Private equity firms are promising during this pandemic COVID-19 crisis. See how PE firms face the crisis and how they can help portfolio companies and employees.
The coronavirus (COVID-19) episode has prompted worldwide humanitarian difficulties to address. The widespread concern is the financial hardship for organizations, consumers, and communities far and wide. This fatal pandemic infection is constraining several economy sectors to close down putting a huge number of individuals unemployed.
As the pandemic deepens leading to human losses and shocking world economy, companies are taking actions to protect their employees and customers by minimizing economic losses. Although few organizations are working out their business coherence plans, they may not address the unknown factors caused because of this COVID-19 pandemic.
Emergency contingency plans may guarantee operational efficiencies but nobody is set up for widespread quarantines, travel restrictions, business, and community disruptions. However, one industry that stays promising and may discover a chance to develop during this pandemic is the private equity (PE) industry.
The PE industry buys underperforming companies with borrowed money, improve their operations, and eventually sell for a profit. At the point when the economy starts to indicate a downturn, it is critical to plan the common tendency to rebalance. It is how we prepare to manage the risks. And, private equity firms are prepared for it. General partners will be making deals as they have raised $1 trillion capital called ‘Dry powder’ in 2018 to deploy in the next downturn.
Likewise, PE firms are executing innovative ways for operational plans through Artificial Intelligence, Machine Learning, Automation, and Robotics. PE firms are finding ways to profit from the current crisis as they did during the great recession of 2008.
Many private equity firms are planning to lend or buy stakes of the organizations struggling with the fallout. The top private equity firms like Blackstone, KKR, Carlyle has a record $1.5 trillion in cash and are actively seeking deals. Furthermore, they are exploring to buy minority stakes in public companies to receive an immediate cash infusion.
Pennant Park has $3.5 billion in assets and may lend to 135 companies. They are looking for avenues to allocate capital. Many well-known businesses have turned to Wall Street firms and commercial banks. Many have issued bonds to investors. The biggest deal of 2020 is that of Aon Pic’s $30 billion acquisition of Wills Towers Watson Pic. Nordic private equity firm EQT AB has entered into discussions to buy Air Liquide SA, a French industrial-gas company dealing with hygiene products.
Meanwhile, private equity funds’ portfolio companies in Spain, the hardest-hit country by the coronavirus pandemic have initiated actions to alleviate the corona pandemic. They are donating money and food, manufacturing masks, respirators, and other medical equipment, funding scientific research, providing free accommodation, artificial intelligence platforms for service of society, among many others.
Though the PE industry is in the resilient mode in the current crisis, they need to have actions and priorities through the social citizenship perspective. Let’s explore more about this here.
Priorities of PE firms during the pandemic
Many leading and best private equity firms have already started these processes. Here is a quick view of the priorities a PE firm should take during this pandemic.
PE firms must ensure that their employees prioritize their and their family’s health, energy, and stress levels. They need to expand their remote technology and back-office infrastructure. Further, they can promote virtual training, telehealth services, provide appropriate training for the new operating model. They are in a position to maintain connectivity with the organization amidst critical conditions.
PE firms must maintain their machinery running, continue evaluating investment pipeline, maintain investment-committee discussions, and manage all the processes as it was. Further, they should interact with their portfolio company leaders, private equity association members, and review meetings virtually as much as possible to reduce lead time on action plans. This would enable to respond faster to the prevailing and emerging challenges in a smoother way.
Support for Portfolio companies
PE firms must get clarity on where their portfolio companies are struggling, need support and deliver the same. The industry sector on which the portfolio company operates may affect their growth. The portfolio companies serving in healthcare or essentials must operate at the peak, while others may face unexpected drops. They need to help with allocating time and resources.
Support for limited partners
Limited partners look forward to the private equity firms to talk about the investment scenario during this kind of humanitarian crisis. PE firms must reinforce the value and credibility of sponsors with full support.
In a nutshell…
The influence of COVID-19 on human lives and economic damage is still uncertain. The underlying companies have thousands of employees are confused and looking forward to directions during the crisis. At this juncture, private equity firms must move quickly and decisively on new investments, support existing companies, and its employees, while positioning themselves to recover from this pandemic COVID-19 crisis.