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Exporting to Private Equity held Companies

Since the financial crisis in 2008/9, we have seen a strong private equity (PE) bull run. However, weakness in this sector is now showing and Canadian exporters should be more vigilant when exporting to PE held companies.

In last month, there has been a number of PE owned companies that have declared bankruptcy – Hertz and J Crew to name just two. With a deep recession forecasted, more names are sure to emerge. The PE industry is valued at $5 trillion in the US alone.

PE firms are known for stripping out costs and taking on large amounts of debt on the balance sheet of the company they acquire. The hope is that they get to pay these debts back in good times. In the past 10 years, this has netted investors strong returns. However, this also means that the companies are more exposed in down markets. The segment has seen $90 billion in losses in the first quarter of 2020. Note: PE firms do not have access to the government subsidies being provided during the COVID 19 crisis.

Companies can be attracted to PE firms in challenging times because they provide access to more capital, and there is an estimated $1.6 trillion available today.

Exporters need to be diligent when dealing with these companies. Do the research and ensure there is a strong balance sheet. Most importantly, ensure that you have a guarantee on your payment of goods.

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