COVID-19 – An Opportunity to Show the Adaptability and Strength of the Finance Market?
Co-authored by MV Credit Partners LLP
As the world watches the spread of COVID-19 across all continents, global economies are reacting to the impact and trying to foresee eventualities to mitigate the inevitable loss. There are some industries that will undoubtedly be more effected than others, and as with any economic crisis this will have a knock-on effect.
In this article we will consider the impact of COVID-19 on the finance industry and what this could mean for lenders and borrowers. Every downturn also brings opportunities, so we will also be speculating as to where we could see an upturn in the near future, not least because there is definitely enough negative news out there!
Outlook for Private Equity:
The COVID-19 pandemic is continually evolving, and the government advice is being updated as the situation develops. What is clear is that industries such as travel, retail, hospitality and aviation will see an immediate impact, with widespread effects as time goes by. The issues for the private equity industry may be less immediately apparent. Whilst liquidity is drying up for some industries (see our section on ‘Outlook for Banks and impact on debt finance’ below) one sector that hasn’t lacked liquidity is the private equity space. According to recent data1 , the private equity industry is sitting on an unprecedented $2 trillion cash pile which has not yet been invested. There has long been talk of excess ‘dry powder’ in the industry, and in the current climate this is no bad thing. Private equity firms are being presented with opportunities to invest in distressed assets at a lower than market price. Buyout by a private equity firm can also be a saving grace for failing businesses in the current climate, as ultimately a PE’s firm’s objective is to make a business profitable and eventually sell it on. There are also many industries which will see a boost in profits due to the sudden change in lifestyle that the global population have been forced to make, such as technology, business services and healthcare. We may not see these deals happen immediately, but private equity firms with significant capital will react to the recent significant market movements and prioritise the search for new investment opportunities in these resilient sectors that are less likely to be affected by COVID-19 after the economy levels out.
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