Where next in Private Equity? Pt 3 with Ned Dorbin (BGF)
Continuing on our series of articles where our Private Equity connections and Professional Advisors give us their sense of the immediate impact of Covid-19 on future deal flow, considering different market sectors, potential access to finance, and what lasting affects Covid-19 could have on future trends and markets.
Our contributors are Paul Wood, Director Corporate Finance advisory at Grant Thornton, Andrew Webber, Partner and Head of Corporate at TLT, Ned Dorbin Head of South West and Investor at BGF and Richard Taylor, Regional Director South West and South Wales Corporate and Commercial Banking at Santander.
In this third article, Ned Dorbin Head of South West and Investor at BGF responds to the question:
Do you think that there could be any underlying messages in this ever-changing World and what are the key lessons coming out of this current Pandemic?
At BGF we are working very hard to support our existing portfolio companies… but we are very much open for business for new investments too.
‘Covid-19 has obviously had a huge effect on almost all businesses, whether it has caused a significant reduction in supply and demand in their sector or whether it has resulted in their people having to work in a very different way.
But clearly this varies by sector. Amongst our portfolio companies, we have seen most disruption in hospitality and leisure, retail and certain areas of manufacturing. The best management teams have responded quickly and decisively to preserve cash and protect their workforce.
However, there are also some very bright spots. E-commerce, particularly for certain consumer goods (e.g. garden products), and technology businesses have been much more resilient.
Deal flow has also been affected – but perhaps not to the extent that we anticipated as this crisis was escalating. Since lockdown most of our transactions have continued, largely because these businesses haven’t seen significant reductions in trading and their medium-term prospects post Covid -19 remain very attractive. For these companies, we have continued to develop our relationships with management (albeit via VC), made sure we are comfortable with the short-term cash impact and pressed on with our DD.
The volume of new deal opportunities has reduced slightly since lockdown but not disappeared. We are still seeing new investment opportunities coming in for a variety of different situations. Some are from companies that still see a good opportunity to invest – for example, by taking capital on to their balance sheet they put themselves in a very strong position to acquire some of their competitors as we start to emerge from the crisis. Others are from shareholders that want to de-risk whilst continuing to grow – in some cases because they realise now isn’t the best time to be selling their business.
There is no substitute for meeting people in their business and getting to know them properly.
One of the main difficulties in doing deals now is the lack of face-to-face meetings. Deals are all about people and, whilst VC calls are a decent alternative, there is no substitute for meeting people in their business and getting to know them properly. Having said that, we have completed two deals since lockdown. One was the sale of an existing portfolio company where the overseas trade buyer was only able to visit the premises once due to lockdown. So, deals are definitely still happening despite Covid-19!
I think access to finance is hard at the moment. There are some new options available following the various government initiatives (e.g. CBILS) but other sources are much harder to access. My sense is that most of the banks are dealing with huge volumes of requests from existing customers whilst many private equity investors are pulling back from the market until they have figured out what the new normal looks like. At BGF we are working very hard to support our existing portfolio companies – with funding where necessary but also with guidance and learnings from across our 300+ companies – but we are very much open for business for new investments too.
The lasting effects from Covid-19 are very hard to judge. We need to acknowledge that we are a long way from emerging from the crisis and the affects will be long-term for many companies. When raising capital, management teams need to consider this carefully and articulate the risks and the opportunities for their business on a realistic basis – this demonstrates thoughtful planning and builds credibility.’
Look out for our final article featuring Richard Taylor, Regional Director South West and South Wales Corporate and Commercial Banking at Santander.
This week, we have great contributors from the World of Banking, Accounting, Investing and the Legal sector, who will take us through their thoughts for the post Covid-19 World and beyond.