Majority of global PE investors continue to pursue transactions despite Covid-19

Private equity investors are still seeking new deal opportunities despite expected declines in revenue as experienced by their portfolio companies and no wider ‘return to normal’ until 2021.

That's according to a new global study on how Covid-19 has impacted private equity firms’ and investors’ forecasts and strategies from international audit and advisory firm Mazars.

Covering more than 150 investors in Europe, the Americas and Asia, the 'Covid-19 and the world of private equity’ study sheds light on private equity and investor concerns and gauges their sense of optimism for the future. 

Paul Joyce, Head of London M&A at Mazars, says: “The findings confirm investors are open for business, but these are still testing times. While it appears exit horizons for existing portfolio assets may well be delayed, many existing funds remain highly liquid and they continue to look for new platform deals and ‘bolt-ons’ for their portfolio companies. As the world of business cautiously gets back to work, it is reassuring to observe a clear sense of resilience and positivity from the private equity community.”

The study finds 50 per cent of funds expect to see revenue for their portfolio companies decline between 11 per cent-25 per cent over the next 12 months and nearly a quarter (22 per cent) expect a drop between 26 per cent-50 per cent over the same period. This is clearly weighted heavily towards funds exposed to the consumer, leisure and travel sectors. Larger funds are generally more optimistic, with nearly half expecting a fall of less than 10 per cent, perhaps signalling commercial optimism and resilience comes with scale.

Some 88 per cent of investors and private equity firms consider it possible to complete deals in a ‘working from home’ environment, but three-quarters (74 per cent) of them admit it is more challenging to do so. There appears to be little correlation between fund type or size and expected impact on the ability to complete deals from home, suggesting that funds across the market have adapted well to the new working environment.

Some 45 per cent of firms stated new platform opportunities and ‘bolt-ons’ will be their focus over the next year, while a quarter (24 per cent) state there will be no change in their focus as a result of Covid-19. The majority of firms (79 per cent) said that exit timing for their portfolio companies will likely be delayed.

When asked: ‘When do you think everything will return to business as usual?’ only a fifth of funds (21 per cent) say Q3 2020, while 14 per cent predict Q4 2020 and 61 per cent come out more cautious, saying 2021. Recovery will be ‘U shaped’ according to the majority (82 per cent) of funds, ‘V shaped’ according to 10 per cent with remaining 8 per cent expecting a more delayed or ‘double dip’ recovery.

Half (51 per cent) of the firms think their government has responded well to the situation, however almost a third (31 per cent) consider it too early to tell.

Despite the financial impact of the pandemic, 44 per cent say they are yet to see an increase in distressed opportunities, which is most likely an indication that the government initiatives are helping to prevent businesses from seeking insolvency measures in the short term. Two-thirds (66 per cent) say they would be interested in distressed opportunities, indicating that investors are willing to look outside their normal criteria in the current environment or will encourage their portfolio companies to be opportunistic in their acquisition strategy.

Commenting further on the findings, Joyce adds: “Looking ahead, whilst there is likely to be a slowdown in terms of overall deal flow in the short to medium term, we actually anticipate there being increased competition for high quality and resilient assets. Those investors that can differentiate and move quickly and positively in spite of the current challenges stand to gain the advantage. As during any period of uncertainty and difficulty, there also remains opportunity.”