Private Equity Investing in Times of High Uncertainty

Investors often find that temporary recessions provide an opportunity to invest at lower relative prices, thus achieving outsize returns on long-term investment positions. In the current environment many private equity firms are seeking to do exactly that on behalf of their investors, but they’re faced with an interesting challenge. 

On one hand, sellers aren’t necessarily interested in selling their companies at lower valuations than they could have attained just a few months ago; on the other hand, when cash flows are uncertain, banks aren’t necessarily willing to provide the loans required to make a highly leveraged cash purchase. 

Private equity investors have been adapting to these obstacles by employing performance-based purchase agreements that reduce the debt required for the transactions and provide higher valuations only if the company performs well.

Read more on this subject here: https://www.forbes.com/sites/mergermarket/2020/05/22/private-equity-turns-to-performance-based-metrics-to-get-deals-done/amp/

— Anthony Winkels is Managing Partner and Wealth Advisor at Fortis Wealth Management