Will post-pandemic global uncertainty create opportunities for Private Equity?
Will post-pandemic global uncertainty create opportunities for Private Equity?
Fans of the 1950s Looney Tunes “Roadrunner” cartoons will remember the moment in every episode that Wile E. Coyote finds himself mid-chase beyond the cliff edge, when he hangs in suspension and a realisation dawns that he is about to fall down the ravine. This “Roadrunner” moment – as it is becoming more widely described, may come to illustrate certain sectors of the global economy, as we move into a period of post-pandemic global uncertainty, removal of governmental support and potential recession. So far, the UK’s hospitality sector has suffered lost sales of more than £53bn in 20201, with the collapse of inbound tourism costing the UK economy up to £2.5bn over the Christmas period2 - but a COVID-19 vaccine rollout provides grounds for cautious optimism in 2021.
So does this hiatus period provide opportunity for PE to plan for a raft of future opportunities, or is this a time for trade consolidation and a different role for buy out money?
The story so far in the UK has perhaps made the case for trade. Across key sectors entering distress, being retail, hospitality and leisure, they have been the winner to date. Being able to make immediate costs savings through scale, having highly experienced management teams and using restructuring technologies such as the CVA or Prepack administration has allowed these acquires to efficiently scale back and consolidate. Examples include the rescue sale of DWS Gyms, led and executed by BDO LLP to Frasers Group (nee Sports Direct) and the approval of the New Look CVA under the supervision of Deloitte.
Private Equity has fared better in carve outs, largely off market or complex sales processes that require higher transactional risk and structuring skills sets. Aurelius Equity’s acquisition of Pullman Fleet services from Wincanton saw the second complex carve-out executed by Aurelius in two weeks, following the announcement of its acquisition of GKN Wheels & Structures from GKN. Meanwhile, Gores Group and Premier Foods completed the sale of renowned British bread maker Hovis following a strategic refocus of its core operations, to sector specialists Endless, the current owners of cake maker Bright Blue Foods, and previous owners The West Cornwall Pasty Company and pork group Karro Food.
Our view is that the future holds encouraging prospects for both and, when PE backed trade comes into play, real value is deliverable. In the meantime, as the UK faces its toughest COVID-19 restrictions implemented since last spring, further sectors will begin to face the Roadrunner moment, including aerospace, automotive and mainstream manufacturing - will Rishi Sunak’s recent £4.5bn financial support package prove sufficient?
If you would like more information on how Private Equity is being affected by the current economic climate, subscribe to our mailing list or read some more Private Equity blogs:
- Innovation grants – a tool to influence investment
- Manufacturing a deal in a COVID-19 world
- Private equity firms and the importance of committing to ESG
- How venture investing has been affected by lockdown
1. CGA UKHospitality_tracker_2020