The COVID-19 pandemic has already caused significant damage to the global economy. All markets and sectors have been affected. Asian countries are working with some success to revive their economies, and to begin to loosen lockdowns across the region, although we have seen numerous setbacks.
The pattern today feels like two steps forward, one step back.
Technology and the practices developed in past pandemics have enabled governments to track potential infection cases, trace their close contacts, and quarantine all affected individuals to stop the virus from spreading in the community. Singapore’s contact tracing application, TraceTogether, uses Bluetooth technology, as does Australia’s COVIDSafe app. South Korea’s drive-through testing centres have enabled testing for large sections of the population. In China, the government has used a combination of QR codes, colour-coding, and the ubiquitous Alipay and WeChat apps to track and permit healthy travellers.
Several Asian countries, including China and South Korea, have experienced an uptick in cases sometime after restrictions were eased. In several instances, authorities have re-imposed measures to restrict interactions between citizens, to fight secondary spread of the virus.
For most of the past month, China has reported very small numbers of daily new cases, most of which were “imported”. In recent days, the Chinese government has found new local clusters in cities including Wuhan and Shulan. The global press has been sceptical as to the true number of China cases, but the country has taken dramatic and extensive steps to regulate and monitor all its citizens so businesses can largely return to work. Businesspeople are now able to travel around the country via cars, trains, buses, aeroplanes, etc.
South Korea managed to lower the number of new cases without fully locking down its economy. Instead, the South Korean government responded quickly to ramp up testing capacity and aggressively trace and isolate every potential case.
In Japan, Prime Minister Shinzo Abe has extended the nationwide state of emergency to 31st May. Japan’s Economy Minister Yasutoshi Nishimura has said the declaration will be lifted in many regions outside Tokyo, this week.
Singapore’s citizens will soon be able to get a haircut and visit bakeries, as the government loosens restrictions slightly. Despite an upsurge in cases due to an outbreak among foreign construction workers in crowded dormitories, transmission in the local community has dropped. Singapore has reported 26,000 infections, the most in Asia, after China, India, Pakistan and Qatar. But it has a low fatality rate, with only 21 deaths.
As of 12th May, Vietnam has, according to official statistics, still suffered no deaths from the virus, and has limited total infections to just 312, despite its shared border with China, and its role as a popular regional holiday destination. Vietnam has managed a rigorous pandemic control strategy including extensive structures of control and tracking via mobile phones.
Despite rising numbers of COVID-19 cases, both India and Pakistan are loosening their strict lockdowns, hoping that deaths will remain low and their hospitals will be able to cope with the serious cases. The surprisingly low level of South Asian deaths so far, may signal a milder pattern to the disease outbreak, which has convinced authorities the economic harm of extended lockdown is not justified when set alongside the apparently manageable health risks. Official statistics in both countries show a relatively low level of infections to date, but analysts suggest that a growing number of infections may be lurking undiagnosed.
We see many bright spots in key BDA markets.
Financial sponsors have been resilient and quick to act. Initially they performed triage on their existing portfolios, but already they are beginning to explore new growth opportunities including looking at prospective acquisitions. Global sponsors have been particularly aggressive in Japan, with local government support. Notably, Bain Capital has acquired Showa Aircraft Industry and Nichii Gakkan. Private equity firms are increasingly looking at take-privates and PIPE transactions.
As in all downturns, we see the strongest and best capitalised, most differentiated players, as benefitting and often growing market share aggressively. Tech-enabled businesses, and those which sell online, have become markedly more successful.
We see some price dislocation, slowing the progress of deals: sellers do not want to accept a significantly lower price, but buyers are looking for bargains. Realism is seeping through, and the most sophisticated players are looking beyond the crisis. Stock markets have bounced to some extent off their low.
We are seeing some distressed seller activity, and evidence of business groups looking to sell certain assets via carve-outs to generate cash or refinance existing debt facilities.
Life goes on, for now, in the new abnormal.
Notwithstanding lockdowns and social distancing, BDA is succeeding in helping clients to close transactions. Buyers are hiring third parties to carry out site visits, to be their eyes on the ground, when the buyer is unable to travel. Management presentations are being done virtually as video conferences with Microsoft Teams and Zoom. BDA is proud to have advised on transactions involving India, Vietnam, Thailand, China, Germany and the US in the last two months:
We have been monitoring each sector and geography, working to provide timely insights to help our clients understand and weather the storm.
By Euan Rellie, Charlie Maynard, Andrew Huntley and Paul DiGiacomo, Senior Managing Directors
BDA Partners