The epidemic is a new business opportunity for private equity

The epidemic is a new business opportunity for private equity

FILE PHOTO: The ticker and trading information for Blackstone Group is displayed at the post where it is traded on the floor of the New York Stock Exchange (NYSE) April 4, 2016. REUTERS/Brendan McDermid/File Photo

The new coronavirus pandemic is hitting entire sectors of the economy, leaving millions of Americans unemployed, but a corner of Wall Street is waiting to see the opportunities. There are some investors who saw the warning signs and realized that the best shares to buy in south africa and globally were shares in PPE and video conferencing companies as they are currently booming. However, now that those stocks are levelling out, there is another corner that some investors are looking to take advantage of. They are private equity.

Six investment banking groups, including investment giants Blackstone Group, Carlyle Investment Group and KKR, have a record 1.5 trillion yuan in cash ready to enter the market and have been actively locking in the torn down tourism, entertainment and energy industries.

“They have been waiting for this type of market misalignment,” said the head of the merger department of one of the big Wall Street investment banks. “They don’t really want to invest in such a bad thing, but they do want valuations to fall.”

In recent years, private equity firms have been stockpiling cash due to rising markets making it difficult to invest, accumulating a record transaction “ammunition”. The industry usually borrows money to buy undervalued companies, privatizes them and improves their business before selling. Many of these go through a registered office address service system at some stage in the process. Due to the general closure and isolation of some large cities around the world, past high valuations of companies have collapsed sharply this month.

However, this kind of market hype, especially the epidemic crisis that killed thousands more in the election year, may cause more scrutiny of the private equity industry. Critics, including Senator Elizabeth Warren, have said that private equity firms have become rich at the expense of labor and the business itself, sometimes causing them to go bankrupt or enter administration.

FTC Commissioner Rohit Chopra tweeted: “Private equity investors are waiting to snap up dozens of troubled companies at low prices.”

Investment banks point out that the initial deal is likely to be an investment rather than a full acquisition. One way that troubled companies can raise cash quickly is called PIPE, which is “private investment in public equity.” Buyers buy shares at discounted prices, and new shares often dilute existing shareholders’ holdings.

Another senior Wall Street investment bank veteran said: “Private equity is now trying to carry out PIPE everywhere.” The source said that the goal is “every industry with falling stock prices.”

An example of PIPE during the last financial crisis: In 2008, Leonard Green & Partners bought a 17% stake in Whole Foods for 425 million yuan. When the stock price rebounded a few years later, the investment’s profit exceeded 1 billion yuan.

According to a report from Bain & Company, as tourism, entertainment and energy companies clearly need cash injections as demand evaporates, in the long run, the new crown virus pandemic may be more beneficial to industries such as healthcare and home security.

For now, due to the huge stimulus bill enacted by Congress, bank consultants have mostly told companies not to pay attention to private equity funds. Learn the details of the $ 2 trillion bill, including the form of the troubled relief company and what terms to get. Businesses that are unsure of where they stand may want to look at such services as consulting firms Sydney, as well as similar ones during this time, to help them decide which path to go down.

Another reason for not getting started: One banker said that private equity investors “want to invest only in the most powerful companies”, such as daily necessities manufacturers or top hotel chains, which are not yet willing to accept expensive capital Bet.

Nonetheless, even with the anticipated federal aid, such as potential transition loans, for many businesses, the crisis and its consequences will take months or even years to resolve, and falling revenue and stock prices have made them Easily acquired.

To be sure, private equity firms are also vulnerable to the new crown virus, as they have invested in most US companies, including struggling retail shopping and entertainment venues. Even before the outbreak of the pandemic, lenders became increasingly worried about defaults in private equity holdings.

A head of the investment banking business said that as a result, many private equity firms’ investment portfolios were in a “defense mode.”

JMP Securities analyst Devin Ryan said in a research report that nonetheless, because the industry’s operating costs are based on investments that have been locked in for years, private equity companies “should have considerable flexibility in the current market context.”

Private equity was widely known in the 1980s. Investors including Carl Icahn and T. Boone Pickens repeatedly sought large investments. The most famous case was the takeover of RJR Nabisco for $ 31 billion in 1989.

Since the financial crisis, the size of the industry has been expanding and assets have increased by 4 trillion yuan in the past 10 years. Institutional investors, including annuities and insurance companies, have sought higher returns in a low-yielding world. Last year, private equity firms Apollo and Blackstone Group used the 2017 tax reform bill to change the company’s structure, and the stock price soared by about 90%.

It is understood that although the leveraged loan market has declined in recent weeks, private equity transactions can still obtain leverage of approximately 6 times the target return. Talks are underway on investments in hotels, restaurants, cinemas and casinos, and other companies.

Investment bankers pointed out: “Basically, these are good business, but this year will be bad.” “Private equity companies have the opportunity to start, acquire substantial equity or acquire them at valuations they could not previously obtain.”

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