3 questions to smart minds

Private equity against economic pandemic crisis

For this 3 questions to Jan Pörschmann

Mana­ging Part­ner Proven­tis Part­ners in Munich
Photo: Jan Pörschmann
8. April 2020

Half of all private equity compa­nies surveyed in the DACH region are resistant to the crisis and intend to conti­nue inves­t­ing, even if the majo­rity of them expect the economy to slump. Two-thirds of private equity funds expect only a short-term decline in M&A proces­ses. These are the key findings of the private equity flash survey conduc­ted by Proven­tis Part­ners toge­ther with the Insti­tute for Mergers, Acqui­si­ti­ons and Alli­ances (IMAA) in Germany, Austria and Switz­er­land entit­led “Private Equity Reac­tions to SARS-CoV‑2”.

For this 3 ques­ti­ons to Jan Pörsch­mann, Mana­ging Part­ner Proven­tis Part­ners in Munich

1. Which indus­tries are predo­mi­nantly affec­ted by the current crisis?

Accor­ding to private equity inves­tors, the hardest-hit sectors include vehicle manu­fac­tu­ring and access­ories, machi­nery and equip­ment, trans­por­ta­tion, logi­stics and tourism, and texti­les and appa­rel. Accor­ding to the private equity firms surveyed, the indus­tries that stand to bene­fit most from the Corona pande­mic are phar­maceu­ti­cals, food and bever­a­ges, tele­com­mu­ni­ca­ti­ons, and retail and e‑commerce.

Private equity inves­tors have deep pockets and stay­ing power. In 2019 alone, more than EUR 5 billion in fresh capi­tal was raised by funds in Germany (just under EUR 100 billion in Europe as a whole), plus funds from a large number of family offices. The global “dry powder” of PE funds is over $2 tril­lion. Thus, prudent private equity inves­tors with a long-term view can make a signi­fi­cant value contri­bu­tion to stabi­li­zing the economy in this situa­tion. I am all the more plea­sed that more than half of the funds we surveyed want to conti­nue to invest actively.

2. What are the results of your study in summary?

More than 85% of respond­ents expect GDP to decline as a result of the pande­mic, with 72% even fore­cas­ting an econo­mic down­turn of more than 1.0%.
70% of parti­ci­pants see a strong impact on ongo­ing M&A proces­ses. At the same time, as many as 65% of parti­ci­pants expect there to be only a short-term decline in M&A transactions.

In terms of invest­ment beha­vior, the market is split into two camps: 50% want to seize the oppor­tu­nity and invest. The other half wants to put the tran­sac­tions on hold for the time being. In response to the new market envi­ron­ment, 60% of inves­tors want to make their contrac­tual mecha­nisms (purchase price deter­mi­na­tion, working capi­tal, etc.) more varia­ble. The majo­rity of parti­ci­pants want to avoid sectors that are at risk from the economy for the time being as well as pay atten­tion to supply chain secu­rity in new enga­ge­ments. More rigo­rous scru­tiny of supply chain secu­rity is what inves­tors with mid-sized funds are most looking for. Other invest­ment policy impli­ca­ti­ons cited by survey parti­ci­pants include redu­ced avai­la­bi­lity of debt in acqui­si­tion finan­cing, ze

3. What is your fore­cast for the next 12 — 24 months?

Our conclu­sion: at least half of the inves­tors active in the DACH region see the oppor­tu­nity in the crisis and will conti­nue to invest heavily. — The results also show how differ­ently the funds seem to be deal­ing with the current start­ing situa­tion. There will certainly be good oppor­tu­nity in deal flow for indi­vi­dual funds. In addi­tion, there should be an oppor­tu­nity to once again remind the broa­der public of the useful role of private equity.

About the Insti­tute for Mergers, Acqui­si­ti­ons and Alli­ances (IMAA)

The Insti­tute for Mergers, Acqui­si­ti­ons and Alli­ances (IMAA) is a nonpro­fit mergers and acqui­si­ti­ons think tank that conducts rese­arch and provi­des educa­tio­nal certi­fi­cate programs, work­shops, resour­ces and exper­tise in the field of M&A. Foun­ded in 2004, the Insti­tute consists of faculty and trai­ners from around the world who contri­bute to rese­arch, resource content and programs. As a leading acade­mic insti­tu­tion for M&A and a globally active insti­tute, the programs offer a wealth of expe­ri­ence and know-how and are the most compre­hen­sive educa­tio­nal offe­ring world­wide. M&A certi­fi­cate programs are the only broadly reco­gni­zed inter­na­tio­nal trai­ning programs, and their content is rele­vant to both deve­lo­ped and emer­ging markets. IMAA parti­ci­pants and Insti­tute members repre­sent more than 70 count­ries, inclu­ding students and young profes­sio­nals to board-level execu­ti­ves and govern­ment officials.

About Proven­tis Partners 

Proven­tis Part­ners is a part­ner-led M&A consul­tancy whose clients are mostly corpo­rate groups, medium-sized family busi­nesses and private equity funds. With 30 M&A consul­tants, Proven­tis Part­ners is one of the largest inde­pen­dent M&A consul­tancies in the DACH region, with offices in Hamburg, Colo­gne, Munich and Zurich. The part­ners’ indus­try focus is on Indus­tri­als, Busi­ness Services, Consu­mer & Retail, TMT, Health­care and Energy, in which the part­ners can look back on a total of more than 300 successfully comple­ted tran­sac­tions with a cumu­la­tive tran­sac­tion value of 10 billion euros.

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