Managing the impact on portfolio companies

In our latest new reality video, Naveen Sharma discusses the impact of the pandemic on PE funds’ portfolio companies. The focus has varied depending on how severe the impact has been.

  • Where portfolio companies have continued to perform well, the focus has been on how to retain any new customers they have won during the lockdown period.
  • For solid businesses, which have inevitably suffered in these unprecedented times, the focus has been on the preservation of liquidity. As we emerge from lockdown, that’s shifting to reopening and tweaking their business model, as well as developing a plan to potentially reduce any debts.
  • Where portfolio companies have struggled significantly during lockdown, meaning that their business models are challenged, a level of restructuring will likely be the focus.

How has lockdown affected deal activity?

When it comes to new capital deployment there has been a strong focus on portfolio bolt-on opportunities, as well as some all equity growth capital style deals.

Traditional deal activity has predictably slowed during COVID-19, but more recently there have been positive signs. And while the focus during the crisis has been on portfolio companies, there will be much more of a focus on new deal activity as we emerge from lockdown.

Closing deals in the current environment will rely on three key elements.

  • Firstly, PE funds should have an understanding of how the target business currently operates, and how it will operate in the future.
  • There should be an understanding of debt availability.
  • Finally, it is about understanding whether there is price alignment between buyers and sellers.