private equity players affirm that PE share could go up to 8-10 percent as per research. NBFCs possess a 20-25 percent share of the overall credit basket. Top US private equity firms like KKR offer the products as per available data. KKR knows US foods very well and in April, KKR bought USD 500 million convertible preferred stock in US Foods carrying a dividend of 7%.
A few of the predictions are enlisted below.
Predictions for PE firms post COVID-19
Private equity firms are in a position to become the buyer of any assets coming up for sale. A few of the predictions include-
- It is predicted that strategic investors may pull out of the merger and acquisition space to preserve cash. Innovative financing instruments and technology will be in focus while investing.
- The mountain of dry powder -2.5 trillion dollars might force General Partners to lookout for deals, as valuations retreat in the economic turmoil caused by COVID-19.
- Private lenders may fill a few of the gaps left by banks. Banks are moving away from the buyout market.
- PE debt funds have a substantial capital that can be put to work by providing financing for new deals. They may also provide liquidity for businesses to experience short-term dislocations.
- Also, they may provide bridge financing with an attractive risk or return profile and seek control over companies in distress.
- High-valuation deals that occurred before the downturn is under pressure for performance.
- However, exits may drop, and holding periods of assets might extend as sellers wait for the market recovery.
Given the uncertainty period owing to the COVID-19 crisis, it might be impossible to predict the longer-term impact on the performance of the industry. All these things will depend on the duration of the lockdown and how the recovery period shapes itself.
At this juncture, let us understand the condition of professionals seeking private equity careers. In the wake of the previous crisis, PE firms have new capabilities as they have learned to navigate a crisis. Continued strength in PE firm fundraising has led to aggressive hiring across the US and around the world.
Private equity professionals must get updated with new technology adoption, consumer-focused investment, and gain sector-specific experience. Get your hands-on consumer investment experience to level up your career in the ever-growing PE industry.