Preparing for private-equity exits in the COVID-19 era
Exits have all but stopped, for the moment. Leading firms are taking advantage of the extra time.
The global coronavirus pandemic, a humanitarian crisis with few precedents, is exacting a toll on lives and livelihoods alike. Private equity (PE) firms, like all other companies, have been working diligently on both fronts: ensuring the safety of employees and customers, and shoring up portfolio companies so they can ride out the crisis. Now that these first few months have passed, firms are turning to other challenges. For the hundreds of founders and sponsors contemplating a sale in 2020, that means contending with four enormous uncertainties the COVID-19 crisis has produced seemingly overnight:
- Substantial barriers to deal execution have emerged.For example, it is now difficult to conduct due diligence face-to-face or to visit production facilities (assuming that they are open), and financing to support deals costs more.
- Valuations have suddenly shifted.For the most part they are lower because the performance of businesses, at a time when demand has been collapsing, is uncertain and public equity multiples are volatile.
- Humanitarian, health, and business disruptions have proved overwhelming.These concerns are occupying all available management time and attention; firms have rightly deprioritized exits.
- New weaknesses have been revealed in many companies.This includes companies that appeared attractive in good times but are now less so to buyers. Many companies have suffered an economic hit from the COVID-19–led recession. Some, such as service providers that once described themselves as “mission critical,” have discovered that many customers view their offerings as discretionary.
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Πηγή: mckinsey
