The COVID-19 pandemic has shaken up the world in a multitude of ways. From the way we work to the way we interact and do business, the virus has created a new normal. Words such as lockdown, curfews and social distancing have entered common parlance.
Like any other field of business, private equity has also had to adapt to the changes wrought by a coronavirus.
According to Australian businessman and finance expert, Darren Herft, the effects have been unexpected and unpredictable.
“While it looked like the economic upheaval caused by the pandemic would crash markets globally, deal and exit values bounced back quite well in the third quarter,” says Darren Herft.
The AFL aficionado and investor thinks that the effects of the virus will linger even after a large section of the population has been vaccinated.
“The vaccines have brought a semblance of normalcy since March 2020, but I doubt things will go back to the way they were anytime soon,” contends Darren Herft.
He believes that it will be interesting to see how private equity players use the lessons learned from the pandemic in the way they approach their future endeavors.
“One of the major hurdles for many investors during the lockdowns wrought by COVID-19 was the inability to visit the businesses they were involved with as well as potential acquisitions on the ground,” says Darren Herft.
He thinks that while a business might show great potential on paper, the best way to gauge its vitality and feasibility is to visit it on-site and observe how its operations are run.
Darren Herft is of the opinion that, “The best way to measure the effectiveness of the strategies implemented by any business is to observe them in action.”
He believes that many deals experienced unwarranted delays during the high tide of the coronavirus pandemic with lockdowns preventing movement across the world.
“Things are bound to eventually improve but we need to figure out solutions, what if there’s another pandemic?”, asks Herft.
The Australian entrepreneur firmly believes that high-performing private equity firms must develop effective strategies to work around such hurdles to stay competitive in the future.
On the other end, he thinks that companies looking to attract private equity investors must practice due diligence and have their documentation in order.
“For any firm looking at private equity capital, streamlining the acquisition process as much as possible is in any company’s best interest,” he says.
This is because there is fierce competition in today’s market with a lot of players looking for investment, especially with the lull in the economy and some industries facing major setbacks due to the conditions wrought by COVID-19.
Herft thinks that technology has aided both private equity firms and companies in this regard.
“The ability to seamlessly meet people virtually has made it easier to maintain a steady line of communication between the various parties involved.”
Even with all this, Herft still thinks that the fundamentals of what makes for a good company haven’t changed.
“Good leadership equals a good investment,” he adds.
