New Reality – big losses for some, big gains for others
If you are not looking at the alternative investment market right now… you may well regret it.
COVID-19 has resulted in both a global health pandemic and an economic crisis. It has led to an unprecedented shutdown of the economies of almost every country in the world.
As business begins to gear up for the loosening of the lockdown, and quarantine ‘begins to end’ and economies recover – or even if even if there is a global recession – there will be a lot of opportunities for canny investors.
Unprecedented times… You need to protect your wealth.
investment opportunities for private equity and private debt
A global recession, at least to some analysts, and us included, seems to be inevitable. (See our post from a few weeks back which has been viewed thousands of times). Businesses worldwide are facing unprecedented challenges to their operations.
For some there may be opportunities to acquire fundamentally good businesses with distressed balance sheets at significantly reduced valuations. this is certainly one opportunity. Other sectors have actually see a lot of growth directly attributable to the new reality.
In 2008/2009 the crisis back then led to a surge in distressed sales and insolvency procedures. We believe that this time it will be no different.
In the aftermath of the Corona virus pandemic, we anticipate an increase in the number of distressed sales of businesses to cash-rich investors and buyers who will be pursuing opportunistic acquisitions to increase their market share, develop economies of scale or add new products and services to their existing brand or portfolio.
Recent data from Prequin suggests that private equity funds (across all asset classes) have in excess of $2.5 trillion to invest. Some people are saying that private equity has never been so cash rich and hence assets will rarely represent such value for money as they do at the moment.
An example, Apollo Global Management‘s $24.7 billion Fund IX has shifted its focus almost entirely to “distressed-for-control” transactions.
COVID-19 is different of course – it is not a crisis caused by a shortage of liquidity and the governments have created, through financial support measures, an environment where the traditional lenders can continue to lend. Therefore, we expect sustainable businesses in the SME and mid-market to continue to be well served by both the traditional lenders and the private debt funds.
Wars and pandemics change the world! We will see vast changes to the way human society and businesses operate as a result of the Corona Virus pandemic. We forecast we will witness increased public and private debt, a contraction of globalisation and a strong resurgence of nationalism and protectionism. These things were already underway and the last 6 months have only emphasised this.
And the there are sectors that have benefited from this new reality.
It is a sad truth that the COVID-19 outbreak and the lockdown that followed has been a significant catalyst to drive the adoption of digital services. Microsoft’s CEO Satya Nadella, in the software giant’s last earnings call, referred to the massive jump in demand for Microsoft services (cloud computing, communication and productivity software) driven by the COVID-19 lockdowns. The company has seen the equivalent of 10 years of progress in adoption of its services in just a few months!
Modern eCommerce and digital technology will thrive to the detriment of other businesses.
There will be casualties but post crisis, prosperity and growth will follow recession.
The wise investor should seize the opportunities. See some of those opportunities below. And take advantage of our FREE subscription offer.