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Which Sectors Hold Up Best in a

Recession?
Private equity returns from precrisis buyouts suggest recession resistance can vary
widely, even within sectors.

By Hugh MacArthur

May 10, 2019

Given the length of the current economic expansion, it’s not surprising that experts
are at odds over how long the good times can last. For private equity firms, however,
the question isn’t so much when the inevitable downturn will appear as how to
negotiate it successfully when it does. The PE industry learned valuable lessons
during the global financial crisis about what holds up well through the cycle—or not
—and the best firms are adjusting accordingly. An analysis by CEPRES, a private
equity analytics company, shows that returns on deals closed shortly before the
financial crisis began varied widely, even within sectors typically viewed as
recession-resistant. Within healthcare, for instance, there were significant subsector
differences. Healthcare support services produced multiples on invested capital of
better than two times, while healthcare equipment and pharmaceuticals fared less
well. The upshot: With a downturn looming, broad sector analysis isn’t good enough.
It is critical that due diligence dig deeply into cyclical dynamics at a much more
granular level.

Bain partner Hugh MacArthur is a director in the firm’s Boston office and head of
Bain’s Global Private Equity practice.

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Portfolio Value Creation Private Equity