Business and Risk Considerations for Portfolio Companies During the COVID-19 Pandemic

March 18, 2020 by ACA Aponix


Our understanding of the severity and impact of the coronavirus (COVID-19) pandemic is continuing to evolve. One thing is certain at this point: it is going to have an impact on many companies' ability to conduct business as usual.

To manage and minimize the impact these disruptions will have on the longer-term viability of a company, it is more critical than ever for these firms to have comprehensive, long-term business continuity plans (BCP) in place. While BCPs have multiple components that provide a blueprint for how to proceed in times like these, few have been designed to address the longer-term disruptions that the COVID-19 pandemic may create.

Beyond identifying chains of command, methods of communication, and remote staff support, specific actions are needed to keep the business operating and withstand the crisis, such as workforce protection, supply chain stabilization, access to financing, and cash controls (e.g., check writing). This includes portfolio management, benefits, and customer engagement.

As operating partners within private markets considering the impact the pandemic will have on your investments, it is crucial that accurate information related to the preparedness of your portfolio companies is available in order to ensure timely decisions are being made. The big question is how do you accomplish this when you have 10, 30, or more portfolio companies, each with unique requirements to ensure the viability of the business?

Get Your Priorities in Order

First and foremost, put in place a risk management strategy that helps to collect crucial information from your portfolio companies. Keep in mind, that while this mission-critical information must be provided to the sponsor to effectively manage the risk, it must be done in a way that doesn’t overwhelm the individual portfolio company management teams. A survey of well-thought out questions related to key BCP concerns is effective and poses minimal distraction.

Start with the portfolio companies that have a higher risk of impact, determine if they have a BCP, and continue to work down the list. If they do have a BCP discuss with the portfolio company whether they have activated it and whether it is performing as planned. If they do not have a BCP, discuss what the portfolio company is doing in lieu of a BCP and address the issues.

Reinforce and Adhere to BCP Best Practices

As an operating partner with visibility into the entire portfolio, your firm has an opportunity to provide BCP best practice recommendations to the entire group that may apply broadly. This will significantly save each portfolio company from having to develop strategies independently. Examples of these include:

  • developing an infrastructure for remote work
  • identifying employees who are most crucial to maintaining business continuity
  • testing alternate site and remote access capabilities
  • utilizing cloud and hybrid-based solutions to support ongoing business requirements in these uncertain times

Be Proactive and Thoughtful

Information is your best protection in mitigating risk and business disruptions due to the COVID-19 pandemic. As you consider how prepared your investments are for a prolonged business interruption, the following areas must be understood in order to identify the companies that are struggling to maintain operations during this time of crisis and uncertainty.

Ask each of your portfolio companies to consider the following questions:

  • Communication – Is their firm’s messaging accessible and available to its employees, customers, financial institutions, and third-party services providers?
  • Chains of command – Has their firm established clear responsibilities for the categories of actions needed and who is responsible for what? Consider what role as an operating partner your firm have in the process?
  • Executive Management – Have they established a dedicated cross-functional crisis team (e.g., Operations, Legal, Regulatory, Compliance, HR, Communications)?
  • Supply lines – Is the portfolio company prepared for likely supply chain disruptions and have you identified alternatives in the case of disruption?
  • Backlogs – Is there a clear plan for how your investment will address potential and existing backlogs by customers, including prioritization, allocation, and pricing strategies?
  • HR – Have they considered providing guidance related to global mobility concerns, including travel rules, policies, and first aid plans? Has the management team addressed the needs and procedures (e.g., space and distancing, protective gear) for employees who must be on site for work (e.g., manufacturing, shipping/receiving, deliveries, etc.)?
  • IT – Do they have the necessary equipment for all employees to work from home (laptops, VPN, adequate spare equipment, etc.)? If not, what do they need to do to shore up information technology and communications infrastructure? Have they considered how working from home will open up potential security risks or vulnerabilities?
  • Finance –How are they staying on top of regulatory and compliance disclosures? Do they have the necessary access to financing? Have they established model financials (e.g., cash flow, P&L, balance sheet) for different scenarios and identified triggers that could significantly impair liquidity?
  • Reporting – Has the management team established metrics and reporting requirements to track employee productivity? What performance indicators should their firm watch for potential sales and revenue shortfalls or customer churn?
  • Service Delivery – What is the strategy to closely monitor the availability of services, based on staffing realities, deliveries of products, maintenance of equipment, etc.? Or defined the length of time the company can carry on operations in business continuity mode?

The key to success during this crisis is to keep the focus on continuity – strong business continuity plans, detailed business continuity action lists, and a determined effort to ensure the wellbeing of your firm and its staff will go a long way toward keeping staff, private equity firms, and portfolio companies healthy during this critical time.

We are Here to Help

ACA is here to support your firm as you navigate this uncertain time. We offer a range of services designed to help firms address and mitigate the new and emerging risks resulting from the COVID-19 pandemic in order to maintain business operations and withstand the crisis.

ACA is sensitive to the stressors that portfolio companies are currently facing and has designed a streamlined approach to help simplify your workload. On a weekly basis, ACA’s Pandemic and Crisis Portfolio Monitoring Service will provide private markets clients with the following:

  • Initial rapid assessment and analysis of portco preparedness. This will cover key business continuity categories, including, but not limited to: Business Process, Communications, Corporate Support, Executive Management, Finance, HR, IT, Remote Readiness, Reporting, Service Delivery, and Third-Party Risk.
  • A portfolio dashboard summarizing your firm’s overall readiness and highlighting key business continuity metrics pertaining to the ability of your portfolio companies to maintain normal business activities during a BCP event.
  • Weekly or bi-weekly status reports on management’s progress toward mitigating BCP gaps identified during the initial assessment.
  • A dedicated senior risk consultant resource to summarize the assessment findings and to review your management.

Access more resources on Portfolio Company Preparedness.

Please reach out if your firm needs support.

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