GPs anticipate portfolio revenues to return to normal early next year: survey

Most private equity firms don’t expect the revenues of portfolio companies to return to a pre-Covid-19 normal until Q1 2021, according to a recent survey from ECA Partners.

Around 29 percent of respondents said they expect their portfolio company revenues to hit the levels they hit before the pandemic by early next year; 27 percent said they expect revenues to go back to normal by Q4 2020; while 8 percent feel that it won’t be until at least 2022 before things return to normal.

ECA Partners surveyed 98 GPs for its study.

“It’s dependent on the company. If you’re running a movie theater, I think the recovery is going to take a long time,” ECA CEO and Managing Partner Atta Tarki told Buyouts. According to Tarki, other parts of the economy will bounce back quickly between Q3 2020 and Q1 2021.

Respondents said they’re planning to take 23 percent of uninvested capital and allocate it to portfolio company operations like revenue growth and cash management. That compares to GPs who said they were planning to allocate 15 percent of that capital before the novel coronavirus, according to the survey.

“These are unprecedented times,” Tarki said, adding that investors are stepping up to the plate for their portfolio companies.

“We’ve never seen that, where they shift that much capital on an investment mandate to helping out an existing portfolio company.”

Despite the commitment to portfolio companies, GPs plan to make new investments, according to Tarki, who added that the 2008 financial crisis taught GPs a lesson after they waited to act until investment opportunities were already gone.

According to the survey, most GPs said that they plan to take 51 percent of uninvested capital and invest into new opportunities post-Covid-19, down from 60 percent who were planning to make those type of investments before the pandemic.

“They’ve already seen this movie; they know how it’s going to play out and they know that the economy will rebound” Tarki said. “For those who are willing to keep their calm on the eye of the storm, they can create a lot of value. They want to roll up their sleeves and be part of that story.”

Action Item: Check out the survey here.