Bain & Company has created a private equity interactive risk assessment tool to help firms assess the actions their portfolio companies should consider taking in response to the coronavirus crisis.
The tool asks users some general questions about their businesses, such as size, industry and geographic focus, and 12 questions on covid-19 risks the businesses are facing. Following the assessment, the tool provides a list of mitigating actions based on the answers.
“You can answer these questions based on the current impact covid-19 is having on your business or the expected impact the pandemic may have on your business in the future,” the instructions state.
The tool looks at four main areas of risk: demand exposure, supply chain and operations, labour and talent impact, and financial stability. Questions include whether the user expects demand for the core business to be resilient, whether there’s an option to re-focus on different channels or customers, and whether the workforce can be readjusted to the new situation, for example by working from home. Each question asks the user to rate their current or expected situation on a scale.
“As the crisis builds, what makes the private equity challenge uniquely difficult is the range of risks presented by a complex portfolio of companies spanning a number of industries and geographies,” Marc Lino, who heads Bain & Co’s private equity covid-19 response team, told Private Equity International.
“Generalised playbooks don’t add much value at a time when a global crisis affects each portfolio company differently. What’s critical is developing a practical plan to assess risk, prioritise action across the portfolio and execute quickly,” Lino said.
The tool could prove a useful triage mechanism for private equity firms grappling with the impact of covid-19 across entire portfolios. Companies in sectors such as travel, leisure and dining will likely be hardest hit.
Soon-to-be-published 31 December fund valuations will largely not reflect the severity of the covid-19 pandemic’s impact on their portfolio companies, sister title Private Funds CFO reported last week.
Some private equity and venture capital firms are walking the walk when it comes to being responsible company owners. Leonard Green & Partners, for example, has created a $10 million employee-assistance fund for portfolio companies that will be significantly affected by the virus.