Side Letter: Covid-19’s effect on deals, Apollo travel ban, UK consultation

How coronavirus is hitting private markets across the world. Here’s today's brief, for our valued subscribers only.

Just happened

Covid-19 roils private markets

PEI Media’s various publications have been staying close – figuratively rather than physically – to the industries they cover to track events in what is a rapidly changing situation. Here’s a run-down of what we have heard and learned:


Dealmakers are calling lawyers to get a handle on whether the current situation constitutes a “material adverse change”, notes Alex Lynn in Hong Kong. MAC clauses relieve buyers of the obligation to honour deals. “[They’re asking] either because they’re considering invoking it themselves or they’re concerned that the counterparty will,” said Tim Blakely, managing partner at law firm Morrison & Foerster. Blakely noted that whether covid-19 qualifies as a MAC depends on the language of the clause, which often requires that the asset has suffered disproportionately relative to the industry.

Alternatives giant Brookfield Asset Management has indefinitely delayed plans to sell an Australian coal export terminal – a deal that could have been worth around A$2 billion ($1.3 billion; €1.2 billion) – due to disruption caused by coronavirus. It was a dual-track process, exploring both listing and private sale options. The former was scuppered by volatility in public markets and the latter by travel restrictions that put paid to buyers’ due diligence efforts. Infrastructure Investor’s Daniel Kemp reports on the issue from New South Wales.

New York-based Sarah Pringle and Milana Vinn dissect how the virus is affecting the US M&A market with a number of takeaways on PE Hub:

  • The launch processess for sales are being “rightfully” delayed; “no one can actually go meet with management teams,” says one financial sponsor
  • “We’re likely only a week or two away from people having to make the real decision to either fully pump the brakes or try to muddle through with video conferences,” comments one adviser
  • There is a two-sided effect on debt financing: bankers are underwriting for higher risk, while the Fed is actually cutting rates, notes one adviser


Apollo Global Management is the latest in a slew of firms that have issued organisation-wide international travel bans for its employees, reports Carmela Mendoza in London. HarbourVest Partners and Carlyle Group are restricted from non-essential international travel until further notice. Blackstone is restricting non-essential travel to high-risk countries as defined by the US Centers for Disease Control and Prevention.

Investor meetings, as we noted yesterday, are being switched to video conferencing.

The US Securities and Exchange Commission (itself encouraging staff at its HQ to work remotely) has been calling firms to discuss covid-19 since early February, reports Carl Ayers of Regulatory Compliance Watch. Topics of conversation include: whether advisers should consider travel restrictions for staff; how their vendors have been impacted; their valuation of hard-to-value assets; their communications with boards and clients; whether firms should update their risk disclosures; and liquidity and whether they’re tapping credit lines.

Also from Ayers’ report:

  • Regulatory body the Financial Industry Regulatory Authority put out guidance on 9 March warning that the “risk of cyber events” can spike when firms increase their “use of remote offices or telework arrangements.” Vigilance is advised.

ICYMI: here is a detailed list from partners at law firm Paul Weiss on areas of fund documentation, investor relations, banking and insurance that could or should be reviewed in light of covid-19.

Elsewhere, Bloomberg reports that Blackstone and Carlyle are encouraging portfolio companies to draw down bank credit lines to prevent potential liquidity issues.


The market for second-hand fund stakes – where net asset valuations really matter – is suffering the same disruption as the M&A market, writes Buyouts’ Chris Witkowsky. Buyers are seeking to reprice active deal processes and new deals are being pulled as sellers wait for a better pricing environment. The effect could be most pronounced on single-asset GP-led restructurings (an increasingly popular type of deal).

On the opportunity that the crisis will present, one secondaries buyer said: “We don’t believe in timing the markets. Right now, though, it does seem like we are entering a period where there’s a strong buying opportunity.”

On the topic of pricing, law firm Debevoise notes (from Secondaries Investor): “We can expect secondary buyers to explore creative means of price protection in purchase agreements, while secondary sellers may face difficult decisions around accepting price reductions, price uncertainty and transaction risk.”

Private debt

The relatively young market for direct lending, which blossomed after the financial crisis, is facing its first major global headwind. Lenders may rue the control they have ceded in a market characterised by a lack of covenants, notes Private Debt Investor‘s senior editor Andy Thomson in London: “Private equity firms will argue that the flexibility they have given themselves to work through short-term difficulties without being hauled back to the negotiating table by lenders is clearly a justified and desirable thing – especially if this downturn proves to be of the “sharp but short” variety.”

He said it

“We are encouraging employees in higher risk groups (over 60, already ill, pregnant, etc.) to work from home and all employees can do so with their manager’s consent if client service can be maintained. We are taking it pretty much one day at a time”

Robert Hille, general counsel and CCO at Seattle-based Laird Norton Wealth Management, tells Regulatory Compliance Watch how the firm is tackling the covid-19 outbreak. As of 10 March, Seattle had reported 162 cases of coronavirus and 22 deaths.


UK consultation. The UK government is on a mission to cement the country’s status as an attractive fund domicile. As part of a wider review of the UK funds regime, it has launched a consultation to help it understand the workings around asset holding companies and the obstacles that the country’s corporation tax system might pose to them. The consultation runs until 20 May and the supporting document is available to download here.

Tell us

How is your organisation reacting to covid-19? Let us know.

Dig deeper 

Fund name: Life Sciences Partners VI (LSP 6)
Amount raised: $600 million
Target size: $450 million
Hard-cap: $600 million
Stage of fundraising: Final close
Final close date: March 2020
Predecessor fund: Life Sciences Partners V (LSP 5) ($280 million)

Life Science Partners has closed its latest fund at its $600 million hard-cap. Life Sciences Partners VI (LSP 6) will follow the investment strategy of its predecessor funds by investing in 15-18 predominantly European private companies developing new medications or medical technologies.

For more information on LSP, as well as more than 5,900 other institutions, check out the PEI database.

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Today’s letter was prepared by Toby MitchenallIsobel MarkhamAdam LeRod JamesPhilippa KentJonathan BrasseRobin Blumenthal and Alex Lynn

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