Research Analyzes Insights on Investment Trends, Exit Strategies, Funding Sources, Emerging Challenges and Middle Market Opportunities

NEW YORK, Sept. 22, 2021 /PRNewswire/ —  New York Life Investments Alternatives in partnership with Coalition Greenwich today released a new research report that analyzes how middle market private equity sponsors responded to the global pandemic. The report is titled, “Lessons Learned: Insights from the COVID-19 Crisis for Middle Market Private Equity Sponsors,” and features research results from more than 100 interviews with managing directors and partners at middle market private equity sponsors in the U.S.

“The pandemic pressure tested middle market private equity sponsors on every level, yet sponsors more than rose to the occasion as seen by the strong rebound in deal volume in the second half of 2020 and into this year. From sharpening their investment processes to rapidly adopting new technologies, sponsors quickly adapted to the new environment to best support their current portfolio companies while also continuing deployment of capital across new deals,” said Christopher Taylor, Head of New York Life Investments Alternatives and CEO of Madison Capital Funding.

The research revealed that the COVID-19 pandemic has had a profound impact on the middle market private equity industry and has triggered lasting changes across sponsors’ core areas such as investing, deal sourcing, transaction financing, exit strategies and fundraising.

Key takeaways from the research data include:

• New Deals Drove Deployment: For 60% of the middle market private equity sponsors participating in the study, new deals represented the most common driver of capital deployment in 2020, with add-on investments a distant second.
• Sponsors Sharpen Investment Processes: The global pandemic forced sponsors to sharpen their skills and tighten procedures, with almost 30% of sponsors surveyed reporting that the crisis and subsequent rebound prompted them to tighten their discipline on valuations.
• Relationships Prove Their Worth, Especially in Deal Funding: Sponsors surveyed ranked relationship history and covenant flexibility as the attributes they see as most important in financing partners in uncertain market environments.
• Pandemic Had Mixed Effect on Exits: More than a third of sponsors surveyed report the pandemic delayed exits and extended holding periods. Sponsors report delays ranging from a few months to two years to provide portfolio companies more time to meet growth expectations.
• Optimism Remains Among LPs: More than half of study participants believe the LP community remains optimistic about the investment climate; however, about 30% of study participants say LPs are turning negative on the environment—often due to valuation concerns.
• ESG Adoption Continues: Three-quarters of specialist sponsors and half of generalists surveyed say they take ESG factors into account when making investments. However, most have yet to establish formal processes for assessing ESG or incorporating DEI factors and fewer than 5% of sponsors surveyed are UN PRI signatories.

“Looking ahead, sponsors remain poised to take advantage of favorable conditions in the middle market following their swift and decisive actions in 2020. Middle market deal flow continues to gain momentum as markets rapidly rebound and sponsors look to put record levels of dry powder to work ahead of potential tax changes,” added Taylor. “The COVID-19 crisis combined with last year’s economic and social upheavals not only had a lasting effect on business operations, investment decision making and portfolio management, but also shifted sponsors’ focus from the ‘E’ to the ‘S’ in ESG, underscoring the incredible importance of diversity, equity and inclusion across investment processes and portfolios.”

To read more about the survey results, download the complete research report here: Lessons Learned: Insights from the COVID-19 Crisis for Middle Market Private Equity Sponsors.

Methodology

Between February and April 2021, Coalition Greenwich, in partnership with New York Life Investments Alternatives, conducted a study to examine the effects of the COVID-19 crisis on middle market private equity sponsors. Coalition Greenwich interviewed 100 managing directors and partners at middle market private equity sponsors in the United States. These in-depth phone conversations centered on the impact of COVID on investment trends, exit strategies, funding sources, and emerging challenges and opportunities.

About New York Life Investments Alternatives

New York Life Investments Alternatives LLC (“NYLIA”) is a registered investment adviser that provides comprehensive capital solutions and other alternative strategies to a broad range of institutional clients. NYLIA is comprised of three highly specialized alternative investing boutiques: GoldPoint Partners, Madison Capital Funding, and PA Capital, collectively managing over $35 billion in assets under management (AUM) as of 7/31/2021*.

For more information, visit: https://www.newyorklifeinvestments.com/nyl-alternatives

About Coalition Greenwich

Coalition Greenwich, a division of CRISIL, an S&P Global Company, is a leading global provider of strategic benchmarking, analytics and insights to the financial services industry.  We specialize in providing unique high value data and actionable recommendations to help our clients improve their business results.

*Madison Capital Funding LLC’s (MCF) Assets Under Management (“AUM”) includes approximately $271 million of equity, mezzanine, fund and other subordinated investments and approximately $4.3 billion of third-party senior loan assets managed by MCF.  These assets qualify as Regulatory Assets Under Management (“RAUM”) as defined in SEC Form ADV.  AUM does not include approximately $265 million of RAUM consisting primarily of unfunded capital commitments to certain private funds managed by MCF.  The balance of the AUM, approximately $8.2 billion of senior loan commitments and $73 million of fund investments, are managed by MCF for its own account. These senior loan commitment assets and fund investments do not qualify as RAUM and, therefore, are not included in MCF’s Form ADV RAUM calculation for regulatory purposes.