In light of the rapidly changing market environment following the Covid-19 outbreak we have spoken to over 20 UK and European Private Equity firms, across the mid-market, to gain insights as to the impact of this pandemic as well as to understand investment appetite over the short to medium term.
1 How is your portfolio performing given the current economic climate?
Overall media, information and technology-led businesses are holding up with the exception of those businesses directly exposed to challenged end-user markets and those reliant on in-person engagement for delivery of their solution.
More broadly, whilst there is a recognition that 2020 will be difficult on multiple fronts, over the medium term the underlying tailwinds across the sectors should drive recovery and growth
2 Where do you see opportunity to deploy capital over the next six months?
Capital deployment in the near term is likely to focused on three areas specifically: (i) opportunity / situation investments (e.g. restructurings and turn-arounds); (ii) bolt-on acquisitions for portfolios companies; and (iii) those sectors and business models which can demonstrate resilience through this crisis.
3 How is your pipeline of new opportunities?
Existing pipelines have largely dried up with most funds working internally on research projects towards building actionable opportunities for when the market comes back.
4 When do you expect to make your next platform investment?
Most funds are expecting a six-month hiatus given the uncertainty with the view being that markets will re-open in September for platform investments. A small number of funds believe that there will be opportunities which fit their profile in the next three months however.
5 Are your portfolio companies likely to be acquisitive in the coming months?
Funds remain open minded about add on acquisitions, acknowledging that there will be situations to add capability, scale and talent as competitors struggle.
Overall media, information and technology-led businesses are holding up and whilst there is a recognition that 2020 will be difficult on multiple fronts, over the medium-term the underlying tailwinds across the sectors should drive recovery and growth
Navigating the current environment with significant amounts of dry powder is a challenge that many European private equity funds across the board are have highlighted
In theory, a record amount of cash being available to spend should allow firms to be opportunistic. In practice however, the economic, social and financial uncertainty coupled with logistical challenges around deal execution means that new investments will be very difficult to execute in the near-term
Having said that, in the last week alone we are now seeing private equity funds start to put their heads above the parapet and look to future investments rather than inwards at their portfolio and we expect this trend to continue over the coming weeks to ensure they are able to act quickly when the market “reopens”