Private capital has always been a critical source of investment for American businesses, both large and small. But private equity can often be the only source of support for businesses struggling during a recession or economic crisis. Public investments often dry up in a bear market, while banks and other providers of credit are hesitant to invest in companies that may not survive.
The unprecedented economic crisis caused by COVID-19 has further underscored the need for prudent mergers & acquisitions. Private equity investors are patient and actively seek to invest in companies that require time and resources to rebound. Private equity managers are also experts in their field who bring relationships and extensive experience to the businesses in which they invest. Additionally, private equity investments are critical to creating and saving jobs, as more than 8.8 million American workers were employed by private equity-backed businesses in 2019. These investments ensured that businesses continued to operate, preserving jobs for Americans.
According to a recent editorial from Bloomberg, “For a small company short on cash, an acquirer … could be a critical lifeline in this crisis … Mergers on balance offer companies an opportunity to boost growth, create synergies, leverage economies of scale, increase productivity and otherwise become more competitive.”
Private equity-backed mergers & acquisitions were critical lifelines for many companies struggling during the 2008 financial crisis, as the industry invested more than $4.8 billion in 41 companies that needed support or hands on management. Below are examples of just three of these successful partnerships:
- BankUnited – The 2008 financial crisis caused the failure of scores of banks around the U.S. BankUnited, the largest regional bank in Florida, looked no different. But eight private equity firms, led by Blackstone and the Carlyle Group, stepped in with $945 million to recapitalize the struggling bank. All 86 of BankUnited’s branches remained open the week following the investment and the bank has since become one of the most profitable and highly capitalized in the U.S.
- Charter Communications – In 2009, cable provider Charter Communications declared bankruptcy. But six private equity firms stepped in with a $1.6 billion buyout of the struggling company. These firms worked with Charter over the next four years to fix many underlying issues. Thanks to support from private equity, Charter’s stock price had nearly tripled by 2013 when it was acquired by Liberty Media.
- Motor Coach Industries – The American auto manufacturing sector was hit hard in 2008, and Illinois-based bus manufacturer Motor Coach Industry (MCI) was forced to file bankruptcy. The following year, private equity firm FPS Capital acquired MCI and helped the company emerge from Chapter 11 and recover from the crisis.
As with the 2008 crisis, private capital has once again become a crucial source of support for small and large businesses struggling to survive the current COVID-19 crisis. Companies including Expedia, Airbnb, US Foods and scores of other businesses are depending on their partnerships with private equity. These companies understand first-hand that prudent M&A can bolster their balance sheets and preserve existing assets.