Veteran investor Howard Marks of Oaktree Capital Management has some wise words for investing in a downturn.
“The more you want to garner potential gains and don’t mind mark-to-market losses, the more you should invest here,” Marks wrote in a memo on 19 March. “On the other hand, the more you care about protecting against interim markdowns and are able to live with missing opportunities for profit, the less you should invest.”
With the coronavirus pandemic wreaking havoc on the global economy, we decided to look at the private equity firms keenest to garner potential gains in the 12 months after the collapse of Lehman Brothers in 2008.
The top PE firms with the largest number of transactions from October that year to September 2009 are LDC, the private equity arm of Lloyds Banking Group; Platinum Equity; Carlyle Group; FSN Capital; and Ardian, according to data from S&P Global Market Intelligence.
Among LDC’s acquisitions were leasing company Porterbrook, scale model brand ModelZone and insurance company service provider Homeserve Emergency Services.
Platinum’s takeovers included newspaper The San Diego Union-Tribune and Pomeroy IT Solutions.
Carlyle acquired the Gardner Group and Guangdong Yashili Group, while FSN bought mobile software company Tactel and security software company Norman ASA.
Ardian’s investments included GoTo Software and Kallista Energies.
Meanwhile, the most active buyers by value of transactions either purchased direct or through partner or affiliated business include family office MSD Capital, JC Flowers & Co, Stone Point Capital, Temasek Holdings and China Life Insurance Company.
The most active merger and acquisition player overall by number of transactions was the investment arm of Italian banking group Intesa Sanpaolo which struck 12 deals in that period.
Sectors that had the most activity by investment value are financial services, industrials and information technology, S&P data show.
It is unclear whether the firms’ investments at that time resulted in strong fund performance and publicly available fund performance data show no clear trend.
Sava Savov, a partner at law firm Sidley Austin, said distressed funds will be the busiest investors over the next few months as a result of the covid-19 crisis.
“We don’t see large leveraged buyouts activity picking up any time soon – it’s too early and there will be months of uncertainty trickling down,” he said.
Savov added that in recent weeks he has observed significant activity from distressed specialists – even those who have not been active for the past seven years – especially in potential restructuring events.
A report from EY noted that while PE firms were active during the last recession in terms of supporting their existing portfolios, they were less active in pursuing fresh opportunities. Between 2007 and 2009, new PE acquisitions fell almost 80 percent, from a nearly $800 billion to just $170 billion. According to the report, the industry “missed a significant opportunity to acquire high-quality assets at deep discounts”.
The accounting firm also noted that the outbreak of covid-19 will be an event that exposes weak or outdated business models. For companies that have adapted to change and built resilience, the next downturn will present opportunities; for those that have not, it will challenge their ability to exist.