Some PE firms have, as detailed in BDO’s PErspective Survey, been considering what economic turmoil could mean for their businesses for some time. However, none could have predicted the speed, power, and global impact of Covid-19.
In the immediate fallout, cost optimisation, both internally and for portfolio companies, is a priority. PE firms will be working closely with portfolio management teams’ on creating action plans to overcome liquidity challenges, which will, in turn, help minimise valuation dips.
Securing lender support, with a focus on addressing short-term needs, may require in-depth, updated financial reports and in some cases due diligence based on updated templates reflecting the changes brought about by Covid-19.
PE firms are developing new financial plans based on updated assumptions and projections, including use of available stimulus packages. The resulting auditory and tax changes go together with strategy revisions and realignments, as well as changes to economic models and forecasts. Furthermore, there is a need to strengthen operational risk programs that cover crisis management and communication, business continuity, and third-party risk.
Generating in-depth insights regarding the health and prospects of portfolio companies and potential to overcome current challenges, building up resilience to further disruptions and developing strategies for realising the opportunities in a post-COVID world are also priorities.
Internally, PE firms are working on finding new ways of prospecting and carrying out deals. The uncertainty caused by the virus has disrupted transactions in progress, impacting revenue and earnings and, perhaps most importantly, creating huge insecurities regarding projected performance and valuations. Firms are also working to understand the tax implications of the downturn and the full range of legislative responses across the world. In some cases, firms are acquiring the debt of their own portfolio companies, which can trigger tax consequences. In addition, tax filing deadlines are being moved, and legislation is changing week to week.
At BDO, we assist PE firms and their portfolio companies react to the financial and organisational effects of Covid-19. Thanks to our presence in more than 160 territories, we can assist you with any issues you may have, wherever you are active.