Cash-rich PE industry competing for post-pandemic deal prices

COVID-19 has left many private equity firms waiting in the wings with copious amounts of “dry powder” as they battle over historically low-priced deals for targets in the post-pandemic M&A market.

But with many of these targets keeping their heads above water thanks to various government programs, the Globe and Mail suggests that few of these companies are actually willing to sell, as they wait for the inevitable market bounce-back and the higher valuations that come with it.

This situation has resulted in intense competition as PE firms race to deploy their capital for those deals that are on the market.

Torys private equity lawyer Guy Berman has told the Globe and Mail that as a result, private equity professionals are busier than ever before.

“This is the busiest anyone in private equity has ever been, in their entire careers,” Guy told the Globe.

“You’ve got the challenge of helping your existing portfolio of business through a pandemic, while deploying new capital at a time when there’s a lot of money chasing very few deals.

“These are huge challenges for private equity.”

LISTEN: Hear Guy Berman and Stefan Stauder discuss the pandemic’s effect on the private equity industry in their episode of Torys Business Brief.

The Globe piece also points to the global financial crisis of 2008-09 as an example of unprecedented opportunity for many private equity firms, stating that COVID-19 could very well present similar opportunity. But it may only be the large firms who benefit most from the post-COVID-19 deal landscape.

“It could well be that we look back on this a couple years from now, and find that the top players have emerged largely unscathed from this, or maybe even produced a phenomenal vintage akin to 2008-2009,” Torys’ New York private equity lawyer Stefan Stauder said.

“Whereas I think the more generalist, newer, maybe less established funds will find this more difficult to manoeuvre.”

You can find more of Torys’ insights into the Canadian private equity industry in our first annual industry survey, PE Pulse. Released before the pandemic crisis hit Canada, the survey results share the thoughts and insights of more than 100 Canadian and private equity and pension fund leaders.