COVID-19 Crisis is causing Private Equity to rethink CPG Investment Strategies

The COVID-19 Pandemic has created an unprecedented time of uncertainty and is pushing consumers to pile up their food stocks in anticipation of a shortage occasioned by strained operations in the manufacturing and distribution sectors.

While this has generally boosted retail sales especially for food and beverage brands, it is altering how PE firms will be investing in Consumer-Packaged Goods (CPG) moving forward.

Firms are seeing a situation whereby there will be a surge in demand for immunity-boosters during and after the Coronavirus age, coupled with a few other popular products including free-form, plant-based, and low sugar.

As per the COO of Cambridge Companies SPG, “It is safe to say that there is no getting back to normal after this public health crisis subsides.”

“This event will help bolster the health and wellness industry, and immunity support will continue to flourish, and spur new innovation across the sector.”

Already, companies dealing in immunity-based products such as Zhou’s Elder-Mune gummies have reportedly run out of stock. Vive Organic, an immunity shots firm has seen its sales soar to all-time highs and according to them, the trend is not expected to slow down any time soon.

“It’s possible that over the next three to ten years, concerns around the flu and boosting our immune systems will remain at a new high, and this will, in turn, drive purchase behavior and intent,” Vive Organic CEO Wyatt Taubman said in a statement.

Long-term Impact

Experts expect the sales of new CPG brands to be impacted by the pandemic in the long term. As consumers plan for quarantine, it is typical for them to purchase products they wouldn’t typically buy. That is gradually becoming a national demo program that companies are being paid for.

Brands are also betting on the new consumer habits to expose their products to the masses, have customers use them and have positive experiences, and opt to incorporate the items in their daily routines once normalcy eventually returns.

In an unforeseeable future, firms are expected to focus on CPG brands but perhaps more specifically on health and wellness daily use products.

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Challenges and Opportunities: US Private Equity Outlook in 2020

The outlook of the year has dramatically been impacted by the COVID-19 Pandemic, with investment strategies, portfolio companies and private equity firms being severely tested. But even without the pandemic, many factors that complicated matters in the last year continue to plague PE markets in 2020, defying general partners (GPs) and their time-tested protocols, but they also present opportunities for those daring enough to strike when least expected.

In terms of challenges, the presence of excessive dry powder in the markets continues to haunt firms, mostly occasioned by diminishing opportunities in the wake of an increase in the number of PE firms. 

According to Preqin’s Global Alternative Report for 2020, there are more than 8,400 PE firms globally with the US accounting for up a substantial chunk of that number, leading to a sharp spike in firm-to-firm competition. This has left thousands of PE firms with billions in unspent capital. 

And even as the number of firms and dry powder continues to rise, the amount of companies and ventures that may be available for sale has almost remained the same. Firms are avoiding auction processes because they believe it rapidly raises the multiple. In turn, the intensity rises as price tags go up.

With multiple funds participating in deals, firms are avoiding attracting cash only to strike deals two or three years later as it would make them appear incapable of employing capital or simply inferior.

But amid the challenges of being able to strike deals, firms have no choice but to somehow scout for deals – to enable them to put the contributed capital to work.

Challenges sire opportunities

With the COVID-19 Crisis, the Environmental, Social and Governance (ESG) considerations will bear far greater importance than before, with a focus on how PE firms will run and the enterprises they invest in. The current global pandemic will play a big role in catalyzing a shift to ‘green investing’.

Additionally, a need for greater transparency remains a top priority for firms and stakeholders, especially in portfolio management and performance. The growing importance of transparency and investor reporting is now reinventing opportunities for firms. At the heart of greater transparency and accountability lies technology, with digital solutions seen as the ultimate remedies.

In the past, PE firms tended to avoid tech-based companies as they were infamous for their high valuations. But these companies have demonstrated the ability to maintain strong revenue growths, resilience and solid fundamentals as most enterprises are now looking to digitize to stay in business amid the new normal that requires wide adoption of the ‘work-from-home’ approach.

Capital impairment is also relatively low in the tech field since applications are crucial and generally difficult to dislodge upon installation. 

In closing, deals in this sector have more than tripled over the last five years alone with the year-on-year growth rising to 26%. Considering how tough last year was for tech unicorns such as Uber and WeWork, there is certainly something to write home about in 2020.

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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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A Shift in Educational Technology Private Equity Investments

Educational Technology, otherwise known as the EdTech industry is among the few sectors where profit meets purpose. In recent times, there has been a rapid shift from gauging success in education from attendance to learning. Surprisingly, if today, you conducted a quick survey among Silicon Valley investors and entrepreneurs, you’re likely to conclude that there is still less emphasis on whether children are learning or not, and more focus on actual attendance. 

With the rise in impact investing, Private Equity (PE) firms have been at the centre of recent massive investments in EdTech. So far, more than $30 billion has been pumped across K-12 and workplace learning techs under five years.

PE firms are now attracted to investments in training systems, corporate education, and vocational training programs. While it may not be easy to fully comprehend the impact of education on uplifting communities, closing achievement gaps, or poverty eradication, the effect of private equity on the education sector is tangible and measurable. 

However, since the pandemic, schools and colleges are among the hardest hit. As of March 2020, 87% of the world’s student population has been affected by school closings. Graduation ceremonies, proms and other annual rites of passage have been postponed indefinitely or cancelled; but most importantly, students have been obligated to stay home, whether that meant they continued learning online or not.

Opportunities

Given the challenges faced in the past and today, many PE firms are now focusing on technology and vocational education. Developers will typically sell educational tech to schools and enterprises, where it helps decrease the cost of learning while boosting access to education.

As opposed to the conventional learning structure, vocational training offers skills-focused learning. The system nurtures innovation among learners, something that has caught the attention of PE investors.

According to CFA Jennifer Wong, Portfolio Manager at Glenmede, companies targeting lowering rates on student loans have received private equity backing in the past few years, which means some investors believe in their ability to generate returns. 

“You could also make the argument that on an impact basis, they have extended lower costs of education to more people. However, critics would also be quick to point out that while lower costs of education are now available, these products are not targeting those in most need,” Wong noted.

Moving forward, the Portfolio Manager at Glenmede projects a greater interest by Private Equity in impact investing in the education sector, coupled with an intersection between conventional financial players and pure impact investors.

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Differences in a Decade: Comparisons of Private Equity Then and Now

Private equity has undoubtedly undergone a dramatic shift from the last decade. As the role of PE evolves, people’s understanding of private equity has also shifted. A publication by Institutional Investor cited EY’s description of private equity as “one of the most profound shifts in the capital markets since the 19th century.”

But A lot has changed in PE over the last couple of years. We narrowed down our findings to two significant changes as highlighted below.

Fewer deals but more cash

One outstanding feature of today’ PE market is the amount of capital available for investment, with dry powder (amount of liquid assets or cash reserves available to an entity) recording new highs. Preqin, a data firm, estimates the presence of about $2.44 trillion of idle dry powder waiting to be invested in various sectors.

Due to the high volume of available capital, PE firms are closing more deals compared to the past years. By the first half of last year, an approximate $256 billion of leveraged buyouts had built up. Refinitiv noted that the figure was sufficient to qualify the first half of 2019 as the second-largest half in record.

A growing interest in middle markets

Another notable change seen in the current decade is a shift by firms to middle markets. Initially, medium-sized companies believed PE firms went only after the unicorns and multinationals. Indeed, nothing could be further from the truth.

The middle markets hold some of the most viable investment deals for PE firms. Despite much of the attention being focused on the large companies, their medium counterparts are presenting a formidable option for investors looking to grow their investments over time.

No doubt the 2010s were some of the most incredible years for private equity. The massive flow of capital coupled with growing secondary markets gave birth to a unique ecosystem for investment growth.

As firms continue to appreciate the importance and potential of middle markets, things are certainly bound to shift upwards.

And with a promising new decade, who knows what the roaring 20s will bring forth?

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Coronavirus (COVID-19): What this means for Private Equity Firms

Charlene Pedrolie.  What started as a mild virus outbreak at a city in China has now grown into a global pandemic, bringing global business operations to a standstill, while wiping billions of dollars from investors’ portfolios. Recent data as reported by Al Jazeera indicates that more than 25,000 lives globally have been lost to the virus so far, with the US currently leading in the number of new infections followed closely by Italy.

But for most investors, pandemics are not unchartered territories, despite the unique disruption of the order of business by COVID-19. Therefore, Private Equity (PE) firms are likely to be faced with certain issues, as outlined below:

Crisis Management and Response

Most underlying companies owned by PE firms aren’t meant to be held for a long period and as such, the companies may have fewer contingency strategies for dealing with emergencies. Besides facing the challenge of potential layoffs at portfolio companies, firms may also be faced with situations whereby hundreds of employees will be looking for direction and guidance during this crisis time.

Additionally, now more than ever, private equity firms may be dealing with increased cybersecurity threats owing to the significantly higher cases of remote system access by staff working from home and in quarantine.

Firms will need to establish crisis response structures for underlying companies, with clear responsibilities and accountabilities. Further, it will be important to identify and maintain key decision points to minimize the spread of the virus.

Finance and Liquidity

Firms ought to identify regions that have been hit hard by the crisis and quickly adopt new sets of rules and guidelines. Even with the ongoing calamity that has seen a sharp reduction in sales and revenue during the lockdown, private equity firms may still need to comply with conventional filing and compliance deadlines.

Lending indentures should also be taken to account as firms may be required to track and monitor related costs and losses.

To combat these challenges, PE firms may be required to monitor regulatory environments to stay on top of deadlines and compliance issues. It will also be necessary to review debt indentures with lenders and agree on how to deal with operating expenses and losses.

Customers

The COVID-19 outbreak has resulted in drastic changes in the behavior of both B2B and B2C customers. Customers have shifted from long term investments to necessities needed to survive the pandemic. Companies, on the other hand, have resolved to ramp down production to slow purchasing.

This means that private equity firms will need to drastically shift their business strategy, failure to which their survival may be at stake. Firms should consider revising sales strategies to adapt to the changing needs and preferences of customers.

On the brighter side, this is the perfect time for firms to consider venturing in new product lines such as the manufacturing of essential commodities. For example, medical and safety supplies such as hand sanitizers and masks are great bets right now. In other words, maintaining a balanced portfolio will guarantee a market rally during and after the lockdown.

Innovating and adopting dominant sales channels such as online stores as compared to physical stores may also prove worthwhile.

Feature image provided by:  123rf.com

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Upswing in Private Equity Investments in Healthcare Industry

The last decade saw investments by private equity firms in the healthcare sector balloon to record highs and according to experts, this new decade will not be any different. The analysts project a surge in investments in addiction treatment, mental health, and orthopedics.

In the US alone, PE deals in healthcare have more than doubled, according to financial data company Pitchbook. One of the most significant healthcare investments in the recent past is one by KKR, a $10-million injection into the purchase of Envision Healthcare. Around the same time, Evergreen Coast Capital and Veritas Capital took over Athenahealth in a public-private partnership deal.

In the face of global instability, last year’s healthcare industry deals by private equity hit a record $78.9 billion, made up of 313 deals, down from 2018’s 316.

Bain & Company’s Healthcare private equity practice co-leader  Kara Murphy in a statement said: “With valuation multiples arguably near a high, the bar is rising to invest and deliver differentiated deal returns in healthcare private equity,” adding “Funds will need to think proactively and creatively about their investment theses and put in a lot of hard work on value creation plans to deliver.  We are cautiously optimistic that investors that put in this hard work will continue to achieve industry-leading deal returns in the vibrant healthcare industry.”

Several variables contribute to the immense investments in the sector, mainly a growing need for healthcare. This primarily emanates from an aging worldwide population, treatment and growing incidences of chronic illnesses. Also, the rising levels of dry powder or uncalled capital need to be put to work. More individual and PE funds are investing in healthcare, given how well the sector held during the last recession as well as the current global COVID-19 pandemic.

As predicted by industry experts, last year was a period of continued investment in the healthcare sector. There’s no doubt that this year will provide more of the same, notwithstanding the current economic slowdown.

The entrance of PE into the healthcare industry will certainly prompt efficiency in the sector, resulting in long-term success while boosting healthcare service businesses’ valuations.

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Private Equity Firms Enter 2020 with Record-Level Unspent Capital

Private equity firms walked into 2020 with a record pile of cash. The firms, including Carlyle Group and Blackstone Group, have collectively close to $1.5 trillion in unspent capital, thanks to increased competition, which might have made it challenging to spend. 

According to a financial data company, Preqin, PE firms – which feature venture capital, hoarded $1.45 trillion of cash or “dry powder” to spend by the end of last year. That is more than twice the amount just five years ago.

Last year about $450 billion worth of private equity deals was sealed, and experts believe this could see a historical number of deals closed.

“We’re entering the year with people feeling much better about the economic and geopolitical outlook than was the case a year ago,” Carlyle global head of private equity research, Jason Thomas said.

Bernstein Research’s head of the portfolio strategy team Inigo Fraser-Jenkins said investors had been pushed away from public markets due to low returns, making private equity a formidable alternative.

According to him, the money flowing into private equity is hiking entry prices which could result in lower future returns.

“We think that the returns are going to disappoint. We also do not believe that over the cycle that it can de-correlate from public markets,” Fraser-Jenkins said during an interview with CNBC.

Low global yields have also contributed to swelling investment in the private equity asset class. When the 10-year Treasury yields plunged to below 2% last year, investors went in search of better returns, chief investment officer and founder of Quadratic Capital Nancy Davis said, further adding that private equity is not yet “a golden goose”.

But it is not just private equity that is piling up cash. Renowned investor Warren Buffet – the industry’s vocal critic – is also sitting on about $128 billion at Berkshire Hathaway. 

The company has in the recent times passed on several acquisition deals: In November last year, Mr Buffet stepped down from a fierce bidding battle for tech distributing company, Tech Data. He also wouldn’t buy jewelry giant Tiffany, when it was sourcing for an investor last year.

Unlike individual investors such as Buffet, private equity funds have shot clocks. PE investments have a life cycle of up to 10 years before fund managers get all the money out the door. But Bain & Co argue that Preqin’s $1.5 trillion estimate is mostly “fresh” cash that still has sufficient time to be invested before the maturity period.

“We don’t have concerns that it will go unspent. The question is, how will it be put to work? There’s no shortage of dollars to be put to work or industries to spend them on,” Bain & Co senior director Brenda Rainey said.

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Environmental Awareness Spurs the Beginning of the End for Beef

Many studies have urged us to eat less meat to improve our health, but scientists are increasingly recommending this lifestyle change as a way to help the planet. Cutting out meat, especially beef, benefits the environment by reducing climate change and the pollution of land and waterways.

Environmentalists have been warning about the growing carbon footprint of beef for some time, but it wasn’t until recently that meat eaters had a viable alternative: upstart companies such as Impossible Foods and Beyond Meat have redefined the veggie burger by replicating the texture of real beef.

Meat alternatives have been available in supermarkets for some time, in both meat cases next to real beef and in vegetarian aisles, but it was their inclusion in fast-food menus that catapulted these burger substitutes to popularity.

 

An Investment in Sustainability

Partnerships with global brands such as Burger King and McDonald’s have showcased Beyond Meat and Impossible Foods to become favored not only by consumers, but also by venture capitalists around the world.   

While investors have grown an affinity for ‘green’ ventures over the past decade, the overwhelming support for plant-based meats by Wall Street suggests shareholders are investing in more than just these two companies – they’re staking their claim in the future of clean meat.

Beyond Meat’s stock prices soared in its IPO last May, rising from $25 a share to almost $65 in one day, then spiking again at the end of 2019 after McDonald’s announced plans to test its ‘P.L.T.’ (plant, lettuce and tomato) sandwiches in Canada.

Rumor has it that the privately-held Impossible Burgers is valued at more than $5 billion; their products, made chiefly of soy and potato proteins and coconut and sunflower oils are found in over 17,000 restaurants, most notably in the ‘Impossible Whopper’ featured on Burger King’s menu.

 

Alternative Meat Investors are in Good Company

Richard Branson has expressed in his blog his plans for plant-based meat replacing traditional meat in roughly three decades. He has even invested in clean meat startup Memphis Meats, who is committed to developing the production of real meat from animal cells – without the adverse effects of feeding and breeding livestock, and eliminating the slaughter of animals.

 

Beef Production is Wasteful and Inefficient

Raising livestock is the world’s greatest consumer of land resources. Deforestation is constantly making way for cattle, while for every pound of meat produced, the animal is fed more than 13 pounds of grain. It’s been estimated that methane emissions from cows are equal to amount of greenhouse gas emissions produced by every car, truck and airplane on the planet. 

With rising awareness of the damaging environmental impact of meat production, consumers are open to protein substitutes now more than ever. 

Even though the production of meat remains high, it’s clear people are eating less beef overall. American beef consumption has dropped roughly one-third since its peak in the 1970s: dipping from almost 80 pounds to a low of 57 pounds per capita, according to 2017 data compiled by Agricultural Economic Insights, LLC.

As beef alternatives make the move from fringe to mainstream, they’re being embraced by burger lovers everywhere. It will still be a while before they replace the experience of cutting into a juicy piece of steak – but they’re working on it. 

 

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Top Trends from the Past Decade in Private Equity

The new year and decade present a period to reflect on industries’ past and future trends. Since 2010, investors have been battling with the effects of the 2008 financial crisis that left the global economy (and private equity firms) on its knees.  Deals slowed down from 2007 till the 2009 tickle, with fund managers facing increased pressure from investors over liquidity risks in portfolios. But during the decade that followed, private equity (PE) transformed into a bigger and bolder space with higher returns.  Here are top trends that shaped the last decade in Private Equity.

Private Equity went public

The last decade-long bull market featured a rise in private equity listings. PE was at the center of market deals, including historical mergers and acquisitions. In the past decade, close to nine firms that generally engage in private equity went public and listed on either NASDAQ or NYSE.

Most, if not all, the listing firms have two common goals – liquidity and capital acquisition. But the market has not been so kind to several new members. Out of the nine that went public over the last two decades, six are currently trading below their IPO prices.

So while the last ten years have seen a tremendous improvement in PE listings, firms have also been stripped billions of dollars in valuation.

Firms diversified

With the growing global competition, PE firms had to be inventive in a bid to established a stable and structured way of generating income. A company that initially invested in windfall energy would invest in a company that maintains windfall equipment.

During the last couple of years, firms embarked on diversification strategies into adjacent asset classes. According to the Dechert/Mergermarket report, close to 50% of interviewed firms confirmed they plan on diversifying as a crucial strategy, while another 32% said they are likely to take that route.

The research further stated that the three common diversification asset types include private debt (27%), specialized niche segments (22%) like life sciences, and impact investing (18%).

PE firms embraced sustainability

The idea of receiving returns for your portfolio while impacting lives has been one of the most talked-about trends in the last decade. Firms incorporated social and governance (ESG) strategies into their goals while taking into accounting ethical investing.

The direct shift to responsible investing shows the growing concern for environmental challenges, such as climate change, deforestation, social inequality, and plastics pollution.

ESG focus and greater transparency in firms’ reports continue to fuel the need for ethical investing.

Also read the following article:  https://charlenepedrolie.com/how-private-equity-firms-are-bracing-for-downturn/

Source: Pixabay

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The Rise of Private Equity Firms Investing in Sustainable Companies

Shareholders are concerned more than ever about the environmental and social impact of a private equity firm’s actions and investments. Nearly 80% of global investors say their focus on sustainability is greater than it was just five years ago. And the pressure is rising for PE firms to incorporate environmental, social, and governance issues in their investment decisions. 

But Private Equity’s move towards ‘Impact Investing’ has been growing steadily since the term was popularized in 2007, driven not only by interest in sustainability among investors, but also as a way for a firms to tout innovative and unique investment strategies. 

As a result, many firms have considered environmental, social and governance (ESG) impact in their investing decisions, addressing such topics as climate change, social inequality, and ethical supply chain sourcing. Once they align with the ESG issues shareholders care most about, then they can focus attention on generating positive returns on investments. 

Firms can best take advantage of socially responsible investing by understanding the forces driving shareholder behavior: 

Shareholder Activism is Gaining Strength 

Investors have been vocal about sustainable investing for years, but now they are organizing their collective power to influence a company’s decision making. This type of shareholder activism incorporates engagement tactics such as filing shareholder proposals, gathering at annual meetings, and demanding discussions with company executives and the board. 

As they pressure companies to increase environmental and social scrutiny, they’re demanding specific action on agendas such as carbon footprint reduction, diversity in the workforce, and employing a more sustainable supply chain. 

These activist campaigns aren’t always motivated by philanthropy, though. The thinking is that changing corporate behavior in sustainability, ethical, and environmental issues will lessen operational risk – and ultimately reap strong financial returns. 

A Shift in Investor Demographics 

Changing shareholder demographics is another driving force behind sustainable investing. As wealth transfers to the next generation comprised of Millennials, there are great expectations on their investments to also fuel social change. 

Additionally, the rise of women joining the finance field has amplified the focus on ethical investing. Women are traditionally considered to be nurturers, with an interest in improving society. This focus on the greater good has been translating into their investing power, which is only growing stronger. 

According to a Boston College Center on Wealth and Philanthropy study from 2009, women currently own more than half of the investable assets in the United States, and are positioned to inherit 70% of the money being passed down over the next two generations. 

Women and Millennials’ awareness of sustainable issues may have been viewed as soft only a few years back, but the finance industry’s attitude has finally turned as these issues take center stage in public conversation. 

Private Equity Firms Take Action 

All signs show that sustainable approaches to investing are here to stay. A 2019 PwC survey has found that responsible investment and sustainable development are a priority for private equity companies. Nine out of ten respondents have already adopted or are currently developing a responsible investment policy, as (ESG) considerations shape investment decision making and portfolio management. 

Sustainability concerns are also growing at the Board level. The survey reports that 81 percent of private equity firms discuss environmental, social and governance (ESG) matters with the Board at least once a year, with more than one-third doing so more often. 

Meanwhile, 35% of Private Equity house respondents confirm they have a dedicated team for responsible investing, up from 27% in 2016. 

It’s clear that private equity houses have embraced the clear business case for responsible investing. They are starting to take sustainability seriously, and have affected genuine change. Only time will tell if this investing for impact will generate high returns in the long run. 

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How Private Equity Firms Are Bracing for Downturn

Source: Pixabay.com

Here’s a quick question for you: Can you guess how many Goldman Sachs private equity clients are
preparing for a recession?

Well, all of them!

In a statement, the chairman of the investment bank Alison Mass said: “Every one of our clients is
focused on being prepared for a recession.”

During an interview with Bloomberg, Mass confirmed that earlier this fall, she “visited Asia and spoke to
a global private equity firm head. He had issued all his CEOs with a checklist containing nine critical
items that needed to be worked on.”

The recession checklist, according to Mass, contained three main items that stood out for her: the first
was a request to suppliers to stretch term limits, capping capital expenditures, and lastly, taking on only
crucial staff.

But a section of Goldman’s team doesn’t see a cause for alarm just yet, at least not according to the
firm’s economists. In their view, the economy will grow as we approach 2020, at a rate between 2.25%
and 2.5%, and unemployment will register a new low. They added that the chance of a recession next
year was one in five.

A note by the bank highlighting its 2020 main themes stated that the firm sees the global central bank
policies positively but limitedly impacting the markets next year, including the European Central Bank
and the Federal Reserve.

The firm’s investment bank head remained confident that 2020 would bring its fair share of mega deals.
Sources indicate that Goldman’s large-scale deals account for about 23% of its total investment
transactions.

On the matter, Mass said: “Our clients are looking to put large amounts of capital to work, so we at
Goldman Sachs are looking through our industry teams as well as around the globe at large
transactions.”

Recently, the National Association for Business Economics released a survey that stated that 72% of
economists globally foresee a recession by 2021. And seeing as that percentage is higher among
Goldman Sachs deep-pocketed investors, the market could largely be bracing itself for a downturn.

Preparing for a downturn
Now, while no one precisely knows when the recession will take place, PE firms have been at the
forefront of preparing their investor interests for a possible downturn, this is according to a study by
financial advisory firm BDO USA.

The research gathered viewed from 200 venture capitalists and private equity firms.

Close to 75% of the interviewees firmly believe that the recession will occur within the next two years.
However, according to Scott Hendon, co-leader of global private equity at BDO, the percentage dropped
from last year’s 89%.

As PE firms continue to prepare for a downturn, most of them are getting into selective deals, with only
46% going it long term.

“Nobody wants to get caught on a downturn overpaying. They have been a lot more selective,” Hendon
said.

In addition to the selective assessment of deals, PE firms are also keen on building up a strong capital
base in anticipation of lucrative deals during the recession period. Out of the interviewed firms, 41% are
said to be raising more funds to prepare for tougher times ahead.

Companies are also looking to channel a decent portion of their funds toward strengthening their
existing investments, with the survey revealing close to a third of the interviewed respondents are
warming up to this strategy. But the number of firms planning to put their money in new deals
plummeted to about 50%, down from 89% last year.

While favorable credit terms have reduced the level of distressed investments, firms expect distressed
assets to influence deals next year. Nearly 40% of the interviewed firms are confident that distressed
entities will present viable investment opportunities in 2020.

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Plant-based meat companies: Beyond Meat and Impossible burger

Vegans and environmental conservationists can now sit easy and enjoy a “meaty” experience thanks to Beyond Meat, Impossible Burger, and a few other companies. Beyond Meat and Impossible Foods have
taken the world by storm, by redefining the veggies burger experience, since both their products mimic the texture of real beef.

With the rising cases of beef-related health concerns and the negative environmental impact associated with meat consumption, more and more people are looking to consume less beef.

Consumers’ response has been overwhelming for both companies, making them a perfect target investment for anyone looking to take part in responsible investing.

While investors from all walks of life have been yearning for a stake in “green” investments, private equity firms have been at the forefront of sustainable ventures, courtesy of efforts made by global stakeholders such as the UN in saving the planet for future generations.

When it comes to placements in plant-based meat companies, Beyond Meat and Impossible Foods have been the leading investments to watch out for. Through partnerships with bigger brands such as Burger King, these revolutionary enterprises are now attracting investments globally.Here are some quick facts about the two brands.

Beyond Meat

Beyond Meat was established in 2009 to provide plant-based protein that was as tasty as bacon, sausages, and meat. T ​he El Segundo, California-based food company strives to improve human health
using its plant-based protein products while fostering a positive impact on climate.

Other than that, Beyond Meat is also keen on improving the usage of natural resources and enhancing the welfare of animals.

As you would imagine, the company spent a great deal of time coming up with their plant protein recipes, which they describe today as the ultimate meeting point of nutrition and taste.

From the looks of it, the demand for plant protein isn’t about to fade away any time soon; we can expect the company’s revenue to grow by the day as they penetrate new markets and create more awareness on the need to consume green protein.

According to USB investment bank analysts, the current addressable market for Beyond Meat is estimated at $1.2 trillion. The analysts further projected that the food company’s revenue will hit $1.8bn in the next five years.

The recently ​published third-quarter report ​ of the food giant revealed approximately $92 million in revenue and a net income of $4 million.

Beyond Meat, whose IPO price of $25 has now more than tripled, boasts of a market cap of $4.9 billion.

Impossible Foods

Impossible Foods is Beyond Meat’s closest competitor and was founded in 2011 to offer plant-based substitutes to meat products. Headquartered in Redwood City, California, Impossible Foods announced another round of funding just after Beyond Meat’s IPO netting about $300 million.

Impossible Foods enjoys backing from renowned investors including ​Bill Gates, Khosla Ventures, and Google Ventures.

Just like its rival Beyond Meat, the company’s foundation is based on eradicating environmental and health concerns.

While it is not planning to go public any time soon, Impossible Foods has been on the limelight for its unique plant protein recipe, as well as its investment viability.

From what we could gather, the food processor has kept its cards close to its chest while probably only disclosing crucial business information to existing shareholders. However, according to a report by
CNBC, the company’s 2018 net revenue stood at $87.9 million, 170% up from the previous year’s $32 million.

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A Dive at the Numbers and Metrics Behind the Recent Record-Breaking IPO Deals

Public market stakeholders and employees of startups have been excited lots these past few months as the number of businessesthat go public continues to soar by the day. Pinterest, Zoom, Uber, and PagerDuty all had some of the splashiest public offerings in the history of IPOs.

But experts have been warning that the rush for public offerings by most companies could have dire consequences both in the short and long run. Numbers have been thrown left, right, and center – so we’ll try not to bore you with the same.

In this article, we make sense of the actual numbers and metrics relating to this year’s IPOs.

The Numbers Tell It All!

Timing is everything. And this is especially true when evaluating the perfect time to launch an IPO for your business. For the better part of this year, IPO activities for most unicorns were at a record high.

One wouldn’t be mistaken to think that the year would be one of the worst economically considering the slowdown that was experienced in the first quarter of 2019. We all remember the trade issues among China, the US, and EU, the geopolitical tensions, Brexit, the current pending impeachment motion against President Trump, among other things that dampened the IPO arena.

But suddenly things began to pick in the second quarter and they don’t seem to be slowing down even with less than two months remaining before the closure of trading periods for most firms.
Public market fundraising has no doubt brought forth some of the historic deals ever witnessed – Lyft raised $4.91 billion, Dropbox raised $756 million, and Uber raised $8.1 billion.The biggest chunk (roughly 45%) of funds raised through public offerings belonged to a few big unicorns with the rest of the money shared among the remaining smaller startups.

But despite the IPO hoopla, many companies are still losing out when it comes to private and public fundraising. Based on some of the companies highlighted above, Lyft raised $4.91 billion privately compared to $2.34 billion raised through a public offering; the same can be said about Dropbox when it raised $1.7 billion privately compared to their $756 IPO.

Clearly, the stakes are higher when it comes to public offerings even for the big unicorns. And in a way, the effect trickles down to their survivability in the public domain.

According to Jeff Thomas, head of operations at Nasdaq for the Western US, most companies are not keenly considering the repercussions of going public. There is a ton of money flowing to the private sector, making it unnecessary for companies to go public to access more capital ($130 billion was invested in private startups last year alone). This is a rise from $105 billion raised the year before.

Apart from the reduced funding in the public sector, companies expose themselves to a lot of scrutinies from regulators and analysts, not to mention some short-sighted shareholders who are always quick to point fingers when things don’t seem to be spiraling their way.

Hardly six months after going public, Lyft is already facing a suit by shareholders who aren’t happy with the dwindling share price (circa 25% drop since the IPO) of the company. In a separate report by Bloomberg, Snap was sued just two months into their public life while Blue Apron was only seven weeks into their IPO when they were sued.

The truth is many attractive IPOs have been floated throughout the year, but what you may not know is that quite a number are not surviving what comes with going public.

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Impact of The Pending Impeachment (Ukraine phone call) On Private Equity Firms

Last week’s dramatic announcement by the Democratic Party that it will front an impeachment motion against President Donald Trump has undoubtedly injected some level of uncertainty in the investment space. Slowly but surely, the prices of assets have been affected across the economy.

While it still remains unclear the effect, if any, the impeachment proceedings might have will certainly impact the American investment mood. Investment analysts have weighed in on the possibilities with some claiming the impeachment drama will likely alter Trump’s political calculus on tariffs, boosting the likelihood of a pre-election truce.

But what do presidential removal proceedings mean for private equity firms? What effect will it have on private equity investors?

In this article, we look fearlessly at the impact of Trump’s pending impeachment on Private Equity (PE) firms in the US.

Back-to-Back Interest Rates Cut

The Federal Reserve Bank recently slashed interest rates by 0.5% and warned that it would lower it further if the US economy remained on a downward trend. With Trump’s pending impeachment, analysts fear that the economy could plunge deeper.

While the Fed’s decision to cut the interest rates didn’t sit well with the President who was pushing for a rate of zero if not negative for Central Bank, the current rate remains between 1.75 to 2%. According to The Federal Bank officials, the rate is expected not to drop below 1.5% anytime soon.

So, what does this mean for PE investors? Essentially, the Fed interest rate has a big impact on other interest rates and it also reflects the general health of the economy. When the rates are lowered, it means interest rates across other financial institutions are lowered and thus cheaper finances between commercial banks’ lending, which ultimately trickles down to retail banking.

The Fed Interest rates (whether high or low) impacts retail banking including mortgage rates, deposit rates for savings, as well as personal loans.

Private Equity investors and firms that borrow for investment purposes or those with investments in the financial sector are also impacted. If the banks offer high interest rates due to the pressure from Fed interest rates, finances are accessed more expensively and vice versa.

Depending on the case, higher interest rates discourage borrowing thus hindering investment activities. Lower rates, on the other hand, encourage borrowing for investment purposes.

We Are at The Verge of Record IPO Filings

Ever since the 2008 recession, the economy has been steadily improving. Business has been booming. Uber priced its massive offering just a few days ago when Slack also filed to go public.

But one thing has come out clear – investors seem to be looking past the impeachment drama as stock prices remain steady after slight initial deeps.

If this trend is to be maintained in the market, the impact of the impeachment inquiry may not significantly affect the confidence of investors after all.

Investors have remained excited and are looking to throw their money behind viable IPOs.

Stats show that now more than ever, companies are excited to go public and the results speak for themselves with a steady rise in IPO listing over the last decade. But experts warn that going public is never a guarantee of success if WeWork’s current turmoil is anything to go by. In a twist of events, the value of the company was reportedly slashed to nearly a third of its initial private market valuation of $47 Billion.

But even with the pending impeachment inquiry and the downside of IPOs as seen in the case of WeWork, companies largely remain excited about going public. And what’s more? The thrill doesn’t seem to be dying down perhaps due to the amount of investment being pumped in every time a project comes up.

What the Pending Impeachment Means for The Private Equity Players

There’s no question about it – if Democrats pursue Trump’s impeachment, the markets will definitely be ruffled. However, the GOP-led Senate may not go down the impeachment road nor stop the president’s economic projects.

When in an interview with CNBC, Marc Chandler, a global market strategist at Bannockburn expressed confidence that the country was largely not behind the impeachment process saying, “…I don’t think the country is behind it. It just adds uncertainty.”

When Speaker Pelosi announced the impeachment inquiry, the stocks plunged as investors went into panic mode. However, the markets seemed to have corrected after Trump tweeted that he would furnish the house with scripts from the call with the Ukrainian president.

So just like with the other spheres of the economy, private equity players will certainly experience some sort of uncertainty in the coming days; but that is probably what it may ever be. New evidence against the impeachment or supporting the impeachment will keep impacting investments even as all eyes remain fixed on the country’s lawmakers.

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A Rundown andOverview of PE Firms That Are Investing inSustainable Initiatives

Source: Pixabay

Up until 2006 when the United Nations Principles of Responsible Investment was launched, it was not a natural pairing for Private Equity (PE) firms to take an interest in sustainability. If you have a basic understanding of the nature of business of PE firms, then you probably know too well how much “secrecy” matters here. However, things are now changing…and more investments are being channeled into sustainable projects around the world.

But even as more firms continue to develop an interest in sustainable initiatives, very few are actually making it to the list. We rounded up three Private Equity firms that are actually keen on making a difference in the society; take a look below:

TPG Capital

TPG Capital is not a new name in the investment space, and it certainly isn’t when it comes to making a difference in local and international communities. Established in 1992 by David Bonderman and Jim Coulter, TPG is a global investment firm with interests in Private Equity, Healthcare, Energy, Real Estate, Industrials, Consumer & Retail, Financial Services, and Technology.

Source: https://www.tpg.com/

While the firm has been investing in sustainability at a local level, it was not until 2008 that TPG got involved in its firstglobal impact initiative. From that year to date, the firm has invested in renewable energy, water efficiency, and waste reduction. They’re also hailed for creating more sustainable products and services.

Today, the firm boasts of a fully dedicated arm dealing with Impact Investment with their 2019 ESG report reflecting their strategic interests in more than 135 companies involved in sustainability.Last year alone, the firm raised more than $2.1 billion for investing in sustainability projects.

The Carlyle Group

Source: carlyle.com

This is yet another PE firm that embraced the Environmental, Social, and Governance (ESG) policy some few years back. The Carlyle Group is an American Private Equity, financial services, and asset management firm with interests in several countries around the world.

Carlyle Group first opened its doors to the world in 1987and cemented its names in the investment space in 2015 when it emerged the world’s largest PE firm by capital raised over a period of five years.

So what have they done as far as sustainable initiatives are concerned?

According to the company’s Chief Sustainability Officer Jackie Roberts, 100% of companies controlled by Carlyle have transformedtheir investment operations in accordance with the group’s responsible investment guidelines. The guidelines, among other things, advocate for respect of the rights of those affected by investment activities and to ensure that their investments do not support organizations involved in child or forced labor and discrimination.

While there is no quantifiable amount of money directly injected to sustainable initiatives so far, Carlyle Group is one of the biggest supporters of the ESG policies globally.

Blackstone Group

Source: blackstone.com

The Blackstone Group was born in 2007 with a core goal of spurring the growth of entrepreneurship around the world. The firm has been leveraging the intellectual capital and other resources at their disposal to create job opportunities, empower entrepreneurship while supporting the local communities.

When it comes to investing in sustainable initiatives, the Group’s CEO and Co-Founder Steve Schwarzman is on recording stating that they’ve been at the forefront of reducing environmental impact, while investing in people. According to Steve, Blackstone has a long track record of reducing energy usage across their portfolios through investing in large scale renewable energy projects globally.

The firm’s recent projects focus on solar, wind, and hydroelectric energy. For instance, they have a direct investment in Peter Cooper Village in New York City, the largest rental apartments project in the US featuring solar energy as the main power source.

According to the Group’s CEO, Blackstone has so far managed to generate $100 million in value through sustainable energy projects.

In conclusion, more and more firms are jumping on the wagon by the day in a bid to have an impact onthe society. Some experts are even of the opinion that no PE firm can survive today without an ESG policy in place. Whether that is true or not, we expect more firms to embrace sustainable initiatives as a way of making the world a better place; if not for improvingbusiness, then for human flourishment.

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A Beginner's Guide to Private Equity

What it is: Private equity is a general term used to describe all kinds of funds that pool money from a bunch of investors in order to amass millions or even billions of dollars that are then used to acquire stakes in companies.

Technically, venture capital is private equity. But "PE" is often associated with the funds trolling for mature, revenue generating companies in need of some revitalization -- maybe even some tough choices -- in order to become worth much more.

While venture capital often goes into younger companies involved in unproven, cutting-edge technologies, funds described as private equity are more attracted to established businesses. Think manufacturing, service businesses and franchise companies.

How it works: Sometimes a private equity firm will buy out a company outright. Maybe the founder will stay on to run the business -- but maybe not. Other private equity strategies include buying out the founder, cashing out existing investors, providing expansion capital or providing recapitalization for a struggling business.

Private equity is also associated with the leveraged buyout, in which the fund borrows additional money to enhance its buying power -- using the assets of the acquisition target as collateral.

Upside: Is the founder becoming too crotchety? Are the original investors begging for a payday? Is the business losing its mojo and in need of a serious cash infusion and/or overhaul? Private equity might be the way to go.

The private equity fund will also likely come in with new ideas and perhaps even new managers who might give the business a second wind.

Downside: Younger companies in the early stages don't fit well into the private equity investment strategy. Also remember that a private equity fund's ultimate goal is to make the company worth more than it was before in order to produce a return for investors. Sentimentality, the workforce, the role of the founders in the business, even the business' long-term success -- they can all be secondary to this goal. So be prepared for some ruthlessness.

Read Full Article Here: A Beginner's Guide to Private Equity