Never Let a Good Crisis Go to Waste: Themes & Sectors to Watch During and After COVID-19

I just read (and re-read) an article that suggests a third of Americans, or just over 109 million people, are now showing signs of clinical anxiety or depression according to Census Bureau data from May of 2020 – a sobering barometer of the psychological burden levied by the Coronavirus pandemic.

So, I’m going to propose a new rule. From here on out, let’s only see the glass as half full. Let’s look for the silver lining. No more dour clickbait headlines. Only good news.  Per Winston Churchill’s advice, let’s figure out how to not let this crisis go to waste. With that in mind, I wanted to share some reflections on sectors and investment themes that I think will be well situated for recovery and growth both during and after COVID-19.

Sectors to Watch During and After COVID-19

As a disclaimer, I would expect that most sectors will experience revivals, to greater and lesser degrees, coming out of the pandemic. The investment industries profiled below are those that I feel show particular promise and could produce opportunity for investors ready to deploy capital with conviction. Additionally, it’s been proposed that habits are formed or dropped over the course of about a month, and we’ve been quarantined for going on five months now. So, the key here is first recognizing that behaviors have changed. Then, the idea is to focus on the areas where people aren’t going to just go back to the old ways of doing things once we can all take our masks off.

So, without further ado…

Outpatient Behavioral Health

You saw the statistic I referenced earlier – we’ve got a third of our population dealing with anxiety or depression. This is a staggering number. There are a lot of ways to do good / do well in behavioral health, but I’m personally attracted to outpatient behavioral therapy services. Feels like the stigma of seeking help for things like anxiety, depression, relationship issues, etc. is coming off. Further, the onset of an array of start-up teletherapy concepts could provide a sort of marketing halo effect that raises awareness of the broader behavioral therapy industry, benefitting all participants.

Express Car Washes

It dawned on me recently that owning an express car wash is sort of like owning a toll road except you have to spray water at the cars as they drive by. For a long time now, it has been automated, high margin, and recurring revenue hiding in plain sight, and the only reason many investors turned their nose up at the sector, until recently, is because we all saw Breaking Bad and observed how Walter White and his wife used their car wash business. The beauty of the express wash model during COVID is that you don’t have to get out of your car. In other words, getting your car washed requires no (or very limited) human interaction. Many express car washes also sell monthly memberships which is a great way to play the recurring revenue theme.

Fitness

Once the doors of our favorite fitness concepts fling back open and we are comfortable engaging in a regular exercise regimen, the fitness industry is poised to resume its gangbusters performance. Having invested in two major fitness systems as franchisees, we’ve voted with our dollars about our view of the industry, and we see no signs of long-term headwinds.

IT and Other Tech-Enabled Services

IT Services is one of those great industries that, in many cases, has continued to post growth amidst COVID. MSPs and other IT services companies have quietly pulled this off because a lot of their revenue is recurring, and a lot of what they do can be done remotely. Look also to other tech-enabled services companies where recurring revenue and remote capabilities are present. My money is on tech-enabled services being one of the most dominant sectors to emerge from the pandemic. Investors with prior expertise with such companies will be well situated to capitalize on this trend.

Conclusion

Hopefully this has provided some food for thought. The easy part is identifying the trends and areas on which to focus. The hard part is actually sourcing relevant investments and deploying capital.

About ClearLight Partners: ClearLight is a private equity firm headquartered in Southern California that invests in established, profitable middle-market companies in a range of industry sectors. The ClearLight team has extensive operating and financial experience and a history of successfully partnering with owners and management teams to drive growth and create value.

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Disclaimer: The views and opinions expressed in this article are solely those of the author’s and do not necessarily reflect any ClearLight opinion, position, or policy.