PE investment during COVID-19: opportunity for some, adverse effects for most

Eric Oliver - Print  |

While the ramifications of COVID-19 created opportunities for investments in some specialties, most will be adversely affected, according to a white paper published by Provident Healthcare Partners.

What you should know:

1. COVID-19 has delayed most closing and sale processes, with many private equity firms pausing new investment to repurpose attention, capital and resources toward their existing portfolios.

2. Financial lenders have paused new commitments as they wait for more accurate valuation strategies. Firms like Webster Equity Partners, which recently closed a deal with Memphis, Tenn.-based Gastro One, had to alter deal structure because of the inability to obtain third-party debt financing. Webster opted to use a seller's note to make up the difference, which Provident believes will become more common.

3. Existing PE platforms are expected to continue making deals because of the lower overhead associated with add-on deals over first-time deals. Because these platforms already made infrastructure-related investments, they can continue to acquire practices and utilize the existing infrastructure.

4. COVID-19 recovery will be "gradual" and "uneven," but the demand for healthcare services should allow the sector to recover in terms of workforce and volume. Provident also expects "pent-up demand for deal making." PE firms have to spend the capital available to them, or they risk forfeiting management fees.

"Healthcare, specifically, although significantly hampered by this outlier event, remains more recession resistant that [sic] most pockets of the economy due to the necessary nature of services and cost-sharing payor dynamics as well," the report reads. "Given a confluence of all these factors, Provident still expects there to be considerable buy-side demand for healthcare transactions."

Read the entire white paper here.

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