How covid is transforming the PE operating model

Tim Dutterer, EY-Parthenon Head of Private Equity, and Greg Schooley, EY US Value Creation Leader, discuss how COVID-19 is transforming operating models across the PE portfolio and beyond.

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After the economy recovered from the Great Financial Crisis of 2008, economic activity and growth were steady and predictable. As a result, private equity-owned companies optimized their operating models for efficiency, anticipating the next economic cycle would a more modest recession. No one, publicly traded corporates or PE-owned companies, was prepared for the sudden and complete secession of economic activity caused by COVID.

However, PE investors reacted very quickly, understanding the severity of the crisis and mobilizing to increase liquidity across the portfolio. While a few sectors were spared from the sudden economic collapse, a wide spectrum of both impacts and actions can be observed across the vast majority of the US economy.

We believe that the COVID-induced economic collapse will greatly accelerate several ongoing trends:

• Global supply chains will fragment as companies look for more resiliency
• Continued reconsideration of extent of reliance on China compared to lower-cost and lower-profile countries
• Automation will be more widely deployed in a range of activities and sub-functions
• Back-office functions will be increasingly outsourced
• The value of office real estate will diminish due to large-scale adoption of remote ways of working
• Assessing the impact “black swan” events will become the norm in scenario planning