During 2020, we saw a range of different global and domestic factors that impacted the private equity sector and the way we do business in general. The uncertainties created by the COVID-19 crisis, the 2020 presidential election, and economic stresses forced businesses to adapt and to adjust their strategies to address the immense volatility in company operations.
The State of Private Equity in 2020
Considering the survival of the fittest situation for many, the past year may be defined as a “deferred value creation” for most investors. Our discussions with our clients focused on planning for an extended pandemic and a post-pandemic world once vaccines were approved. For some of our private equity clients, the volatility offered opportunities to buy assets at lower prices, and to take on clients In new markets. For others, it was a wait and see period. Performance improvement needs did not change – what changed was a new prioritization for areas of focus to address. Employee safety was first priority, with cash conservation second, then supply chains management, along with sales and margin management.
Key Trends That Impacted Businesses
Globally, the election year had somewhat hindered investment activity. Since investors and the overall market respond positively to stability in the government, many were reticent to make moves until election season had ended. We are already seeing an uptick in transactions now that the election results are confirmed.
Additionally, the shift to working from home for many in 2020 has had a varied impact, including increase in productivity for some service-based businesses. However, for businesses where on site presence was required (shop floor, health care delivery, etc.) the Impact of COVID 19 and home-schooling caused disruption that was not easily addressed. The last year for these businesses has meant retrenchment, recovery and adapting to new ways of doing business. Furloughed employees are coming back to work and need to be assured of safety protocols until the vaccine roll-out stabilizes across U.S. geographies. We believe the benefits of a renewed, more stable vaccine plan will start to return to some normalcy by the latter part of 2021. Our Corporate Performance Improvement Managing Director Traci McCready released a series on “Managing the Post-Covid-19 Workplace,” highlighting how many organizations’ go-to-market strategies have changed dramatically when the Coronavirus abruptly shut down offices and travel. She also outlined the best ways companies can continue to drive sales and manage their teams while working remotely.
Industry Landscape Transformation
This time last year, we were only beginning to see the pandemic’s start. Now, one year later, every industry has somehow been impacted. However, the businesses that came out ahead had cash on hand and an emergency plan that allowed them to pivot quickly. They were able to open new sales channels or put more emphasis on their most profitable channels. Before the crisis, private equity professionals may not have placed such high values on recovery planning and emergency cash on hand. Now that is front and center in operations planning.
This past year has taught us a lot in terms of lessons and opportunities. Case in point: we are seeing that carve-outs by corporates of non-core assets continue to provide a pipeline for private equity in the U.S going into 2021 as it did in 2019 and 2020. We’re starting to ramp up our operations improvement projects that were put on hold with a new mandate based on the impact of COVID-19 on these companies. There is still plenty of cash on hand with private equity funds in the U.S. That money can and will be put to work.
To learn more about our Alvarez & Marsal Private Equity Performance Improvement Group: https://www.alvarezandmarsal-pepi.com/
Follow me on LinkedIn: https://www.linkedin.com/in/nick-alvarez-875b2412/
Follow me on Twitter: https://twitter.com/NIck_Alvarez67