As evidenced by the Nasdaq losing a third of its value in H1 2022, the global economy is facing headwinds and everyone is anticipating a Perfect Storm with ramping inflation, increased recession risk for most countries, and geopolitical tensions across the world. As a result, investors are turning to asset classes perceived as safe, like Real Estate, Healthcare and Infrastructure. In the Private Equity (PE) and Venture Capital (VC) spaces, this translates into a change of paradigm:
Bye bye “turbo-charged revenue growth”, welcome to “profitable economics”
Southeast Asian countries, in particular Vietnam and the Philippines, are also affected by this trend while remaining a bright spot globally amongst the recent volatile market conditions. Our equity teams noted a strong momentum in Real Estate, Healthcare, and Infrastructure deals (e.g., PLDT selling 5,000 towers in April in the Philippines; Novaland landing a USD250m cheque from Warburg Pincus in June; EBITDA in the healthcare services now exceeding pre-pandemic levels for most peers and valuation remaining resilient) while PE and VC have been more cautious when investing as they re-focus on strong fundamentals and profitability. Profitable businesses have the advantage of increasing exit chances (through M&A, secondary PE transactions or dividends) and limiting downside risks, which are now key criteria under current market sentiments. Hence, we believe profitable companies with fast decision-making capabilities and an efficient M&A engine as well as earlier-stage ventures with a clear path to profitability are likely to become the new hype in the second half of 2022.
Dear friends, founders, entrepreneurs, CEOs, investors, to end on a note of hope, there is nothing better than a good crisis to beat the rest of the market. The most successful companies in previous crises were the most dynamic in optimizing their portfolio and re-orientating their strategy during the downturn and they kept this advantage long after the crises.
If you want to learn more and discuss how to outperform your peers in these troubled times, reach out to us.