Covid-19 storm being weathered well by private equity portfolio companies – survey

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Private equity portfolio companies are largely weathering the storm caused by the coronavirus crisis, new research from risk management firm Willis Towers Watson shows.

The survey of more than 36 private equity funds, representing over 300 portfolio businesses, revealed that the significant turmoil in capital markets had had little effect on their capital structuress, with 87% of respondents indicating their holdings were unlikely to breach covenants as a result.

Despite that robust result, business has naturally been slow, with almost half of respondents reporting that their holdings were feeling a medium-to-high impact from the slowdown in global economies, mostly within the consumer discretionary, industrials, energy and materials sectors.

In contrast, sentiment among commercial services firms remained robust, while 20% of consumer staples firms even reported a positive impact on demand, the report said.

The impact on businesses’ supply chains and their own internal operations also remained small, with around 80% of respondents showing low levels of concern on either point, indicating that most private equity-held businesses effectively implemented alternative working arrangements to work around any disruptions arising from the COVID-19 crisis.

The survey added that despite a subdued environment for exit deals in the first six months of the year, there has been little evidence of forced exits.

Andrew Brown, head of private equity research at Willis Towers Watson, said, “Private equity-owned companies have a number of structural advantages that may have allowed them to navigate such a crisis better.

“In addition to the expertise provided to them by private equity managers, the additional access to equity and debt capital from their sponsors may also have provided some respite.

“Whilst the first half of the year has seen a subdued environment for exit deals, managers have been able to maintain significant flexibility over both the timing and the terms of company exits.

“As a result, we have seen little evidence of forced exits by private equity firms into a depressed market.

“Beyond the short-term dislocation, we also see a number of opportunities where we can continue to deploy capital, notably in technology, healthcare, and consumer staples.

“With deal volumes depressed, there appears to be far less competition for opportunities and as a result, potentially better entry pricing.”

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