The pandemic laid its forceful hand on the global economy 2020. After hiccups and initial losses, many industries strived to get back to normal. Each aspect of a business – it could be sourcing talents, maintaining supply chains, redefining digital brand strategies, improving cybersecurity, or engaging customers – wanted a restructuring or redesigning.
Let’s talk about the private equity industry here.
The portfolio companies needed a complete rethink representing massive challenges and opportunities as well. The one positive thing here is that the private equity firms have not forgotten the challenges brought about by the global financial crisis 2007-2008. The lessons learned from the great recession had made the PE firms stronger than ever before and were prepared to move forward. It has dry powder in surplus too. PE leaders may use their historic expertise and capabilities to position themselves for long-term success.
Amid the turbulent times, political uncertainty, tensions caused due to COVID-19, the aggregate deal value soared in Q3 2020 with USD 313.97 billion to credit. In leaders’ words:
• A great M&A activity may happen post-COVID, says Robert Olsen, Deloitte’s Global Financial Advisory Leader.
• Market dislocations caused by the pandemic are most likely to create new opportunities for the industry. Given the long-term investment scenario, PE firms are in a way positioned to help businesses seeking ways to economic recovery, reports Markle.
In brief, as long as the PE firms have dry powder and know to source deals, they will have opportunities ahead -with or without a recession. The private equity industry is one such industry that can create value through challenging economic situations. The PE firms are able to guide portfolio companies in management, help businesses to grow, and thrive in challenging situations. In summary, they are ready to invest in companies where others rethink to act.
Further, IHS Markit teamed with the merger market and came up with this research result in their interview with 30 private equity executives.
• 37% of respondents will focus on managing downside risk for the upcoming year.
• ESG will become the priority for top private equity firms, small, and mid-sized firms as well.
• 23% of the respondents will not change their present strategies.
• 20% of the respondents would focus on bolt-on acquisitions. It might help them to fit with their ongoing portfolio companies.
• 57% want to adopt a standardized reporting policy for fund performance. It would help them to fight fraud while improving transparency.
• Some of them were determined to pursue small investments only.
• 36% of the respondents have decided to expand their impact investing.
Also, respondents plan to diversify asset classes. This indicates a growing demand among investors for distressed opportunities, and fund managers are addressing them. They are also planning to tap into advanced digital technologies, simplifying compliance, and drive value in due diligence, portfolio analysis, and monitoring of the deal pipeline.
Apart from this the immediate concern for the PE firms is to maintain internal operations. Though remote working is helping, the firms are concerned about data security, sustain relationships with partners, conduct due diligence, and scrutinize assets. It is a real challenge when the team is distantly located. However, 50% of the respondents are considering downsizing their office spaces or transitioning to a remote working approach completely. The remaining see it as an invalid approach for the long-term.
Above all, the investors, regulators, and politicians are also demanding higher transparency by PE firms. Mention not to say, the Stop wall street looting act of 2019 bill may get passed putting the PE investors in a legal category, limit the legal protections, and diminish the incentive to take risks.
Challenges are in abundance. But the PE firms are ready to fight. PE firms are looking forward to post-pandemic rewards!
Are you interested to take a private equity career and join the troop? Think over it.