Industry-Specific PE in a Recessionary Environment

Hi all,

I know this topic has been covered a few times, but the discussions are a bit dated at this point.
I'm contemplating an opportunity with an industrials-focused MM PE shop in a Tier 1 city that has had strong fund performance.

However, I am concerned about the firm's sector focus. Given the cyclicality of industrials, any thoughts on deal flow and the related associate experience if/when a recessionary environment or unfavorable macro circumstances set in? Do any of those possible negatives outweigh the positives of this opportunity? Are any of these questions valid concerns?


Comments (3)

May 10, 2019

Most of the LMM and MM PE groups I've seen that focus on industrials are conservative in general and I would think a recession could actually be beneficial for resetting valuations to a more "normal" level (whatever that is supposed to mean).

But, let's say you are looking at a group like Resilience, IOP, AIP, Wynnchurch, MPE, Strength... they are comfortable with cyclicality and have no problem buying at the right value and holding through a downturn or buying in a downturn or just after the trough.

They tend to have good operating experience which allows them to weather downturns, get lean in ways that they need to, and position the business to grow again on the back of the dip.

    • 2
Most Helpful
May 10, 2019

Following on BTT, if you find one that has legit turnaround chops but goes healthy in the good times, you should be on a stable team that can weather storms. I can think of a few PEGs I would bet on in any situation. Meanwhile there are a lot of folks getting in trouble out there who will have their legs kicked out from under them when the economy turns. Heck, there are inexperienced PEGs choking on what they have now, in these fat times. Don't go with them. I'd screen their portfolio, see what's happened through the financials and you'll see how they operate. Good luck

    • 2
May 11, 2019