The performance of private equity portfolio companies during the COVID-19 pandemic *

forthcoming at the Journal of Corporate Finance

Journal of Corporate Finance, volume 89, 2024 [10.1016/j.jcorpfin.2024.102641]

57 Pages Posted: 24 Dec 2022 Last revised: 10 Sep 2024

See all articles by Paul Lavery

Paul Lavery

Adam Smith Business School, University of Glasgow

Nick Wilson

University of Leeds - Credit Management Research Centre; University of Leeds - Division of Accounting and Finance; University of Leeds - Faculty of Business

Date Written: July 25, 2024

Abstract

We study the performance of PE-backed companies during the COVID-19 pandemic. Our findings suggest that, on average, PE-backed firms were more resilient compared to closely matched industry peers during the pandemic. However, this outperformance is of a smaller magnitude than during the pre-pandemic non-crisis period, suggesting that the outperformance is driven by investor selection of target firms ex ante, rather than active support mechanisms. The outperformance during the pandemic is found to be insignificant among firms which were the most vulnerable at the onset of the pandemic, and firms in the most exposed industries. These more vulnerable firms appear to have been less active in obtaining additional financing during the pandemic, and consequently, suffered a significantly higher incidence of distress. However, non-PE-backed firms in distress had a higher incidence of liquidation, while PE-owned firms more often negotiated formally with creditors to continue trading. Our analysis shines light on the role of PE investors during a large, exogenous shock, and suggests that, in the case of the pandemic, their adept target selection may help to explain the outperformance more so than their actions to protect vulnerable firms in a crisis.

Keywords: Private equity buyouts, firm performance, COVID-19 pandemic. JEL Classification: G01, G23, G32, G34

JEL Classification: G01, G23, G32, G34

Suggested Citation

Lavery, Paul and Wilson, Nicholas, The performance of private equity portfolio companies during the COVID-19 pandemic * (July 25, 2024). forthcoming at the Journal of Corporate Finance, Journal of Corporate Finance, volume 89, 2024 [10.1016/j.jcorpfin.2024.102641], Available at SSRN: https://ssrn.com/abstract=4301174 or http://dx.doi.org/10.1016/j.jcorpfin.2024.102641

Paul Lavery

Adam Smith Business School, University of Glasgow ( email )

University Avenue
Glasgow, Scotland G12 8QQ
United Kingdom
07979140811 (Phone)

Nicholas Wilson (Contact Author)

University of Leeds - Credit Management Research Centre ( email )

Leeds LS2 9JT
United Kingdom
+44 (0)113 343 4472 (Phone)

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom
+44 (0)113 343 4472 (Phone)

University of Leeds - Faculty of Business ( email )

Leeds LS2 9JT
United Kingdom

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