The inaugural Oliver Wyman, Marsh and Mercer Asia Private Equity survey explores the changing areas of concern for senior private equity (PE) executives. We polled more than 40 funds operating in Southeast Asia, Hong Kong and China for their views on topics ranging from insurance to culture to operations in order to understand their priorities in the year ahead.
The overarching theme of our survey this year was ‘value creation in the post-COVID-19 era,’ as well as the resulting shifts in priorities at the funds’ portfolio companies.
All of our respondents shared the same outlook: the impact of COVID-19 is here to stay for the long term, and short-term actions would likely be insufficient to result in sustainable value creation (or even value preservation).
Responses to mitigating the impact of COVID-19 on businesses have been swift and (likely) effective. Most operating heads are confident in their organization’s ability to deliver on the basic commercial levers (such as cost reduction and channel optimization) in the short term, with most plans already entering the implementation phase.
Confidence is high that the situation is under control; funds expect some short-term impact, but limited long-term value impact.
Post-COVID, the importance of rapid but sustainable transformation has emerged as a critical action point. These areas have long been on PE funds’ radars but have taken on a heightened level of importance in an uncertain environment, where rapid adaptation and change is synonymous with value.
We see two major areas of transformation that have taken centre stage, both of which funds have highlighted an uncertain ability to deliver.
Digitization has been a priority among funds’ ambitions for their portfolio companies, but in light of COVID, this has become one of the most important areas for immediate action.
Unlike commercial levers, though, most funds have indicated this is not an area they have confidence in delivering. The critical gap between ambition and skill set is concerning, but can be an opportunity for those fastest to bridge the gap.
As organizations look to digitize their operations and customer engagement models, they must also transform their workforce to adapt to these new business models. A majority of the respondents indicated that improving productivity through artificial intelligence (AI) and automation is their top workforce priority. Eliminating or automating administrative tasks will allow employees to spend more time reskilling and delivering the digital transformation agenda. Most respondents also expect to restructure or reorganize their workforce and permanently adopt flexible working arrangements as a direct impact of COVID-19.
Cultural and leadership alignment issues have been cited as the top two reasons that hamper value creation for portfolio companies.
However, 57% of companies still do not conduct any formal competency based assessment to evaluate leaders when acquiring companies.
This issue is further exasperated by the fact that only slightly over half of the surveyed companies have a clearly identified successor or a pool of external talent that can be tapped on if the incumbent leaders leave.
Non-traditional insurance (for example, for crime and cyber) that reimburses for financial losses has not historically been the primary lever many portfolio companies have used, despite over 30% of respondents reporting a financial loss in the past three years due to crime or cyber breaches.
Incidence of cybercrimes is increasing during COVID-19 and while employees are working from home. Non-cyber-related crimes are also occurring among white-collar workers due to the perceived higher independence of a remote working arrangement.
1 The Business Times dated 12 October 2020 https://www.businesstimes.com.sg/asean-business/the-threat-of-cyber-attacks
More key findings available in the executive summary and full report.