Private Equity: The State of the PE Industry and Coronavirus

March 23, 2020 | News, Private Equity

McKinsey and Company just published guidance for the private equity industry.

In the paper titled “Private Equity and the New Reality of Coronavirus.”

They suggest that “private equity (PE) firms and their portfolio companies come into the crisis riding a decade-long wave of growing transaction volumes, valuations, and fundraising. That position of strength may prove a bulwark in the months ahead, especially for firms that have exercised prudence recently.

Private But there are also fault lines in private markets: deal leverage recently reached a new high, and multiples paid in recent months reached a multiyear high.”

Private Equity Report from McKinsey

McKinsey outlines five steps that private equity firms need to take to navigate their way through the crisis. At the top of the list is taking care of their employees. They suggest expanding the ability to work remotely with investments in technology and infrastructure. McKinsey also suggests that they aid employees in managing their own and their families’ health, energy, and stress levels, in line with guidelines from the relevant public-health organizations.

Firms need to use video conferencing to keep the deal pipeline flowing and meet with the leadership of portfolio companies.

Private equity firms need to prioritize their portfolio companies and help them address any additional risks or difficulties the coronavirus crisis may create for them. The risk and challenges will vary by industry, but they must be assessed and prioritized to help prevent problems from escalating.

To navigate the current environment, private equity firms must assess investment strategy, asset allocation, and financing. Those firms that have substantial dry powder will find opportunities to deploy capital as market collapse, but funding for buyouts could dry up as lenders pull back from the market.

You can read Private Equity and the New Reality of Coronavirus here.

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