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Harvard Economics Review

Private Equity Deal Making during the COVID-19 Pandemic

By: Jeremy Ng


While COVID-19 has sent shockwaves throughout the global economy, private equity firms have continued signing new deals. Although one might assume that firms would reduce their efforts in finding new target companies, private equity firms have struck over $500 billion in deals, including multiple megadeals, since January 2021 alone. In order to identify them, private equity firms have focused on target companies that have the potential for growth and strong business models, namely in the information technology and healthcare sectors.

Private equity firms still sourced new investments in 2020 before many indicators of a return to normalcy, such as the mass administration of COVID-19 vaccinations, appeared. In a study by professors Paul A. Gompers, Steven N. Kaplan, and Vladimir Mukharlyamov on the effect of COVID-19 on private equity, over 200 managers of private equity firms with over $1.9 trillion of assets under management were surveyed. Of the investors who responded, the majority completed the survey in July 2020, and several others completed it in early August 2020. In their study, Gompers, Kaplan, and Mukharlyamov found that investing partners still spent 17.7 hours per week on average identifying potential deals and 6.1 hours per week on average networking, and that 94.6 percent of the firms in their sample were still seeking new investments. Clearly, firms were still devoting efforts to sourcing new deals in addition to helping portfolio companies that were hard hit by the pandemic. The firms in the study’s sample also found the information technology and healthcare sectors the most attractive of all industries. This is consistent with EY’s fourth quarter private equity pulse report, in which they find that technology deals accounted for 24% of private equity deals in 2020 by value. Perhaps these sectors caught the attention of firms given their strong performance in the public market last year and customers’ increased reliance on technology and healthcare companies due to the pandemic. Private equity firms in Gompers, Kaplan, and Murkharlyamov’s study were also much more likely to focus on revenue growth rather than cost reduction, and strong business models and management teams were their first and second most important criteria when evaluating potential target companies. These were also usually the main criteria for private equity firms when deciding which companies to invest in prior to the pandemic.


Firms also continued making new deals in the first half of 2021, with several large deals still in the technology and healthcare industries. In June, Blackstone, alongside Carlyle and Hellman & Friedman, announced that they had reached a $34 billion megadeal to buy out Medline, an Illinois-based medical supplies manufacturer. With the medical industry being at the forefront of the pandemic, it makes sense that firms made such large deals in this sector. Thoma Bravo also entered an agreement to take Proofpoint, a cybersecurity company, private for $12.3 billion in April. As the pandemic forced companies to adopt remote work, many came to realize the numerous cybersecurity challenges that faced virtual workspaces and infrastructure. Cybersecurity businesses also tend to have loyal customer bases, strong cash-flows, as well as potential for revenue growth, which may make them appealing to firms.


As some parts of the world begin to turn the page on the pandemic, some investors are betting on a return to normal life, while others think that many lifestyle changes are still here to stay. For example, Stephen Wise, head of healthcare investments at Carlyle, noted that COVID-19 accelerated the trends he noticed prior to the pandemic. For instance, Carlyle invested in One Medical, a telemedicine business, in 2018 and spun out Ortho Clinical Diagnostics, which now produces COVID-19 antibody tests, from Johnson & Johnson in 2014. Meanwhile, Apollo Global Management recently invested in companies that have been hard-hit by the pandemic, such as Expedia, Aeroméxico, and Hertz. With travel restrictions easing in many parts of the world and demand increasing for leisure experiences, these businesses may see a strong recovery soon.


Over the past year, private equity firms have continued making deals, even in the midst of a pandemic. Their focus has been on finding companies with revenue growth potential and strong business models. Moreover, information technology and healthcare companies have been of particular interest to these firms, likely due to the increased necessity of their products and services due to the pandemic. As areas of the world reopen, it is likely that private equity firms will begin looking towards companies in sectors that have recently suffered, such as the travel industry. Still, COVID-19 has hastened important trends in the information technology and healthcare industries that will continue to impact private equity deal making in the near future.


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