NXTmine
  • Economics
  • Precious Metals
    • Gold
    • Silver
  • Energy & Critical Metals
    • Lithium
    • Uranium
    • Rare Earths
  • Base Metals
    • Iron Ore
    • Copper
    • Nickel
  • Companies Directory
  • Stocks In Play
  • Companies Newsroom
    • Articles
    • Today’s News
    • Financing News
    • Drilling News
  • Logout
  • Account
    • My Newsletter
    • Profile
    • Newsletter Management
  • Sign In
  • Sign Up
  • Newsletter
Connect with us
NXTmine

NXTmine

Private Equity’s COVID-19 Recovery Plan

  • Economics
  • Precious Metals
    • Gold
    • Silver
  • Energy & Critical Metals
    • Lithium
    • Uranium
    • Rare Earths
  • Base Metals
    • Iron Ore
    • Copper
    • Nickel
  • Companies Directory
  • Stocks In Play
  • Companies Newsroom
    • Articles
    • Today’s News
    • Financing News
    • Drilling News
  • Logout
  • Account
    • My Newsletter
    • Profile
    • Newsletter Management
  • Sign In
  • Sign Up
  • Newsletter

Base Metals

Private Equity’s COVID-19 Recovery Plan

Private Equity’s COVID-19 Recovery Plan

Share this article:

Share this:

  • Twitter
  • Facebook

Published

3 years ago

on

September 3, 2020
This article was originally published by INSEAD Knowledge - Economics & Finance

COVID-19 has accelerated many long-brewing developments in the business world, such as the ascent into respectability of working from home. Private equity (PE) has not been immune to this trend. By chilling the deal-making process for the time being, the pandemic has brought greater focus to PE’s involvement in active ownership of portfolio companies, and an emphasis on operational improvements and other forms of long-term value creation. For the moment, PE firms have no choice but to concentrate on keeping their investees afloat, no easy task given the churning waters ahead.

Graham Oldroyd (INSEAD MBA ‘89D), a former partner at Bridgepoint Private Equity and holder of many NED and independent board chair positions, says that PE’s response to the pandemic will ultimately consist of three phases, which he named “React”, “Recover” and “Rebuild”. During a 14 May webinar moderated by INSEAD Professor Claudia Zeisberger, Oldroyd said, “The businesses I am involved with are still very much in the ‘Recover’ phase.” As they navigate this crisis, board members and senior managers, whether or not they are involved with PE, can learn from the “structured crisis management” techniques general partners (GPs) are employing with their portfolio companies.

The L-shaped moment

Oldroyd described how the financial free fall observed in the earliest days of the pandemic has since given way to more stable doldrums. This makes it possible to look ahead to recovery. In the React phase, GPs and portfolio companies were preoccupied with liquidity, or, as Oldroyd bluntly put it, “ensuring they had enough cash to survive”. Securing financing lines, cutting costs to the bone, instituting additional cash controls and signing onto government support schemes were among the measures that monopolised attention in those frantic days and weeks.

Now that portfolio companies have found the ground beneath them once again, a multi-faceted mission has taken hold. Working in concert with the PE firm’s operating partners, investee company executives are carrying out robust scenario planning, along the necessary focus on immediate cash flow. They must consider all the issues that may affect funding over the next 12-18 months. This includes assessing when any deferred payments will need to be made, as well as the impact on financing requirements should there be a second wave of COVID-19 infections and a return of lockdowns. They must also examine how to meet increasing working capital requirements as economic activity begins to revive.

Operating partners and company managers work closely to create immediate (21 days), near-term (13 weeks) and just over the horizon (12 months) rolling cash forecasts for a range of scenarios. “Individually, any single scenario may not be [of] much use in such uncertain times, but together they can enable a company to judge whether it has enough cash resources to weather most circumstances. They can also help management model the likely financial consequences of different routes out of lockdown,” Oldroyd said.

In addition, the project management offices (PMOs) that PE firms install in portfolio companies have been converted into de facto crisis management war rooms. Normally used for managing transformation programmes (such as transitioning to lean manufacturing), PMOs are perfectly perched at top level so as to monitor and guide each recovery initiative as a separate workstream, with centralised access to key information and relevant decision makers.

Opportunistic M&A

PE firms are also looking towards a future where COVID-19 has been conquered thanks to a vaccine, herd immunity, etc. It is not yet clear, Oldroyd said, who the winners and losers of the pandemic will ultimately be. Many firms are actively investigating their options for pre-emptive, opportunistic M&A.

For example, Oldroyd said he knows of one PE firm that just started searching for acquisition targets as part of a buy-and-build strategy for one of its portfolio companies. “While the sector is struggling now, the PE fund feels the team is well set to be the industry consolidator with excellent growth prospects post-COVID-19,” he said.

However, the current situation is playing havoc with standard valuation metrics. In this uncertain climate, it would appear sensible to use lower multiples of earnings to measure value. But applying that lower multiple to a company’s COVID-suppressed performance, rather than a normalised earnings forecast, may lead to “doubling up on the bad news” to produce an excessively discounted figure, Oldroyd explained.

Exit planning and incentives

Oldroyd expects that exit timelines will be profoundly disrupted. Companies that were doing well before the crisis hit, but are now struggling, will be held longer than expected. Some IPOs may be postponed. On the other hand, companies that have performed well under COVID-19 may be rushed to market.

In cases of deferred exit, managerial incentives will prove to be a thorny issue. “Many companies are now potentially so underwater that there is no incentive,” Oldroyd said. Ratcheted compensation structures – which tie rewards to performance thresholds – may no longer make sense if still based on the old projections. However, PE funds are already looking into eventually revising these structures as they move into the Rebuild phase, so that the interests of portfolio company managers and the PE fund remain aligned.

“Private equity knows it needs to keep good managers,” Oldroyd said.

Coming back stronger

COVID-19 has already yielded quite a few business surprises. “Who would have predicted that if you were a bicycle supplier in the UK, the onset of COVID-19 would push up your share price by over one-quarter? It’s simply because that’s what everyone wants now. I think imagination is needed [to spot untapped value] across individual sectors,” Oldroyd commented.

On the whole, though, companies should look to the well-known fundamentals of business success as the crisis wears on. In the end, the winners, according to Oldroyd, will be the ones with “good management teams, innovative products and good services for their customers”.

INSEAD’s webinar series “Navigating the Turbulence of COVID-19” feature expert inputs on key issues surrounding pandemic control and current countermeasures around the world. Sign up here.

Don’t miss our latest content. Download the free INSEAD Knowledge app today.

Follow INSEAD Knowledge on Twitter and Facebook.

Title: 
Private Equity’s COVID-19 Recovery Plan
Blog: 
INSEAD Blog
Category: 
Economics & Finance
Main Category: 
Economics & Finance

May 29, 2020
More

‘,
‘twitter’: ‘Tweet‘,
‘google’: ‘

‘,
‘linkedin’: ‘‘+’cript>’
};
for (var i in networks) {
element = document.querySelector(‘[data-share=”‘ + i + ‘”]’);
if (element) {
element.innerHTML = networks[i];
}
}
}());

More

‘,
‘twitter’: ‘Tweet‘,
‘google’: ‘

‘,
‘linkedin’: ‘‘+’cript>’
};
for (var i in networks) {
element = document.querySelector(‘[data-share=”‘ + i + ‘”]’);
if (element) {
element.innerHTML = networks[i];
}
}
}());


lead

Share this article:

Share this:

  • Twitter
  • Facebook

Related

Continue Reading
Advertisement

You may like

  • Bonfiglioli opens new Victorian facility

  • Surge Battery Closes 2nd Tranche Non-Brokered Private Placement

  • Price outlook: Uranium and the nuclear renaissance

  • Criterium Energy Ltd. Announces Annual General and Special Meeting and Appointment of Red Cloud Securities

  • Origen Begins Phase 2 Lithium Exploration at Los Sapitos

  • Rio2 Limited Gets Approval for Issuing Shares in Lieu of Salaries

Base Metals

5 Best Small Business Loans of 2023

Read all about small business loans and other funding options with Money’s expert guide.

Share this article:

Share this:

  • Twitter
  • Facebook
Continue Reading
Uncategorized

S&P 500’s Reversal – Cuts Aren’t Bullish

S&P 500 reversed, but the upswing teemed with non-confirmations and oddities, the common denominator being strong market pressure on Powell to give…

Share this article:

Share this:

  • Twitter
  • Facebook
Continue Reading
Companies

Co. Signs Royalty Agreement With 'Gold Rush' TV Show Star

Source: Couloir Capital   03/24/2023

This and major exploration milestone achievements are recent significant events for the Canadian mining…

Share this article:

Share this:

  • Twitter
  • Facebook
Continue Reading

Trending

5 Best Small Business Loans of 2023

Base Metals5 hours ago

BHP signs carbon capture and utilization pilot agreement with China steelmaker HBIS

Base Metals13 hours ago

Are Copper Stockpiles Empty? Metal Expected to See New Highs In the Next 12 Months

Base Metals7 hours ago

Arizona Sonoran Copper drills 1.14% copper over 166.6 metres at Parks/Salyer, Arizona

Energy & Critical Metals8 hours ago

Trending

  • Precious Metals11 hours ago

    “It’s Getting Real”: Unease Over Banking Sector Turmoil Spurs Huge Demand For Physical Precious Metals

  • Drilling News12 hours ago

    Canada Carbon Receives Complete Results on its Asbury Property with Interpretations that Include 5.00%Cg over 33.35m.

  • Financing News13 hours ago

    QC Copper Announces Private Placement with Quebec Funds

  • News Releases11 hours ago

    Bonterra Intersects 34.7 g/t Au over 2.4 m at the Barry Underground Project and Provides an Update on the Duke Property Joint Venture Drill Program

  • Financing News12 hours ago

    Copper Lake Resources Announces Warrant Extension

  • Uncategorized22 hours ago

    Weekly Market Pulse: Perspective

  • Financing News10 hours ago

    Gold’n Futures Reports Update on Its Brady Gold Project in Newfoundland

  • Financing News11 hours ago

    Arctic Fox Lithium Corp. Engages Noranda Royalties to Compile Data on its Lithium Properties in the James Bay Region of Quebec

NXTmine
  • About
  • Write For Us
  • Contact Us
  • Privacy Policy
  • Terms of Use
  • Sitemap
 

NXTmine is part of NXT Financial Media Group. Copyright 2021 NXT.financial media

We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
Cookie settingsACCEPT
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT

Share

Blogger
Delicious
Digg
Email
Facebook
Facebook messenger
Google
Hacker News
Line
LinkedIn
Mix
Odnoklassniki
PDF
Pinterest
Pocket
Print
Reddit
Renren
Short link
SMS
Skype
Telegram
Tumblr
Twitter
VKontakte
wechat
Weibo
WhatsApp
Xing
Yahoo! Mail

Copy short link

Copy link