COVID-19 & Private Equity: With Volatility Comes Opportunity

Entering 2020, few observers (if any) would have predicted a global pandemic that wreaks havoc with virtually every industry and market. Now, not only is that very much a reality, it’s one that will continue to produce ripples for years to come.

Private Equity firms and PE-backed companies are by no means immune to the impact of COVID-19; if portfolio companies have extensive exposure to the pandemic, their ownership groups are certainly feeling that as well. At the same time, widespread market volatility and economic contraction may be just what some firms have been waiting for.

When polled at the beginning of 2020, 62% of fund managers believed the equity market cycle was at its peak. So it stands to reason that we saw record fundraising in 2019 as managers and GPs began gearing up for an anticipated downturn in hopes of a discount buying spree.

Although nobody would have foreseen a global pandemic being the catalyst for an economic contraction, the uncertainty and volatility COVID-19 creates will likely be the first domino that gets $1.5 trillion in un-deployed PE capital off the sidelines.

Depressed valuations are typical in a market downturn. But mixing in $1.5T of dry powder and decreased competition from strategic corporates forced to focus on stabilizing their core business creates a perfect storm for the well-prepared PE buyers to strike.

Discounted valuations + Decreased competition + Cash to spend = Opportunity

Should we expect immediate buying spree then? Hardly. 70% of M&A professionals in a recent poll reported significant impact in their ability to perform closing and integration activities, citing shelter-in-place and general market uncertainty as the main inhibitor.

In the short term, the majority of firms will aim their focus on ensuring existing portfolio companies are stable – possibly using some of their capital to clean up balance sheets. Once the long-term consequences of COVID-19 become clearer and the meaning of “normal” is redefined, we expect PE-related deal volume to return to or even surpass prior levels.

In addition to net buying volumes increasing, portfolio companies and their management teams can expect to operate under a more powerful magnifying glass. Investors will seek to improve insights into a companies’ ability to execute on value creation initiatives and the sought-after synergies that were part of their original investment thesis.

From the conversations I’ve been having with our Private Equity clients, portfolio operations and value creation groups will prove their worth now more than ever. The capacity to execute on initiatives in the portfolio and partner with management teams to achieve success will dictate which firms and companies are most fit to do deals and seize more market share later on.

Many of these groups highlight technology as a major factor in their strategy for success. Those that were already prepared with digital transformation are able to be proactive versus reactive during this time. After all, it’s 2020 and remote work is not allowed to be an excuse for poor performance.

It’s difficult to gaze into a crystal ball and predict the future at any time, let alone our current world of uncertainty. But we do know eventually the global market will return to (or create its new version of) normal. And when it does, the well-prepared private equity buyer with the right systems and tools in place will be ready to strike on the opportunity. 

Midaxo is the leading corporate development software platform supporting global Private Equity firms and hundreds of associated portfolio companies. Midaxo supports M&A, corporate development, and value creation projects for strategic mid-market companies, F500, and top-tier advisory firms. To get in touch, send us a note at

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