Use exit pauses to your advantage, says Globalization Partners’ Charles Ferguson

The slowdown in deal-making and exits is a great opportunity for private equity firms to explore more efficient ways of working and to forge connections with service providers who can help them in the process, says Charles Ferguson, General Manager Asia-Pacific at Globalization Partners.

Sponsor-backed companies in Asia-Pacific have been hit just as hard as other organisations during the global pandemic. Exits are a major element in managing liquidity, reactiveness and profitability. As a result, the global slowdown on M&A transactions has private equity firms around the world looking for alternatives.

Asia-Pacific represents a quarter of the global private equity market, according to Bain & Company. A halt on exits here affects the world economy and many international firms. So rather than wait in limbo, how can companies make productive use of this time on pause?

Spend this time preparing

Now is perhaps the best time to research current funding rounds, buyers’ appetite for acquisitions and IPOs that were completed in spite of the global pandemic.

It is difficult to make sweeping statements about this sector because the private equity market is not homogenous across borders. Each region and firm have evolved their own ways of reacting to economic fluxes. But we can generalise about investments focusing on certain sectors. For example, Internet and technology entities have received the greatest attention in the private equity space, since 2018’s record high – particularly in India and Japan. This might guide more investors to review the technology sector for exits close on the horizon.

Personally, I’d recommend companies consider strategic partners that can help them speed time to value as soon as the light turns green on exits again.

Plan your exit strategically and assume volatility

Note that private equity-backed M&A exits slowed in March to May 2020. The deals that did close during this time were already far along in the process before global lockdowns were implemented. The pause on exits bodes well for those who wanted extra time to plan but could also lead to firms hurrying deals over the finish line as soon as possible after feeling held back for several months.

Instead, investors should take advantage of delays to smooth out any concerns. Firms have a unique opportunity to examine every part of the process to ensure it is watertight before opening the hatch.

Against the backdrop of delays, it is also worth spending this extra time engaging with prospective buyers more closely than usual and considering secondary sales to global funds that may be interested in the Asia-Pacific markets.

Lastly, ensure that all contractor situations have been settled so that the companies’ intellectual property is protected before an exit. My company, Globalization Partners can eliminate this risk quickly and easily for your portfolio.

Upskill teams and company capabilities

Asia-Pacific is known for building sound transaction teams. Our new reality might be a sign that firms should push to reorganise operational elements to unlock value. Consider your portfolio companies’ teams and identify possible improvements or gaps that need to be addressed. Then decide whether those gaps are best filled using internal resources or if you will need to tap into external expertise. When possible, companies should aim to build capabilities internally.

Private equity firms will often lead their portfolio companies in the pursuit of cost efficiencies, digital improvements and compliance while restaffing and reskilling. Much of this can be entrusted to strategic advisors. Consultants, former senior industry executives, and professional solutions, such as a global Employer of Record, can greatly accelerate time to value for portfolios.

Several private equity firms are using the crisis to improve engagement and quality of their portfolio companies’ leadership teams. This can involve re-orgs or new hires, which may be anywhere in the world, given that most companies today have virtual-first policies in place. To stay agile while hiring across the Asia-Pacific region, Globalization Partners provides a solution to portfolio companies. It uses proprietary technology and in-country experts to ease the HR, tax, and compliance burdens.

Reconsider the timing

Successful PE firms made relatively few investments or exits during the 2008 financial crisis. Is Q4 2020 or Q1 2021 the right time to offload assets? Would it be worth waiting for the pace of economic recovery to stabilise, at least in local markets? What is the immediate need for this liquidity?

Asia-Pacific’s investment market was already down in 2019, as investment decelerated to US$150 billion. Exits specifically dropped 43 percent from the numbers in 2018. In light of this, consider historic IPO trends in relevant locations. These have increased in China, Japan, and South Korea since 2017, but growth has been less steady in Australia and New Zealand, according to reports from the Boston Consulting Group. 

It may also be useful to look to other markets for indications of what to expect. For example, the fintech sector in North America and Europe hit its highest recorded quarterly deal value in Q3, according to Pitchbook. It also registered the lowest deal count in three years. Fintech investors in other regions are looking to late-stage companies as safer bets, a trend which may inform decisions in the Asia-Pacific region. All the information on hand should be taken into careful consideration, since we now have extra time to plan and prepare for exits or global transactions.

Implement best practices learnt during 2020 

Covid-19 has led many firms to evolve. It is important not to lose the many of the learnings from this year that will allow businesses to become resilient and flexible in the face of repeated change. The economic uptick should still be met with caution, just as cost and liquidity management should continue to be done carefully.

Staying lean and efficient should always be the modus operandi, but when preparing for exits, private equity firms should emphasise demand-forecasting and scenario-planning.

If you’re looking for a compliant, short or long-term home for transferring employees, consider the leading global Employer of Record. Together with other best practices, having a trusted partner to guide your portfolio companies through international employee onboarding and offboarding is a best practice the top private equity firms are recommending to their portfolio.

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Charles Ferguson is General Manager and Head of Globalization Partners’ business in Asia. For more information on Globalization Partners’ services and how they positively impact private equity firms, please visit the website