Amid the Pandemic, Private Equity Industry is Thriving

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Annotation 2020 06 15 123855
Annotation 2020 06 15 123855

While every other industry in the world is severely hit by the COVID pandemic, private equity has been among the very few sectors that have borne the economic adversities of the pandemic quite comfortably. And moving forward, it’s all set to finalizing a plethora of M&A deals, while the expanse of the pandemic widens. 

US private equity firms are looking to buy minority stakes in public companies at the moment, seeing the stock prices falling with each day passing by. Private investors have got the best shot to buy publicly-listed firms at the moment, given the declining stock prices amid the worsening impact of the COVID-led pandemic.

Private Equity Investment Professionals Hunting Cheap Acquisition Deals 

And they don’t want to miss out on this ‘once-in-a-lifetime’ opportunity, provided the amount of dry powder they hold. Bargains are easily available, and US PE firms are making the most of the opportunity while making leveraged buyouts.

Public and private firms are being bought by PE investors at their cheapest possible monetary values, as they fear the possibility of going bankrupt amid the corona-led economic slowdown. Having more than $2 trillion in dry powder, the PE firms in the US, collectively, are sitting on a ‘cash pile’, ready to be invested in M&A deals. 

M&A opportunities led by COVID-19 pandemic in DACH region (by fund size) in Mar. 2020
M&A opportunities led by COVID-19 pandemic in the DACH region (by fund size) in Mar. 2020

SourceStatista

The Source of Cash for PE Investors Amid COVID

A large part of this huge ‘cash pile’ available to private equity investors amid the pandemic, has been sourced from the long-term investors, like pension plans, sovereign wealth funds, public funds, and wealthy family offices.

Thyssenkrupp’s Elevators Private Equity Deal Worth $19 Billion Amid the Pandemic

As the public company valuations go even lower amid the soaring rate of the pandemic, PE investors seek more enthusiastically, the chances to crack acquisition deals while paying pennies for them.

In February 2020, when the virus-spread was on its peak, a group of private investors, comprising Cinven, German foundation RAG, and Advent International, cracked a brilliant acquisition deal worth a whopping, $17.2 billion. They collectively bought the Germany-based Thyssenkrupp’s Elevator business. Transactions related to the deal will be put to completion by the third quarter of the year.

By the time, the deal went into penning signatures, European stock indexes had already been touching record lows, provided the extent of negative impact, the corona has had on the continent’s economy.

Despite selling off Thyssenkrupp at a fairly inexpensive price, Martina Merz, CEO of Thyssenkrupp, believed that they had made a profitable deal, in the wake of the virus bringing the markets down at an unprecedented rate. 

What’s Next on Target for Top Private Equity Firms Across the Globe?

The next on the list of PE managers in the private equity industry is the search for assets in the industry sectors that are either not affected at all by the pandemic, or those, that are at least somewhat affected.

Industries that have not had the hardest of hit from the virus-spread comprise business services, technology companies, and software & IT firms. Those worst hit by the pandemic comprises manufacturing, logistics & supply chain, e-commerce, retail, and travel.

Manufacturing Sector – The Probable Target

The next on the target, it seems like for PE firms, is the manufacturing sector, one of the worst-hit industry sectors amid the ongoing epidemic. Private equity managers might want to wait for some more time to get the said industry crippled, out of the economic adversities led by the virus, before they seek for huge bargains from the companies that fall in the mentioned industry.

Manufacturing firms, sooner or later, will fall prey to the acquisition deals to be presented to them by the PE investors, as it seems like the virus-spread will not stop anytime soon. Given the complex business structure of the manufacturing sector, that involves international supply chains, it will get almost impossible for them to sustain the economic adversities. 

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