Goldman Sachs (NYSE: GS) is said to have released a report advising companies to ignore the advances of private equity firms right now.

With valuations compressed dramatically in a very short period of time, private equity is looking to deploy its cash stockpile of around $1.5 trillion. Goldman, along with other investment banking firms, is advising clients that want to remain independent to take advantage of bridge loans and other funding provisions in the stimulus package that is being passed today rather than sell equity at bargain-basement levels.

Goldman Sachs on Dry Powder

Private equity firms are aggressively pursuing deals in the industries hit hardest in recent weeks, including energy, travel, and entertainment. PE firms are said to be approaching firms that have seen cash flow dry up as the world is on lockdown to make PIPE (Private Investment in Public Equity) deals to gain an equity stake at prices even lower than the current battered stock price. Most of the deals being discussed so far have been for non-control stakes rather than outright takeover deals.

KKR is said to currently be in talks with Australian travel company Webjet to provide PIP financing. Webjet, like most other travel-related companies, has seen cash flow disappear as the global economy ground to a halt over the past month. The terms are not known at this time, but KKR appears to be offering the company immediate cash in return for a non-controlling equity position in the company.

PIPE deals worked very well for private equity firms back during the Credit Crisis as they were able to buy discounted shares in a wide range of industries, including the once avoided banking sector, that ended up earning them huge profits. While the investment banks are telling firms to hold off for now, if the coronavirus keeps the economy in decline for an extended time, many firms will be forced to do a deal with private equity to keep the lights on and the doors open.

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