CEPRES data: Dealmaking and disruption

Growth equity investments in sectors such as tech not only remained unscathed during the GFC, they could also benefit from the covid-induced new normal, says Dr Daniel Schmidt, CEO and founder of CEPRES.

The black swan event that is the coronavirus is exacerbating already existing systematic risks in private market portfolios for some industries. It is by no means the same as the global financial crisis and we see different idiosyncratic outcomes, but some similar trends.

According to CEPRES market research based on our data universe, approximately 60-70 percent of the portfolio companies in the hands of private equity funds are active in traditional, manufacturing and consumer industries and drove their margin efficiency heavily on functioning and highly bred supply chains. Given the observed disruption to these global supply chains and structural changes in the short to medium term, affected companies will have to cope with efficiency losses, and consequently, lower operating margins.

Certain sectors, however, will stand to benefit from the new norm, with deal activity increasing in those sectors and valuations accelerating: in particular companies in some digital technologies, software and healthcare sectors may experience on average increasing valuations and acquisitions in the near future. This is both driven by the unique nature of the crisis leaning heavily on these sectors, but also pre-crisis resilience and growth prospects, especially for technology investments, which were not impacted by the GFC, and healthcare.