Covid-19 impact on Private Equity: What to expect?

Covid-19 impact on Private Equity: What to expect?

How will the covid-19 impact on the private equity industry? The only possible answer is that no one knows. As a healthcare crisis, it is unusual in its global impact. As an economic event, it raises many unknowns about how the sudden demand shock will affect business activity. Moreover, it raises the question of how will it affect consumer behaviour. In our previous article, we discussed the covid-19 impact on private equity markets in CESEE countries. Nevertheless, we will cover in this article global implications on the private equity industry.

That said, if we take a closer look at previous economic crises, we will be able to better understand private equity funds. Covid-19 impact on private equity is raising concerns on businesses and economies. The situation is changing quickly, with widespread impacts. Most companies already have business continuity plans, but those may not fully address the fast-moving and unknown variables of an outbreak like COVID-19. 

Private Equity firms may be facing a situation in which they have multiple companies with hundreds of employees looking for guidance during this crisis. Cybersecurity is always a priority for PE firms and their portfolio companies. However, they may face additional threats and vulnerabilities now. That is because they will have significantly higher levels of remote access to core systems.

Without the right monitoring and planning, PE firms could be overloaded with issue after issue. Additionally, HR policies may be inconsistent across the underlying entities.

Investments

Dealmaking fell off sharply when the global financial crisis hit in 2008, and this crisis should also trigger a substantial contraction. Credit markets, meanwhile, have tightened up but haven’t frozen completely. See the graph below that shows deal activity sank by half during the global financial crisis.

Global buyout deal count showing implications on covid-19 impact on private equity
Source: Dealogic

Banks will put lending for new deals on hold as they focus on working with existing borrowers to avoid default. It will also take time for lenders to work through how to assess risk today. Scrutiny during underwriting will increase dramatically as they work out how much to lend and at what price. 

While many factors suggest that dealmaking and lending activity will slow in the months ahead, there are some significant differences in the current market that could limit the downdraft in the activity.

First, PE funds have a record $2.5 trillion in uncalled capital—more than $800 billion for buyouts alone—and are on the clock to spend it. Private debt funds have emerged since the global financial crisis as a major force in the market. Also, they have more than three times the assets under management they had in 2008. They might provide financing for new deals. The firms with the largest direct lending funds also have extensive distressed debt and special situations capabilities.

With the public markets depressed and potential corporate buyers holding onto their cash, PE funds are well-positioned to be the buyer for any asset that does come up for sale.

Economic challenges for the private equity industry

With broad government-mandated policies related to the covid-19 coming into effect, massive crashes are set to hit the global economy.

The travel & leisure industries have already seen demand plunge, while retail foot traffic is down dramatically and the service industries. Outside of the consumer space, many manufacturers and retailers have seen disruptions to international supply chains. Oil demand had already declined due to Covid-19, but because of this supply shock, prices plunged below $30 to the date.

These forces point toward negative revisions to global corporate earnings expectations. Cash-flow profiles will likely decline as revenues drop.

Exits will inevitably drop, and holding periods for some assets will extend, as sellers sit tight and wait for the markets to recover. But activity may not fall off as steeply as it did in 2008 and 2009. 

Cost reductions may mitigate cash-flow declines, but many businesses will find themselves looking for capital to help cover negative cash flow. Moreover, many public companies and various private equity firms have asked their portfolio companies to do the same. 

Now, the industry is coming off many consecutive years of strong dealmaking. Meanwhile, GPs are sitting on assets that they would be expected to sell soon in a normal market. They won’t exist if the price isn’t right.  But there is reason to believe that as soon as market conditions improve, exits could rebound faster than we saw coming out of the global financial crisis.

At the same time,  high-yield bonds have skyrocketed as investors look to sell risk assets with heavy velocity. As of the beginning of March, roughly $860 million in leveraged loans came to market. That is reflecting a decline of more than 99%, according to LCD. 

Credit markets creating private debt

Given the fall-off in demand for risk assets, there is a tightening in the credit markets applicable to the upper end on private equity. In times of heavy market distress, it is important to emphasize two central components for valuing a business. Those are free cash flow projections and the weighted average cost of capital. As we see earnings fall and the cost of capital rise, asset prices will decline across the board, hurting exit multiples.

In addition, we think well-funded PE vehicles will be forced to inject more liquidity into portfolio companies. That will reduce the leverage in the LBO market.

Firms may have to underwrite deals to lower return profiles, which might remove a significant portion of viable target companies overnight. That said, certain assets trade at cheaper prices, PE might be able to make transactions work. However, PE will have the intent of re-levering later in the holding period.

In the end, private equity may have more levers to support portfolio companies than ever. That is if we consider the well-capitalized state of current private capital markets. PE firms might also hold on to their most prestigious assets as they look to weather an economic shock and look for multiples to regain steam.

Recent trends & statistics in European Private Equity

Recent trends & statistics in European Private Equity

European private equity has shown a high return in the most recent trends and statistics. Rising deal value in 2019 capped the strongest five-year stretch in history, while deal count reflected stiff competition and rising asset prices and planning carefully for how they can profit from the downturn. With the global financial crisis fresh in their memories, firms are focusing their diligence much more intently on downside scenarios. They learned valuable lessons during the crisis about what holds up well through the cycle or not, and are adjusting accordingly. Even within a sector like healthcare, widely viewed as recession-resistant, there were subsector differences in performance worth noting. Healthcare support services, for instance, produced multiples of better than two times invested capital

Spotting pockets of opportunity has been a challenge even in the up-cycle. For GPs, finding the right asset at the right price was the biggest constraint on doing deals in 2019. That helps explain why the number of transactions has remained stubbornly flat. The number is bouncing between 3,000 and 4,000 buyouts per year since 2010 according to Bain. Both exit value and volume in 2019 dipped far below the postings of recent years. 900 European PE exits closed for a total of €201.7 billion, though we anticipate these figures to increase as we collect more data.

The rise of bolt-on investments, GP-led secondaries, and long-dated funds has consolidated exit activity. Exit value via IPO hit a nine-year low, as European private equity firms sold a heightened proportion of portfolio companies to strategic. The IT sector accounted for nearly a quarter of the total PE exit value in 2019, its highest annual proportion.

private equity IPO
Source: Pitchbook

Trends in European private equity

According to the PitchBook European PE deal activity in 2019 remained robust. European private equity deal activity records €453.5 billion closed across 3,867 deals, reflecting YoY declines of 2.4% and 3.2%, respectively. The deal value recorded its second-highest reading in our dataset. This was largely propelled by 34.1% YoY growth in the median deal size to a decade peak of €30.8 million.

The near 4.5x growth in European private equity deal value over the past decade point to capital markets graduated closer to the mainstream. Moreover, 2019’s record fundraising year in terms of capital raised. An ever-growing number of institutional investors previously shied away from PE allocations. However, now they see the asset class as fundamental to their portfolios.

European IT deals accounted for €79.0 billion of the total value in 2019, the highest annual figure for the sector. Nearly 60.0% of IT deals occurred in the software space. Further, subsectors of business & productivity, financial, application and network management software accounting for most of the total deal count.

The healthcare subsectors of telehealth, provider services, and payor/payee services could be ones to watch in 2020. A notable deal within this realm in 2019 was the €550.0 million bolt-ons of Belgium-based Armonea. In Q2 by IK Investment Partners via its portfolio company Colisée, a leader in the elderly care industry. The combination will reportedly become the fourth-largest European player in the elderly care segment with approximately €1.0 billion in revenue.

PE deals by sector

European Private Equity Exits

Over the past decade, an increasing proportion of non-European investors are leading or participating in European transactions. In 2019, non-European investors participated in 726 deals worth a combined €125.8 billion. Abu Dhabi Investment Authority, Public Sector Pension Investment Board and Ontario Teachers’ Pension Plan contributed to nearly a quarter of annual transaction value.

Though the absolute volume of these deals declined YoY, their annual proportion of deal volume increased to 23.0%. Seven of the top 10 European private equity deals in 2019 involved at least one non-European investor.

Moreover, 900 European PE exits closed for a total of €201.7 billion in 2019, finishing with the lowest totals in recent years. That being said, we do expect exit activity to increase from reported figures due to reporting and data collection lags. Bolt-on investments have ballooned in the past five years, accounting for 44.0% of overall European PE deal volume.

As the buy-and-build strategy continues to increase, portfolio/platform entities have become larger. Moreover, that has resulted in a dwindling number of total exits as bolt-on acquisitions will exit as part of a larger entity. We see this trend continuing in 2020.

Top five buyout mega-funds

Given the growth of the private markets and their higher return potential vs. public markets. That said, making private equity more accessible to retail investors is gaining importance. Moreover, retail investors are struggling to gain exposure to the small and middle-market companies that have been the bread and butter of private equity. These companies are increasingly turning to private financing to avoid the cost and hassle of being publicly traded.

top five buyout mega-funds to close in 2019 by capital raised

In 2019, a record of €86.4 billion was raised for European PE funds. Although fund count increased just over 10% YoY, 2019’s 89 closed vehicles represented the second-lowest annual figure in over a decade. Additionally, capital continues to flow into larger funds. This is evidenced by the average buyout fund size rising by 21.4% to new record of €1.3 billion in 2019. Further on, eclipsing €1.0 billion for the second year in a row. Much of the increase in capital raised is also attributable to the rise in the number of funds closed in the €1 billion-€5 billion brackets.

Buyout funds have continued to account for the majority of European PE capital raised. That said, over €74.3 billion was raised across 61 funds in 2019, reflecting YoY increases of 25.7% and 5.2%, respectively. Moreover, the €12.0 billion raised across 27 growth equity vehicles in 2019 caught our eye up substantially from the €4.4 billion raised across 16 funds in 2018. The fund type gained significant traction in 2019, likely given the potential for lower valuations and less competition. Additionally, a larger and more differentiated pool of targets compared with buyouts.

Opportunity for New retail PE investors

Individuals are missing out on the opportunity to invest in fast-growing start-ups with the potential to generate big returns. That said, companies stay private longer. Now, as a growing number of traditionally public companies go private, it makes more sense than ever to push the door open for retail PE investors. Around 15% to 20% of Blackstone’s annual fund-raising already comes from retail investors, and this is likely just the start. Moreover, PE firms continue to rely on IPOs less and less as a liquidity option. To sum up, 2019 saw 29 entities exit to public markets for €20.4 billion in total exit value (on a pre-money valuation basis). Additionally, registering the lowest IPO value and volume figures since 2012.

Permira gathered €1.5 billion in commitments for its debut growth fund in 2019, Permira Growth Opportunities Fund I. The fund marks a departure from the firm’s typical control buyout and credit strategies. Furthermore, CVC also closed on €1.4 billion in commitments on its second growth fund in 2019, CVC Growth Partners II. Additionally, Paris-based Keensight Capital raised €1.0 billion for Keensight Capital V, achieving a sharp 2.2x step-up from its 2014 vintage predecessor, Keensight Capital IV. Despite the steep increase in fund size, the firm’s strategy will remain the same, targeting Western European companies in the healthcare and IT sectors. Moreover, they generate between €15.0 million and €250.0 million in revenue, which are profitable and have been growing north of 10% per year.

Leading Private Equity Investors

Leading Private Equity Investors

 

In this article, we will emphasize the leading private equity investors in Southern Europe and Eastern Europe. Many of those transactions have occurred in the commercial products and commercial services sectors. Moreover, Audax is working to build out its portfolio of under-the-radar middle-market businesses. That said, this is little known to the wider public. Among the platforms the firm has been conducting add-ons with this year are Colony Hardware, which distributes tools to job sites. Furthermore, these include Imperial Dade, which sells disposable foodservice products and janitorial supplies; and Reedy Industries, provider of HVAC services.

 

 

 

Most notable this year has been HarbourVest’s stake in Hub International. Moreover, that is a global insurance brokerage that Hellman & Friedman acquired a majority interest in at a $4.4 billion valuation in 2013. Last year, Altas Partners bought into Hub at a $10 billion-plus valuation. In yet another instance of the insurance industry attracting heavy add-on attention, Hub has completed 18 platform acquisitions. According to PitchBook data, in the US in 2019, making for a significant portion of HarbourVest’s activity.

 

 

 

Genstar Capital has been busy backing add-ons in the insurance space That said, a trend that indicates just how active some private equity firms have been in attempting to consolidate the industry. The most acquisitive insurance company in Genstar’s portfolio is Alera Group It is a provider of various insurance, employee benefits, and other services that the firm helped create in 2017. Already this year, it’s sealed 10 separate takeovers, per PitchBook data.

 

 

 

Most Active in Central & Eastern Europe and Southern Europe

 

 

 

Mercer Advisors, another Genstar portfolio company, has also had a busy year, conducting more than a half-dozen add-ons of its own. Over the summer, reports emerged that Genstar was seeking a sale of the company. Later, in September, the firm and co-investor Lovell Minnick Partners sold a portion of their stake in Mercer to Oak Hill Capital as part of a recapitalization.

 

 

 

Leading private equity investors are according to Pitchbook; Ardian and high on the list Investindustrial.

 

 

 

most active in central and eastern europe

 

 

 

most active in southern europe

 

 

 

Breaking down their deals even further, the most active firms tended to invest largely in B2B and IT deals Moreover, accounting for 160 of these firms’ 251 total deals or nearly 64% of deals, as indicated by the pie chart. This is a small step up from private equity as a whole, which invested 58% in the two sectore.

 

Read more about venture capital investors, in our recent blog post on leading venture capital investors.

 

The Private Equity Explained

The Private Equity Explained

It’s no secret that venture companies are staying private longer. The consequences of this trend are not going away. Some of the companies have decided to take a slower pace before they make a big decision. The question is are these companies familiar with private equity funds? More importantly, how can you get private equity investment funds?

What is Private Equity?

Private equity offers a scope of benefits for private companies and startups. It gives them a source of liquidity instead of traditional financial mechanisms including a public listing or bank loans. Private equity in venture capital can help companies at an early stage to adopt innovative growth strategies without the stress of traditional public market scheme.

Additionally, private equity ownership provides the opportunity to focus on long-term performance outcomes. Besides, companies can attract private equity at different stages to improve their offering. Private equity is a truly effective investment method for a company in early-stage or late-stage development.

Know your product

There are many private companies out there like Stripe in payments or Slack in communication systems. These companies offer high quality and user-friendly software solutions.

With easy integration that helps you to keep track of on-going projects and communicate ideas.

The question is, how come these companies are still private? If you look back, you’ll notice how companies were forced to go public, because they were too big to support their growth. Take Zappos for example, the company that started small but grow big over the night.

Above all, the greatest advantage of going public is the amount of capital you will raise in a short time from prospective investors.

Therefore, our advice to private companies out there is to think about your product and your customers. Try to imagine how your product will become a scalable solution to your customers.

Once you have imagined your scalable solution, you have to dig dipper and know your processes within the company. If you are ready to go, read below on what are the stages of negotiation in private equity.

What Are The Stages of Negotiation in Private Equity? 

Once you have decided your company is ready to scale, you need to be aware that the process could take up to 6 months. That is a very long process for people in your organisation. They will need to move from operative daily tasks. However, each company has its objectives set and decision-makers during the process. Every stage of the process needs to be communicated with the team members. You need to keep in mind that your project needs to stand out from the crowd to be successful.

1. Initial contact

When starting with this process, it is important to leave a good first impression. This is your first step to reaching your goal, so you have to be well prepared. In practice, there are several ways to make the first initial contact in private equity and venture capital. The best way is to meet people at conferences or seminars and over partner references. The next step is to meet the interest in representatives of private equity. The best way to do this is by sending a short introduction as a teaser for your business.

2. First meeting and presentation 

In the first meeting, you have to properly introduce your business and add the information from your teaser. The easiest way to visually present your business is by preparing a short presentation with relevant data. The presentation consists of a maximum of 20 slides with products, market segmentation, and production process details.

3. Second meeting

To this point, you have successfully convinced your investment fund in the future of your business. Once you present your idea, you will need to further evaluate a business plan. You will need to provide your profits, expenses, level of profitability and cash flow. The main goal here is to give representatives of the fund as much as relevant information you can. After that, investors will have enough information to decide whether your business is profitable and ready for investment.

4. Due diligence

Congratulations, you have created an outstanding presentation! You have convinced your representatives of the fund that you are unique in your industry and your business deserves the reward. In this stage, you will go through due diligence with a clear goal of confirming everything you have communicated in previous steps.

Stages in private equity and venture capital require a professional in finance and accounting. Accordingly, it is suggested to find the right financial advisory consultant to help you with your business plan.

Your project or business is special and unique to you and your team, however, it is yet one of many other projects. Your project or business is special and unique to you and your team. however, it is yet one of many other projects. There is always a risk of someone presenting the same idea as yours. Besides, you should clarify what makes your idea unique.

Pro tips for to get private equity funds! 

Be patient to your investors after the realization, each side needs to be sure they made the right choice. In every business deal, you need to be patient to earn trust from people around you.

Take the chance you got and learn from the process. In every new venture capital negotiation, you should be proactive.

Don’t give up on your project or business idea! In the entrepreneurial world, it is recommended to consider advice from the representatives of the funds in venture capital to become professional to future associates.

To sum up, we recommend you to take your business plan and rethink your strategy of how you can improve your scale strategy. To help you with preparation for your big move, consider a professional financial advisory for your business.

Integrating ESG into the Investment Process

Integrating ESG into the Investment Process

Responsible investment is on the agenda for many LPs and GPs and is recognizable as a requirement rather than a differentiator. Integrating ESG into the investment process has become important for all stages of the process.

European supervisory authorities consider risks related to environmental, social and governance (ESG) factors. Therefore, they provide guidance on the investment decision-making process.

ESG investment policy statement processes and procedures focus on non-financial performance indicators. Such places a company’s approach towards responsible investment, sustainability and its impact on society and the environment.

Additionally, that involves other ethical and corporate governance considerations.

Besides, it has become necessary to incorporate ESG concerns into all stages of the investment process. Our recommendation is to improve it by creating a robust governance structure.

According to ESMA, financial institutions have a stewardship role in ensuring a gradual transition to a more sustainable economy. Finally, this will ensure contributing to avoid any potential financial stability implications. In the Joint Committee Report, financial institutions will incorporate ESG factors in their investment decisions as well as through engagement.

Too, they should consider the economic actors via their business activities investment, lending and insuring). Furthermore, they have to reflect the use of ESG risk-based underwriting and pricing practices.

Creating the ESG Investment process

Integrating ESG into the investment process is more important now than ever. Also, a rising number of investment funds are considering the implementation of the ESG policy into their entire investment process. By implementing the ESG policy they seek to consider environmental, public health, safety, and social issues.

These are associated with target companies when evaluating whether to invest in a company or entity. During the period of ownership, it is also recommended to consider evaluating. Further, they want the companies in which they invest, to grow and improve for long-term sustainability. Besides,they want to benefit multiple stakeholders, including on ESG issues.

A great number of investment funds have entered an exciting era of ESG. Accordingly, they are focused on driving revenue and positive impact through each investment. All hope to contribute to this goal by creating resilient business strategies and leadership approaches.

Apart from that, exploring the shaping of market opportunities around impact. Furthermore, they tend to influence the flow of capital for good. Both the investment funds and portfolio companies must redouble their efforts to encourage ESG investment policy. Investment funds play a valuable role in advancing solutions to challenges of climate change, human health, education and many others.

It is a perfect time for investment funds to recognize they have the power for a positive impact. Moreover, to use the talents of their people and capital in partnership with their investors. Thus, investors should recognize the knowledge and experience of their portfolio companies to address the ESG challenges.

Tips for implementing the ESG investment policy

It is crucial to recognize environmental, public health, safety, and social issues. These are all associated with target companies when evaluating whether to invest in a particular company or entity.

During the period of ownership, it is highly recommended to continue evaluating.

Be accessible to, and engage with, relevant stakeholders either directly or through representatives of portfolio companies, as appropriate.

You should see to grow and improve the companies in which you invest for long-term sustainability. Primarily to benefit multiple stakeholders, including environmental, social, and governance issues.

Use governance structures that provide appropriate levels of overlooking in areas of audit, risk management, and potential conflicts of interest. Try to implement compensation and other policies that align the interests of owners and management.

Support the payment of competitive wages and benefits to employees.

Provide a safe and healthy workplace in conformance with national and local law.

Encourage strict policies that prohibit bribery and other improper payments to public officials consistent with the OECD
Anti-Bribery Convention.

Respect the human rights of those affected by your investment activities. Also, seek to confirm that you do not invest in companies that utilize child or forced labour or maintain discriminatory policies.

Give timely information to your limited partners on the matters addressed herein. Also, work to foster transparency about your activities.

Lastly, our advice to you is reassuring your portfolio companies to advance these same principles. Therefore, you need to do this in a way that is consistent with their fiduciary duties.

Summary

There is no doubt that there is an increasing number of ESG investment options available to investors. However, investors face some technical and operational challenges in the implementation of ESG into the investment process.

Further analysis of the ESG models by the industry could help tackle the ESG risks. Therefore, an in-depth analysis of ESG investment model could be beneficial for your business. Further, contribute to the prudential and behavioural standards required of investors.


adana escort adıyaman escort afyon escort ağrı escort ankara escort antakya escort aydın escort batman escort bilecik escort bingöl escort bitlis escort bursa escort çorum escort diyarbakır escort erzurum escort eskişehir escort gaziantep escort gebze escort giresun escort hakkari escort hatay escort karabük escort kayseri escort kilis escort kırşehir escort konya escort kütahya escort manisa escort mardin escort muş escort nilüfer escort nevşehir escort ordu escort osmaniye escort rize escort şanlıurfa escort sivas escort tokat escort tunceli escort uşak escort van escort yalova escort antalya escort
kredi notu öğrenme