Private Equity Majors Closely Watching Companies in Distress

Private Equity Majors Closely Watching Companies in Distress

Private Equity majors are closely watching companies in distress, economic activity going bad, higher demand for money to fund expansion and they are ready to hunt for bargains. As per a report published by the Telegraph, nearly 70 percent of private equity firms said that they are evaluating deals to buy companies (or acquire majority stake) in distress. While economists are arguing over V-shaped or U-shaped recovery for the economy, private equity firms have set their eyes on the best bargain they can get for their money. Many businesses with a strong business model are facing distress due to issues caused by COVID-19 and lockdowns announced by local authorities.

Among the worst hit sectors are aviation, travel, tourism, hotels, personal services, restaurants (and related businesses), real estate, automobiles, capital goods and manufacturing. Many companies that could allow their workforce to do their job remotely, have managed to do well even during COVID-19 lockdowns. We could also see more distress in some sectors as companies and individuals could delay some expenditure.

Paul Joyce, head of M&A London activity at Mazars has seen the results of study conducted by the company on response of 145 investors from Europe, North America and Asia. Joyce added that some clients were already asking advisers to run the rule over possible investment targets.

As per Telegraph report, “A deals bonanza would be a boon for bankers, lawyers and other advisers. However, private equity investors may hold off selling companies they already own in the hope they will get a better price further down the line.”

“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,” Mr Joyce said.

During times of crisis, people with money can always find good deals. However, it is yet to be seen how the world recovers from the economic crisis caused by COVID-19 pandemic. The economic indicators at the moment are suggesting painful road ahead but the situation will be clear after the results for June quarter.