How do private equity firms manage their portfolios during the crisis?

Defi­ni­tely yes. Of course, this must be viewed in a diffe­ren­tia­ted manner. A crisis that has such an immense impact as Covid-19 could not have been predic­ted by anyone. Ther­e­fore, the majo­rity of compa­nies also need support, finan­ci­ally but also beyond. Howe­ver, an accu­mu­la­tion of serious crisis cases in the port­fo­lios of invest­ment compa­nies is certainly a very good indi­ca­tor of two key points: First, the choice of invest­ments has not been parti­cu­larly fort­u­nate. Secondly, howe­ver, it is essen­tial to know how to master the crisis toge­ther with your share­hol­dings and how strong you will emerge from it. This is where the wheat is sepa­ra­ted from the chaff and it beco­mes clear whether an inves­tor is also able and willing to provide assistance.

Espe­ci­ally in a crisis situa­tion, you realize how valuable it is to have reser­ves to avoid falling behind imme­dia­tely. The time thus gained is worth its weight in gold in terms of clari­fy­ing the situa­tion and the neces­sary measu­res. On the part of the PE inves­tor, it ther­e­fore depends enorm­ously on how you factor crises, delays and other problems into your conside­ra­ti­ons and set up your port­fo­lio compa­nies from the outset so that they are also stable. This gives you time to take coun­ter­me­a­su­res in excep­tio­nal situa­tions of unex­pec­ted magnitude.

In the crisis itself, it is a matter of quickly reco­gni­zing how the situa­tion is affec­ting the company and what measu­res are appro­priate. As a share­hol­der, it is important to provide targe­ted support to the company’s manage­ment. We have ther­e­fore defi­ned so-called compe­tence centers with core topics and quali­fied specia­lists with crisis expe­ri­ence that anyone can approach to request support and quickly share this exper­tise with all port­fo­lio compa­nies. This includes essen­tial topics such as scena­rio and liqui­dity plan­ning, short-time work/labor law, Covid 19 protec­tion measu­res in the company, bank talks/ subsi­dies, stabi­liza­tion and expan­sion of supply chains, custo­mer talks, compe­ti­tion moni­to­ring, etc.

This know­ledge, toge­ther with the expe­ri­ence gained from the current situa­tion, is conti­nuously deve­lo­ped across the entire port­fo­lio and made available to all compa­nies in a targe­ted manner in the sense of “best prac­tice sharing”. This signi­fi­cantly impro­ves quality and speed, avoids dupli­ca­tion of work, and increa­ses prag­ma­tism in colla­bo­ra­tion. It is important not to remain on the defen­sive, but to consider how to use a crisis to streng­then the company, expand market share, make invest­ments, seek and imple­ment add-on acqui­si­ti­ons. Crises offer many oppor­tu­ni­ties for this, and there will also be a time after­wards. This shows that trus­ting coope­ra­tion between PE and parti­ci­pa­tion is important for the success of these measu­res. A crisis offers the oppor­tu­nity to signi­fi­cantly expand mutual trust.

There is alre­ady some move­ment in the market — espe­ci­ally among compa­nies that are Corona-resi­li­ent and now want to and can quickly acce­le­rate further, for exam­ple in the food, IT/ICT, digitalization/security, infra­struc­ture, healthcare/medtech sectors, to name a few examp­les. As soon as the crisis levels off and there is more certainty about the future, there will also be more compa­nies on the market again that were healthy before the crisis and then strugg­ling during the crisis.

Basi­cally, before making a new invest­ment, you have to ask yours­elf: Is the company affec­ted by the crisis in the short term or in the long term? So does the company have a tempo­rary or struc­tu­ral problem? How can you make targe­ted use of oppor­tu­ni­ties that lie in the crisis and thus sustain­ably improve your compe­ti­tive posi­tion, also for the time after? And if a company bene­fits from the crisis, is this sustainable or just a short-term effect? This is because finan­cing is beco­ming more diffi­cult even for compa­nies that are bene­fiting from the crisis. But that does not make these compa­nies any less valuable. “Bargains” should not be the goal now. Fair­ness should always be the basis of thought and action, which is also reflec­ted in an evalua­tion that factors out corona effects and lays the foun­da­tion for a promi­sing future. After all, a sustained good repu­ta­tion is the capi­tal of a finan­cial inves­tor and worth much more than short-term optimization.

About Sven Oleownik
Before joining Gimv, Dr. Sven Oleow­nik spent twelve years as Mana­ging Part­ner in charge of Corpo­rate Finance Advi­sory at the “Big 4” audi­ting and consul­ting firm Deloitte in Germany. His clients included large corpo­ra­ti­ons (e.g. BASF, Deut­sche Tele­kom, Luft­hansa, Siemens, Volks­wa­gen), various private equity firms (e.g. Apax, Carlyle, Emeram, EQT, Hanno­ver Finanz, River­side) as well as various medium-sized compa­nies (e.g. Bionade, Jochen Schwei­zer, Frequen­tis, MEN, Runner­spoint). — In the course of his profes­sio­nal career, Sven Oleow­nik has advi­sed on more than 100 tran­sac­tions, some of them also to the public capi­tal market. He also took on active roles as a member of advi­sory or super­vi­sory boards (e.g. Bionade, Bench, Regio­lux). Today he repres­ents Gimv on the board of Thinkstep and Wemas.