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Middle-Market Private Equity Stay Positive Amid COVID-19

The impact of COVID-19 on middle-market private equity firms was not so negative as compared to the first quarter of the year. Look for the leader's plan here.

The market volatility caused due to COVID-19 has disrupted middle-market deals to a greater extent. The deal volume in the US private equity firms was 538 in April and 390 in May, a drastic drop from 3000 announced deals in Q1. The main reason is that during the last few months, the main focus was to manage crisis and preserve value at the existing portfolio companies rather than following new deals.

Many companies have terrible liquidity need which includes sponsor-owned portfolio companies too. Also, as per the study, 70% of respondents said that the COVID -19 impact was less and not severe as they expected and fewer businesses (26%) have negative perspectives about their businesses. From the second quarter of the year, leaders are positive and hopeful in their business dealings.

In any case, Private equity firms will have a tough fight ahead, Tatum reports. Fifty percent of the middle-market executives surveyed report that leadership will change and restructuring will be done in the near future as the crisis had a major impact on the organization. Further, the report suggests that middle-market companies were the engines of growth for the US economy so far and COVID-19 affected in noticeable ways. The middle market had focused attention on leadership and management challenges.

This prompted scrutiny on existing business models and the need to explore alternative solutions. To continue with the survey report, the specific leadership challenges now include:

  • Implementation of effective management services.
  • Optimal management of supply chain services.
  • Effective management of customer experiences.

These present challenges reveal that the private equity industry is facing deeper issues other than the global pandemic issues, though it might not be the case for some middle-market companies.

As per the available report,

  • 27% of middle-market leaders witnessed improvement in the economy
  • 42% expect to see improvement in the coming six months
  • Hiring has decreased. Only 23% of leaders report an increase in hiring

Neil Bradley, the US Chamber of Commerce shares his opinion that they need public health guidance, temporary and targeted financial assistance, and liability protections for businesses. This enables the business leaders to gain the confidence to reopen and restore the economy without being penalized by the lawsuits later on.

Study reports suggest that 83% plan to bring back their furloughed employees, while 53% plan to rehire their laid-off employees. Only 6% of the companies are planning for additional staff rehire and 15% may hire new employees.

Alternative measures and opportunities

It is a welcoming report that larger sponsors responded quickly by shifting their focus and raising funds for opportunistic investing. It could be in the form of credit investing, distressed investing, or buying back portfolio company debt. A few sponsors vetted management by conducting thorough diligence and deals got fully negotiated.

Half of the companies said they changed their business operations and are operational again. They are stabilizing their financial positions again. Professionals are contributing equally in their private equity career and taking part in the success of the company. The best thing is to seek assistance and gain market insights for new opportunities.

To note the changes from the other perspective, say from PE professional’s perspective, they should gear up for a new way of the profession. To succeed in their private equity jobs, they may have to upgrade their skills, learn technology, and work for the new way of work life like remote working, technology-led leads and deal closures, and many more.

How far have you prepared in the changing job nature brought about by the influence of COVID-19? What are your plans to make a successful career in private equity for the next decade? Share with us in the comment section.

Ariaa Reeds

Ariaa Reeds is a professional writer who curates articles for a variety of online publications. She has extensive experience writing on a diverse range of topics including business, education, finance, travel, health and technology.

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