On October 12, 2020, PitchBook quoted Jill Rowe on the relationship between retail and private equity during the pandemic.
For companies already coping with a shift toward ecommerce—and, in many cases, piles of buyout-fueled debt—it's proving a recipe for disaster. According to the article, two dozen U.S.-based retailers backed by private equity firms have filed for bankruptcy protection so far this year. That's already the highest annual total since 2015.
The list will likely grow even longer before the year is out: Retail Dive, which closely tracks the industry, predicts that 17 retailers are at high risk of filing for bankruptcy in the next 12 months.
"I think that it's just going to be a radical shift in terms of the retail landscape," said Rowe. "Some folks are going to survive and thrive … and some folks are just going to shut their doors."
But some private equity firms have continued to pursue opportunistic investments in retail, searching for those targets that may, as Rowe says, "survive and thrive" in this new reality. There just aren't as many attractive targets as there used to be—one reason deal count in the sector is on pace to drop by some 33% in 2020, according to PitchBook data.
Why has private equity remained active despite the retail industry's many headwinds? In some ways, it’s never been a better time to buy in, with low interest rates and plummeting valuations leading to deal terms that still come with the potential for profit while minimizing risk. It's the prospect of profits that will continue to draw private equity interest, with the retail industry's ongoing struggles creating attractive opportunities to buy low.
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