‘Bullish’ Private Equity firms set to invest despite market challenges

Nearly 71% of Private Equity (PE) firms anticipate investing further capital to support their portfolio companies between now and the end of 2020, according to RSM survey

This is on top of the other measures they have already taken to help their companies’ cash positions during the coronavirus crisis.

A further 78% of PE companies also said it is likely that they will support one of their existing companies in making an add-on acquisition before the end of 2020.

Charlie Jolly, partner and national head of private equity at RSM said: ‘The market fundamentals are very different to what we saw in 2008. As such, mid-market PE firms remain bullish and are very much focused on growth opportunities.

‘They are building the sustainability of the companies they already have, by actively helping management teams and looking to restore balance sheets. It’s likely we will see fewer mid-market PE-owned businesses becoming insolvent and PE will play an important role in aiding and navigating the UK’s recovery.’

New investments are keenly sought after as well. 73.5% of PE firms expect to complete a new investment in a deal that started before the full impact of the crisis hit. There is also confidence amongst PE investors with 69.6% believing they will complete a deal this year that had not started before lockdown.

In the short-term, over 90% of the PE firms surveyed utilised the Coronavirus Job Retention Scheme in at least one portfolio company, to help save on operating costs and provide an alternative to a wave of job losses.

However, the use and access to the Coronavirus Business Interruption Loan scheme is more mixed. Although over 80% of PE firms applied for a government-supported loan in at least one of their portfolio companies, 65% did this for less than a quarter of the companies they own.

Accessing government-backed loans has been challenging. Less than half (42.6%) of those PE firms that have applied for at least one loan has successfully secured funds.

Jolly added: ‘Businesses that already have PE backing are largely proving to be more resilient as the PE firms can inject further capital and there is not the same reliance on lending programmes.

‘Mid-market PE firms are proving to be effective partners with their management teams, helping businesses to become more resilient and competitive in their markets and looking for growth opportunities through acquisition.

‘In addition, for businesses that are trading well in attractive sectors such as technology and healthcare, there will be a large pool of interested parties ready to deploy capital.’

RSM surveyed 151 Private Equity professionals, representing 84 mid and lower-mid market General Partners (GPs) in May 2020.

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