Navigating Private Equity Deal Making During a Pandemic

There is no doubt that Private Equity (PE) firms have tons of cash to put to work, but the Covid-19 lockdown measures are crippling operations. With travel restrictions, work from home directives, and economic uncertainty, it has become increasingly difficult for investment firms to do what they do best – scout around for lucrative investment deals!

The pandemic has changed the economy as we know it. US unemployment is at an all-time high since 1933 with some saying the worst is yet to come. Most sponsors are hardly making any placements and are instead choosing to hold on to cash owing to the growing economic uncertainty.

“I can’t take credit for the term, but it’s the Great Stay-In. Literally, everybody is staying in. On the deal front, the pipeline has been put on hold. We are in the middle of closing deals, but they were already in process,” Randy Schwimmer from Churchill Asset Management said.

While PE firms have always been known as some of the most pandemic-ready players in the economy, there seems to be a growing concern over whether or not firms will be able to navigate the current crisis, while maintaining level heads needed to strike good deals.

Experts say much of the current economic slump is due to uncertainty. Most sponsors are reluctant to engage as the impact of the pandemic remains unclear. And as investors put deals on hold, lenders are also thrown in a state of wait-and-see.

Survival

But some firms are heavily relying on virtual meetings to strike deals. 

Brad Armstrong, a partner at Lovell Minnick, indicated that: “While many conferences and in-person meetings are being cancelled, we continue to have productive discussions with new companies via phone or videoconference; in the long run, that’s the biggest leading indicator of future investment activity for us.”

The financial crisis of 2008 was certainly detrimental to America’s economy. However, on a much smaller scale, it served as a greatly important test of the private equity market. Data shows that companies in the private sector ultimately suffered far less than those not backed by PE firms because unlike many other businesses, private equity investors are better-placed to combat recessions.

The nature of the current crisis might be different and more intense than the 2008 disaster. However, the funds held by PE firms have skyrocketed to over 1.4 trillion dollars, and are set to be deployed. 

According to Peter L. Briger Jr., the CEO of Fortress Investment Group, the pandemic induced crisis “will present an opportunity for good lenders to participate in the great reconstruction to lift us out of this.” It’s only a matter of time before we find out who will take the best advantage of it.

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