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Private Fund Managers Do Deal Triage

Amid market shocks, alternative investment firms are moving some deals through the pipeline and tiptoeing into distressed opportunities.

When Bain Capital told the 700 people in its Boston headquarters to work from home on March 11th it was big news. Now, anybody who can is operating remotely.

Still, Bain and other private markets firms are getting deals done, even when the people involved are communicating over Zoom, Slack, or Microsoft Teams. 

“We have closed a few deals, including the financing for an NPL [non-performing loan] portfolio in Europe and a financing of a growth equity transaction in North America,” said Jonathan Lavine, Bain Capital co-managing partner and chief investment officer of Bain Capital Credit. 

Some of the deals most likely to close were in the works before the worst of the economic shutdown and market slide. At the same time, transactions involving hotels, airlines, and other hard-hit industries are likely on pause. 

“Despite market conditions worsening since then, we’re still selectively evaluating potential opportunities,” said Lavine in an interview. “Everybody has a pipeline they’re working through, and we’re seeing that deals which are near to closing and not in the bullseye of the most affected industries should still happen eventually.” 

Even though 2020 is likely a better environment to make deals than 2019, when markets were at highs, deal-making isn’t happening everywhere.

“Most sponsors are focused on their portfolio companies, battening down hatches, getting each company to safety, working on liquidity, cash flow, and quick cost-savings measures,” said Mark Woods, partner and head of North American private equity at Cathay Capital. Cathay, which has $3 billion in assets, offers buyouts, growth, and venture capital investments focused on Northern America, Asia, Europe, and Africa. 

“The uncertainty of the depth and duration will impact the dealmaking environment for at least the next couple of months,”  added Woods. “We’ve been evaluating the ecosystem with all of our lenders to get a sense of issues like the liquidity in the credit markets given the trend of PE-backed companies and bigger corporations pulling down on revolving credit facilities.”  

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When it comes to distressed opportunities, managers are taking different approaches. Apollo Global Management reportedly told clients this week that it is investing more than $1 billion in ten distressed companies. Bain is taking its time.

“We are certainly evaluating situations where the baby has been thrown out with the bath water, including good companies with tightly wound capital structures,” said Lavine. “We have started buying but have not yet aggressively moved into the markets, as we have the luxury of being patient and focused on fundamental analysis of companies.” 

It’s not all about complex deal-making. Managers have been able to make hay amid the chaos in liquid corporate credit and other fixed income markets.

“We have used this as an opportunity to move up on quality in our liquid strategies,” Lavine said. 

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