Groups most effected by COVID-19

Relatively speaking how will different groups fair this summer? Specifically how will groups such as LevFin, HC, and FIG perform relative to the others? I am asking with regards to this upcoming summer and into 2021 if you think it's applicable.

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Comments (30)

Jun 22, 2020 - 2:12pm

Still active, probably not much less than normal. Have not heard of any cuts or shocking declining deal flow from any banks for this group. I think March was tough for everyone but the rebound was fairly easy and expected.

Dayman?
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Jun 22, 2020 - 12:50pm

I work in consumer M&A and it's been pretty fucked but starting to improve a bit. Businesses that have an e-commerce angle, are in food & bev (through retail) and consumer health are doing solid and will come to market soon depending on debt market conditions. Investors want to put money to work so it's really a question of leverage and if good businesses are going to take a multiple hit because of COVID.

However, most other parts of consumer have been hit hard and are going to wait 6-12 months to see where they are at before they consider an exit. A lot of them will want a full year of post-COVID financials so they don't need to defend some crazy adjustments (outside of the normal aggressive add-backs we apply). Obviously, they also want the business to be stable going into a sale process.

Most Helpful
  • Associate 1 in IB - Gen
Mar 30, 2020 - 8:14pm

Curious about folks thoughts on this as well. Smaller community banks are going to get crushed in the coming months as a good amount of small / medium sized local businesses inevitably default, not to mention community banks in the South that are heavily exposed to O&G... wonder if this will spur some M&A by larger banks.

For insurance, there will be a ton of corona related claims, which can only hurt profitability. I wonder if this would increase IB activity as a FIG banker or decrease it?

Mar 30, 2020 - 5:44pm

Maybe surprisingly not as bad as you'd think - many tech companies are on recurring revenue models and e-commerce is looking particularly rosy in this environment. Liquidity may be an issue if they're burning a lot of cash and can't issue IG grade debt.

  • Associate 2 in IB - Cov
Mar 30, 2020 - 9:59pm

Don't work in a tech group but have a lot of friends at software companies. They are seeing a lot of customer churn with subscriptions being cancelled / frozen, no new deals, etc. For startups that were relying on series funding to drive growth - there will definitely be near-term liquidity constraints & layoffs which will put a hamper on overall growth trajectory and future funding

  • Prospect in IB-M&A
Mar 30, 2020 - 7:17pm

Which would be a better product group to be in, M&A or Levfin? Would it be better to be in a product group or an industry group?

  • Incoming Analyst in IB - Gen
Mar 30, 2020 - 7:21pm

Lev Fin for sure will have a ton of work this summer (late summer) and will get affected due to the new low interest rates- companies will be doing a ton of refis and trying to raise debt at these low rates. M&A will be slow for a while until probably September. Of course RX will have a ton of work as well for the EBs

Mar 30, 2020 - 7:27pm

Don't agree - HY / non-IG financing relies a lot more on spreads than the underlying base rates. A leveraged loan has spreads of several hundred basis points above a reference rate - those spreads have widened more than reference rates have come down. LevFin may take a long time to get going again, depending on what defaults in the space look like. Energy is also a core part of HY issuance and they're not in the best shape as of now. M&A usually has RX roll in under them and companies may potentially be divesting assets to raise capital so I'd say that is for sure a safer bet than LevFin.

  • Prospect in IB - DCM
Mar 30, 2020 - 7:52pm

To go off of this, are analysts at EBs be getting the same amount/more work? If they work alongside their RX counterparts to advise on reorganizations and divestitures

  • Analyst 1 in IB - Gen
Mar 30, 2020 - 9:00pm

This is valid. Outlook for levfin probably going to be scary. But speaking with people in a strong levfin group, it seems like depending on the industry/company, there still seems to be robust activity going on.

Maybe the analogy to make is that it can be like RX. Everyone says that RX does well in downturns, but in economic booms "there's always a company that needs to restructure." Likewise, there's probably always a company that wants to try and issue or refi for whatever reason.

Jun 22, 2020 - 2:30pm

LevFins groups are not super busy. Primarily spending time on amendments / cov relief.
Fees on those situations are half compared to general underwriting fees.

LevFin will be busy once sponsors feel assets are appropriately priced / sellers come to the realization that their assets are worth lower from pre-covid valuations.

Sponsors also need to account for OID. Secondary lev loan market is ~90. Ideally need it to be in the ~95 zipcode for effective issuance.

Gut feeling -will prob see traditional sponsor activity in late August / September.

Mar 30, 2020 - 7:50pm

I can confirm HC teams are very busy. Sometimes just because it is the "flavour of the month" given the pandemic.
I am seeing a few transactions go through, under the banner of "Healthcare is counter cyclical" or "HC sector is benefitting from this" [Which is not true, at all]

  • Prospect in IB-M&A
Mar 30, 2020 - 7:53pm

Any insight as to what deal flow will look like for healthcare in the coming months (i.e summer and into the fall)?

Mar 30, 2020 - 8:30pm

I can only speak for EMEA: right now the only deals going through are those that could benefit somehow from Covid-19 situation (Dx, Pharma with potential treatments, hospital sterilisation, medical supplies, etc.) and the PE guys who are circling around publicly-listed companies who tanked (but have good fundamentals).
Look, if you are looking for deal flow, go to an M&A team. You can then switch to a sector if you want. If you cannot, TMT, HC and FIG will always have deals right, left and centre.

Jun 22, 2020 - 2:11pm

Sector is definitely not benefiting from covid but I would say it has more economic resistance than others.

Dayman?
  • Associate 3 in IB - Gen
Mar 31, 2020 - 3:37pm

Tale of two cities - IG = booming while the window was open (last week especially), HY= free time to brush up your resume.

  • Intern in _none
Mar 31, 2020 - 2:32pm

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  • Analyst 2 in IB-M&A
Jun 22, 2020 - 12:56pm

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