The nature of the crisis means that there are critical factors that PE funds and portfolio companies need to consider. More specifically, supply chain issues across the portfolio, ensuring sufficient liquidity and working capital across both the portfolio and at the fund level; working with companies to revise strategies and pivot as needed for an unpredictable operating environment; and understanding the wide range of tax issues that are arising out of the proliferation of government stimulus.
Assessing supply chains
Firms are performing supply chain intelligence and analytics exercises to understand where constraints exist, what their options are and how to build better communication between network nodes. Firms are helping companies to dynamically optimize where necessary, and to perform integrated planning and supplier management.
Strategy refresh and revenue impacts
Firms are working with companies to understand if the current strategy still makes sense in today’s environment. Are there things companies are doing within their existing footprint and revenue strategy that need to be accelerated and adapted? Are there potential supply and demand gap dynamics that need to be addressed, and if so, what are the options? Is a pivot in the company’s strategy required, such as a shift from brick-and-mortar to a heavier online presence, and if so, what elements are required to execute?
Understanding liquidity needs
For many portfolio companies, a combination of immediate higher cash needs and a limited ability to fund them can lead to liquidity shortfalls. Firms are helping to better identify portfolio companies with short- term to medium-term cash needs, and the size of those needs over the next several months under a range of different scenarios. For some, corrective actions will be available, while others may require additional equity from the sponsor.