Private equity is a trillion-dollar industry set to feel a full range of effects from Covid-19. Effects where the outcome of new challenges and opportunities could be measured in billions of dollars.

Short term focus is on shoring up portfolio companies in need of liquidity and cash flow management, as revenue drops of 25% to 100% makes damage mitigation a core priority. For some portfolio companies, it is a matter of survival. Internally, PE houses need to find new ways to support portfolio companies as well as prospecting and executing new deals.

PE companies have unheard stocks of dry powder, and in the wake of Covid-19 new high-quality distressed targets are appearing. However, the virus may be causing uncertainties — for example, about tax- and audit-related consequences of new investments, use of relief packages, deal restructuring, or buying up portfolio companies’ debt.

Uncertainty regarding performance projections requires a new look at valuations. Reliable projections are now difficult to come by, making accurate valuation models very difficult.

Some of PE firms’ capital reserves will be spent on new deals while increasing existing portfolio companies’ resilience will also be a priority. Integrating new technologies, speeding up digital transformation, and opportune bolt-on acquisitions will be other priorities to help realise the full potential of portfolio companies in a post-COVID world. Internally, updating financial forecasting through predictive analytics, scenario planning for multiple economic outcomes, and increasing flexibility in risk management will be at the top of many companies’ to-do lists.

BDO’s Global Private Equity team supports PE companies, as well as businesses invested in or seeking investment by PEs, with a full spectrum of professional services. We assist companies and help them react to the immediate challenges, increase resilience, and realise the potential of future investments, existing portfolio companies, and the PE companies themselves.  

As a global network, we address both domestic and international needs.