Private equity weathering COVID-19 economic slowdown

Wednesday, 08. July 2020 15:50

ARLINGTON, Va., July 08, 2020 (GLOBE NEWSWIRE) -- Private equity investments appear to be weathering the impact of the pandemic across multiple sectors and geographies, according to the results of a Private Equity and COVID-19 study by Willis Towers Watson (NASDAQ: WLTW), indicating that despite a subdued environment for exit deals in the first six months of the year, there has been little evidence of forced exits.

The survey, which took place in April across 36 private equity funds representing 300-plus portfolio companies, was designed to better understand how businesses were coping due to the pandemic as well as setting out expectations for the coming months.

The results revealed the significant turmoil in capital markets has had little effect on the capital structures of portfolio companies, with 87% of respondents saying their holdings were unlikely to breach covenants as a result. Only 13% said holdings were either close to breaching or likely to breach covenants in the next two to three months.

“Private equity-owned companies have a number of structural advantages that may have allowed them to navigate this crisis,” said Jon Pliner, U.S. head of Delegated Portfolio Management. “In addition to the expertise provided by private equity managers, the additional access to equity and debt capital from their sponsors may also have provided some respite.”

Regarding customer demand for products or services, however, responses were far more varied with 46% of respondents reporting 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 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 most private equity-held businesses effectively implemented alternative working arrangements to work around any disruptions arising from the COVID-19 crisis.

“While 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,” said Pliner. “Beyond the short-term dislocation, we also see several 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.”

Forward-looking statement

The information included in this presentation is intended for general educational purposes only and does not take into consideration individual circumstances. Such information should not be relied upon without further review with your Willis Towers Watson consultant. The views expressed herein are as of the date given. Material developments may occur subsequent to this presentation rendering it incomplete and inaccurate.  Willis Towers Watson assumes no obligation to advise you of any such developments or to update the presentation to reflect such developments. The information included in this presentation is not based on the particular investment situation or requirements of any specific trust, plan, fiduciary, plan participant or beneficiary, endowment, or any other fund; any examples or illustrations used in this presentation are hypothetical. As such, this presentation should not be relied upon for investment or other financial decisions, and no such decisions should be taken on the basis of its contents without seeking specific advice. Willis Towers Watson does not intend for anything in this presentation to constitute “investment advice” within the meaning of 29 C.F.R. § 2510.3-21 to any employee benefit plan subject to the Employee Retirement Income Security Act and/or section 4975 of the Internal Revenue Code.

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Combined survey results: Impact of COVID 19 on portfolio companies

Source: Managers, Willis Towers Watson, June 2020
Related Links: Willis Towers Watson Plc
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