Lumina Private Company Index ("LPCI") Q1 2020
Lumina Private Company Price Index
Regional trends: Decrease in the LPCI in Q1 2020 from 6.1x to 5.1x, clearly reflects the market’s reaction to Covid-19.
Note that companies have not published their Q1 2020 results yet, and hence, the Q1 multiple reflects the current market valuation compared to the Q4 performance. I.e. after publication of the Q1 results, multiples could bounce back (partly) if results are in line with investor’s expectations.
The speed at which equity valuations are changing right now is unprecedented. The gap between sellers' valuations and those of buyers widen in times of stress, which is reflected in the number of deals that are put on hold currently.
M&A processes put on hold: Private equity / family holdcos are focused on managing their existing portfolio companies, rather than adding new investments. We expect those with dry powder to take advantage of attractive valuations over the coming months.
Focus is on the liquidity positions, i.e. have companies drawn their available credit facilities? What planned expenses may now be saved and investments delayed? What additional capital is required to see out the crisis?
In the meantime management teams are asked for updated business plans, taking account of the virus, and stress testing for a U-shaped rather than a V-shaped recovery, along with projections for liquidity and capital needs.
Outlook: Sectors like biotech, health-tech, cyber security and e-commerce are expected to remain attractive despite the current crisis.
During Q1 we saw two deals close in these areas just prior to Covid-19. So did Etisalat acquire Help AG , which is a cybersecurity solutions and services provider, whereas Dubai-based Kitopi, a cloud kitchen operator - raised $60 million in a Series B round.
Finally, now NMC has been placed into administration by a UK court following a petition brought by its biggest creditor, Abu Dhabi Commercial Bank, we expect some deal activity in the form of asset disposals to emerge from this process.
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