Private equity firms are having to put their expansion plans on hold amid the pandemic crisis, according to panelists at Private Equity International’s CFOs & COOs Europe Virtual Experience 2020 on Monday.
Speaking at the conference, Michaela Strempfl, EMEA COO for BlackRock Alternative Investors, noted that the industry is in a “hold situation” on expansion.
“We live in times where resources are often very constrained… so we can’t be doing everything at once. We really need to be having very clear business models and operating strategies as well as a bigger picture strategy going for the organization in order to be successful,” Strempfl said.
“We’re just all consolidating, waiting a little bit, looking at our own staffing, and revisiting strategic plans,” she said.
And it is sometimes the job of CFOs and COOs to stifle hopes of growing the business, oftentimes having to “raise the ugly questions in the room,” including tax and regulation, that can “kill expansion,” Jamie Lyon, European CFO & COO at LaSalle Investment Management, said on the panel.
“We have to be that disciplinarian and common sense [in the firm], because growth can easily lead to inefficiency and inconsistency in discipline and process,” he said.
A pallid economic background for organic growth and a weak M&A market means firms are having to justify “writing a check externally,” according to Lyon. With less opportunity in M&A over the last year and check books “a bit tighter,” M&A remains an option for firms to explore, but it shouldn’t be chased just because it “sounds exciting,” according to Lyon.
He added that M&A transactions can be very disruptive for clients, investors and customers, especially during a difficult integration.
“One and one does not equal two. You’ll end up having clashes, you’ll end up with funds competing for each other,” said Lyon.
Erica Herberg, CFO for investment solutions at the Carlyle Group, added that firms’ different cultures are also important to consider, especially before a transaction, as trying to integrate cultures after the fact can present challenges if they clash.