DOWNLOAD: Are private equity execs willing to travel to get deals done?

Research from proSapient shows most in the industry are willing to get back on the road to due diligence potential acquisitions, even if it means quarantining.

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As the private equity community grapples with how to do business amid coronavirus-related travel restrictions, new research shows most fund managers consider a willingness to travel to be a “competitive advantage”.

In August, research platform proSapient surveyed 100 private equity executives, ranging from analysts to CEOs, at general partners across the globe to find out their willingness to travel and quarantine to due diligence potential acquisitions. proSapient has shared the results exclusively with Private Equity International.

Click through the slideshow above for the full data set

The majority – 53 percent – considered a willingness to travel to be “very important” when it came to providing a competitive advantage, with a further 35 percent considering it “somewhat important”.

More than 80 percent indicated they would be willing to travel to due diligence an asset, and 70 percent are willing to quarantine; of those willing to quarantine, 41 percent would be willing to do so for longer than a week.

Travel restrictions brought in across the globe as governments rushed to stem the spread of the covid-19 pandemic have presented significant challenges to private equity managers when it comes to both fundraising and dealmaking.

In the US, for example, private equity dealmaking plunged in the second quarter, down by more than a third on the previous three months, according to PitchBook. Deal value in the first half of the year was down almost 20 percent on H1 2019, and deal value for Q2 dropped by over a third compared with Q2 2019.

The inability to travel isn’t the only driver of this – challenges around valuations and worries about the prospect of second-wave outbreaks have certainly taken a toll – but the impracticalities of remote due diligence have certainly slowed the wheels.

“It’s very hard to do due diligence and develop business plans remotely – this will inevitably go back to face-to-face meetings,” Hamilton Lane’s head of investments Brian Gildea told us in April. “GPs need to meet management, walk the plant, see the assets, etc.”

And this is not just a US problem: KKR head of Asia-Pacific Ming Lu told Private Equity International in June that travel restrictions presented a significant challenge.

“Travel restrictions limit our ability to meet management teams and make site visits, which are important parts of our due diligence process,” Lu said. “For most of our recent investments we had already been in discussions with the management team for quite a while – six or nine months – and completed deep diligence work, which gave us comfort.”

Some managers in the industry are employing creative methods to get around this. One manager speaking at the Private Equity International Investor Relations, Marketing & Communications Forum in September recounted using drone footage to survey a potential asset, as well as local deal colleagues taking video footage to share with prospective LPs.

Fifty-four percent of the respondents to proSapient’s survey are senior partner-level or above, with 59 percent based in Europe and 27 percent based in North America. Two-fifths travelled less than once a month for due diligence pre-covid, including 11 percent who did not travel at all for due diligence.

Not everyone is as keen to get back out there.

“Respondents revealed to proSapient a selection of beliefs, including one who indicated an unwillingness to travel in either the fourth quarter of this year or the first quarter of next,” said proSapient founder Margo Polishchuk. “That respondent used to travel between one and two times a month to conduct transaction due diligence.”