The pandemic, in the last six months, has made businesses and industries go tumbling down across the globe. Millions of Americans have lost their jobs in the wake of the massive lay-offs across industries led by the economic downturn. But there exists one sector of the economy that has been able to bear the economic consequences of the downfall of the financial markets upto a large extent, and that is Private Equity.
Cash-rich PE firms, that comprise the likes of the Carlyle, Blackstone, and KKR, collectively possess a whopping $1.5 trillion in dry powder. They are actively looking for the investment opportunities across the business sectors that have taken the hardest hit by the virus-spread. The reason being easy takeovers at cheap monetary amounts, as most of these businesses are on the brink of going bankrupt.
The industries PE investors are eyeing at the moment include entertainment, travel, and energy. Head of M&A division at a prominent Wall Street firm recently expressed his views on the same, the verbatim being – “They have long been waiting for such kind of a situation of an economic turmoil”.
As per the leading investment bankers across the US, the initial deals will be specific to making investments rather than getting involved into complete business takeovers.
What the Media is Reporting on the Intent of the Private Equity industry?
As per a recent CNBC report – Despite the mass lay-offs being conducted worldwide, and business losing functionality, top private equity firms, globally, are keen on finding investment opportunities wherein they can invest at the lowest of prices possible.
PE Firms Were Eyeing This Kind of a Situation for Long
Private equity sector, especially US private equity firms, have been waiting to initiate investment deals, post the companies crumble on to the verge of bankruptcy, amid the pandemic. Their business model itself, directs and instructs them to make investments in the undervalued organizations, while borrowing loans in case of takeovers.
Later, they try to turn around the fate of the acquired business, economically, and eventually sell it off to make profits. And, this is the perfect time to buy companies that are hard-hit by the pandemic, as they would be available at the cheapest prices at the moment. The worldwide lockdown, and closure of economic activities, amid quarantine, has made up for a perfect environment for PE to place in their bets.
In the words of Rohit Chopra (Federal Trade Commission Commissioner) – “Private equity investment professionals were waiting like vultures to pound on to an economic situation like this, wherein they would get to benefit from the misfortunes of others”.
Federal Banks Urging Not to Accept Help from PE
Federal government, and banks in the US, have urged corporations not to take money from the PE firms, as they have launched a corona stimulus package worth $2 trillion to help SMEs countrywide. Recently, Goldman Sachs, made its clients aware of the hostile takeovers that can hit them at any point in time from now.
Meanwhile, as and when the economy revives, post Corona, the employment will first open to private equity jobs, as it happens to be the least affected industry by the ongoing pandemic.
If not today, then tomorrow, the private equity firms will get successful in taking over the organizations badly hit by the pandemic, amid the lock downs, and restrictions on carrying out economic activities, across the world. Investments in public equity will be the next step to be taken by the PE firms as the conditions go even worse. While buyers in the stock market are receiving discounts, meanwhile, the price of the new stock lowers, thereby weakening the existing shareholders’ holdings.