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Real Deals: Covid-19 corner “This is a transient, temporary, albeit highly disruptive event” - Earth Capital Q and A
Date published: Thursday, 26 March 2020
Earth Capital’s Gordon Power discusses how the pandemic could accelerate the industry’s move towards sustainable investment and how the firm is targeting “future-fit” businesses.
How will the virus impact the PE landscape across Europe?
We expect the pandemic to have a significant impact across the PE landscape, with investors likely to hold off on larger deals until the macroeconomic climate becomes clearer. Broadly speaking, there is a sense that this is a transient, temporary albeit highly disruptive event. The main concern is the significant uncertainty around how long it will be before market conditions return to normal and investors regain confidence.
We also expect to see a renewed focus on sustainable growth and impact investing in PE when the economic clouds of coronavirus have parted. Among the biggest losers from the coronavirus and the economic consequences have been fossil fuel intensive companies such as the oil and gas sector, whilst ESG and impact funds have been more resilient in the challenging market conditions.
We see this crisis as an event that could mark a fundamental reshaping of capitalism when it is over. The crisis has exposed some of the vulnerabilities of the system, and there can be no more ‘business as usual’ in both private equity and beyond. Instead, we hope to see the PE industry as a whole move toward more sustainable avenues, which have been found to be more resilient in this tough climate.
How is COVID-19 impacting your firm?
At Earth Capital, we continue to operate and manage our investments despite the impact of COVID-19.
On a practical level, we are naturally having to adjust our ways of working, with most staff now working remotely, however, we are fortunate to have excellent IT and communications capabilities that are designed to enable us to work from anywhere and at any time with full access to our required systems and platforms allowing us to maintain business continuity. We will continue to follow government advice to ensure that we do not put anyone in unnecessary risk.
Whilst this isn’t a panacea to the abrupt dislocation caused by a pandemic such as COVID-19, it does ensure that we focus on investments in businesses that are future-fit.
How are you managing portfolio companies?
It is vital to recognise that this crisis has not hit every geography equally, and therefore different approaches have been taken for different companies. However, we have provided guidance and direction to all of our portfolio companies, their management, and their employees. We have been continually updating scenario plans for each company, adopting the cash flow forecasting required. We are also monitoring all applicable changes to the regulatory environment that are relevant to our portfolio.
Of course, throughout our portfolio we are considering all levels of expenditure in the businesses, urging them to reduce non-crucial expenditure, concentration of stocking levels where supply chains are being challenged and continuity of the workforce.
Many employees are now working from home and for those required to still attend the offices or factories, there are strict guidelines in place again led by the government, with employee distancing and all workspaces being cleaned in accordance to the health experts advising on these matters.
More important now than ever before - both with our portfolio companies and with our staff - is the need for regular communications and contact to discuss work progress and identify issues, but also to monitor our staff’s wellbeing and ensure they feel supported at this unsettling time. This has meant more regular video conference meetings to enable swift and considered action.
We are regularly reviewing our steps as the situation evolves and are encouraging suggestions and input from all staff on ways forward as we wish to make it clear that we are all in this together.
What measures has the business put in place?
Following governmental advice, we have closed premises in most locations to safeguard the health and safety of our staff and to allow us to continue serving our clients remotely and will continue to do so until further notice. Clearly, we have cancelled all non-essential travel.
How have your communications with GPs/LPS/advisors been affected?
We live in a fortunate time, where IT and communications are designed to enable us to work anywhere and at any time, with full access to the required systems and platforms to facilitate business continuity. This means that business decisions and activity can continue as normal, regardless of the location of the staff.
We understand that these are unsettling circumstances for everyone, made more so by the volatility of the financial markets, so are continuing as normal with all meetings, although now via video conferencing software. Where necessary, we will also increase communications during this turbulent time.
NLA licensed copy. No further copies may be made except under license. 26 March 2020 Real Deals.
