It is three weeks today since the World Health Organisation declared COVID-19 a global pandemic. It is only now we are starting to see the shockwaves of the past few weeks settle down in the private equity community. This is not to say the environment is improving. Far from it: sadly we are all getting increasingly impacted by the practical issues surrounding this pandemic. What is starting to come through is the change in perspective in the industry – reporting of the last few completed buyouts in the system not yet announced has now ceased and an understanding of the short term consequences are being understood.
At Sandaire, we have a broad spread of private equity funds and direct investments across several geographies, stages and sector. We are starting to understand through the managers of the funds and the direct businesses, what the immediate consequences might be and how the pandemic is starting to affect them. Our kaleidoscope of businesses is showing several unsurprising trends split largely between manufacturing and services. Underlying portfolio companies in the consumer sector are seeing mixed results: those in food and product manufacturing are seeing resilience, while service businesses in leisure such as gyms and restaurants are seeing immediate downturns with unit closures and redundancies or furloughing taking effect. Consumer-facing companies with online presence are suffering less. Meanwhile industrial manufacturers are repurposing their businesses – in the case of one company, into manufacturing hand sanitisers! Healthcare product manufacturers are doing well while healthcare service providers (domiciliary care, orthopaedic services) are more difficult. We are in the early stages of this process. What we do not know is how long we will be in this phase or what follows.
While these are unique conditions, the industry is better placed than it was in 2008 at the time of the last crisis to weather the storm. Managers of funds and C-suite executives of underlying portfolio companies have lived through a serious downturn and in so many cases, got through the other side. This was not the case a decade ago when economic growth had been strong and growing for more than 15 years across the major global private equity markets. Managers are responding to Government initiatives well, banks are better placed financially and operationally to handle the crisis and where possible management teams are taking a prudent approach to cash management, drawing down on available facilities even when they are not necessarily required in the short term. Lessons were clearly learnt ten years ago and the industry proved its resilience to cope. While the industry will undoubtedly be learning more bad news, the current generation of managers will have the toolkit to perform.