The effects of Covid-19 are being felt in the private equity industry but in perhaps different ways to how we might have initially considered.
The travails of the hospitality and physical retail sectors, many of whose participants are backed by private equity has been well publicised. Already rescue deals have been seen, including the purchase of brands. Early stage businesses are being propped up by government support in the form of the Job Retention Scheme (aka ‘furlough’) and the Coronavirus Business Interruption Loan Scheme (CBILS) loan scheme as well as the Future Fund equity investment scheme. The level of Government support has been without precedent and there is now rumour of larger buyouts having debt support arrangements put in place.
We are also seeing signs of activity in the new investment arena. The M&A market was quiet in Q2 across Europe with activity reported by numerous surveys to be down very materially. However we have seen during the summer a return to deal making and some Lockdown-beneficiaries changing hands and moving into private equity ownership, with investors attracted by the changing models of business activity in front of their eyes. The purchase of stakes in Hermes (parcel carriers) and Gymshark (gym clothing) by London-based private equity firms reportedly valued each business at €1bn+. Both had seen strong pick up in activity during lockdown and evidence that their business models are here to stay. Blackstone’s acquisition of Ancestry.com for $4.7bn is a reaction to the apparent growth of interest in family genealogy research during lockdown.
Meanwhile the trickle-down effect of the latest round of Quantitative Easing has seen several large funds close on record amounts. In Europe, CVC successfully closed the largest ever European buyout fund and the third largest fund ever raised at €23bn while in the regions, Nordic Capital has surpassed €5bn of funding for their tenth fund. In the UK, we are seeing funds closing and institutional interest remains strong for small cap funds too. KKR announced in early August they had raised $16bn in Q2 alone, a record for the firm, leaving them with dry powder of $67bn.
The private equity market continues to show its ability to evolve and react to changing market conditions and, with a long term perspective on the management of its assets, will in my opinion, continue to perform well.