Legal Disputes Emerge Over Collapsed Deals
The global pandemic has triggered a growing trend of legal battles over abandoned acquisition deals due to COVID-19-related concerns. According to PitchBook, 12 such corporate buyout deals have been canceled since the outbreak began.
In the most recent dispute, cybersecurity firm Forescout Technologies has filed a lawsuit against private equity firm Advent International, seeking to enforce a $1.9 billion acquisition agreement. Advent previously informed Forescout that it could no longer proceed with the deal—originally announced in February—citing a “material adverse effect” on the company’s business due to the pandemic.
Meanwhile, months into the economic fallout from COVID-19, there is still uncertainty and debate surrounding who should benefit from taxpayer-backed financial relief—especially among privately backed portfolio companies. Industry associations have been lobbying lawmakers to ensure that portfolio firms are not excluded from Treasury and Federal Reserve support programs such as the Main Street Lending Program.
COVID-19’s Impact on Startups
Vroom, an online used-car e-commerce platform, has filed for an IPO, while also disclosing that it placed about a third of its workforce on mandatory leave.
According to its SEC filing, Vroom’s Q1 2020 revenue jumped from $235.1 million to $375.8 million compared to the same period last year. However, its net loss widened to $41.1 million, up from $27.1 million in the prior year. Between March 11 and March 31, the company experienced a 15% drop in e-commerce revenue due to a sharp decline in consumer demand triggered by the pandemic. In response, Vroom cut vehicle prices to stimulate sales and reduce inventory.
By May 3, around one-third of Vroom’s workforce had been furloughed, and remaining staff took pay cuts. CEO Paul Hennessy voluntarily gave up 30% of his salary. PitchBook reports that Vroom has raised more than $720 million from investors including General Catalyst, L Catterton, and T. Rowe Price.
COVID-19’s Impact on Venture Capital
Ola, the Indian urban transportation platform backed by SoftBank, announced layoffs affecting 1,400 employees.
The Bangalore-based company, which has around 5,000 full-time employees, described the pandemic as an “unprecedented economic and social crisis.” Ola’s investors also include Tiger Global and Tencent.
A New Investment Outlook in the COVID Era
Interestingly, amid mass layoffs and economic downturn, many investors are eyeing industries poised for post-crisis growth. Some are placing bets on AI-powered HR tools, which they believe will be critical in managing the expected surge in job applicants.
According to Anton Simonovic, Chief Investment Officer at Alumni Ventures Group:
“There has always been a war for talent, but now we’re witnessing a massive workforce transition.”
He added:
“We’re seeing a sharp rise in investor interest in AI solutions that help companies identify candidates who can add immediate value.”
COVID-19’s Impact on Private Equity
Five major publicly listed private equity firms have released their first earnings reports since the start of the pandemic. Analysis of these reports and broader Q1 2020 trends reveals several key findings:
Cash from management and other fees increased year-over-year.
Limited partners (LPs) temporarily boosted assets under management (AUM) by retaining capital that would otherwise be distributed.
As LPs continue to commit and deploy capital, management fee revenues are expected to provide ongoing support for general partners (GPs).
بدون دیدگاه