While the fallout from the Covid-19 outbreak is creating market disruption, it could offer new investment opportunities, MBK Partners said in its latest annual letter to investors.
The buyout firm said “this is the time to make investments”, citing effects from the coronavirus pandemic as one of the new challenges in the investment environment this year.
“The oversupply of GP capital has only grown, to a record $105 billion in dry powder in Asia. Valuations in private transactions were up across North Asia,” said the Seoul-based firm. It expected the impact of Covid-19 to be much more severe and to last far longer than previous pandemics such as SARS.
“Experience tells us, however, that opportunities arise from challenges,” the company said, adding, “Having invested through two cycles, the Asia Financial Crisis and the Great Financial Recession, we know this crisis, too, shall pass.” The firm expected consumer demand to eventually rebound as well.
“We also know deal opportunities proliferate in times of distress or upheaval,” the firm said, which is why it expected special situations strategies to become more popular in the private equity industry.
The company said it would “bring to bear our relationships with local sellers, advisors, lenders, even regulators and policymakers, to press our competitive advantage”.
With an emphasis on domestic consumption, MBK Partners is maintaining its strategic focus on three core sectors of consumer/retail, telecommunications/media and financial services, which account for more than 75 percent of the firm’s portfolio.
“We believe our reliance on consumption, over exports, has effectively insulated our portfolio against macro shocks and negative exogenous factors, including the US-China trade conflict, currency wars and foreign sovereign debt crises,” the company said.
MBK Partners said it has crystallized its market positioning across North Asia over the last 15 years, with its focus on local business. In Korea, in particular, it has been involved in many buyouts related to family-run conglomerates, or chaebol, based on its relationships with the owner families and management. “Of our 17 buyout investments in Korea, eight are chaebol divestitures,” it said.
In Japan, MBK Partners has put its focus on relationships with management of listed mid-cap companies. Five are management buyouts of its nine Japanese investments. In China, the firm has focused on joint-control partnership investments, with seven of its 11 Chinese investments coming under this category. (By reporter Han Hee-yeon)