An Opportunity for Growth, Investment, and Long-Term Value Creation

by Paz Ambrosy Eyzaguirre, Professor of Entrepreneurship and Private Equity at IE Business School and private equity investor.

Much has been said in what seems like an eternity, even though just a few weeks have passed since this tsunami hit us. In the era of the knowledge economy and excess information, many realities we will need to face might imply profound changes for the future.

The real change is that no economic predictions or estimations are valid, since no one saw this coming. Data, transparency, and long-term thinking are essential to navigate this world of contradictions and conflicts of interest.

Transparent information

Data and transparency must be improved and multilateral institutions such as the World Health Organization must play a bigger role, rather than believing numbers such as the ones provided by the Chinese government. These multilateral institutions were created by “experts.” These experts have to understand that providing a daily press release is not going to reinforce their role in the scientific community or in society at large. On the contrary, they need to use more effective methodologies to persuade governments to listen to their considerations and push for more up-to-date and transparent information about health emergencies. This will enable countries to react in a timely manner in future healthcare crises.

In the month of January, 6,000 children died in Congo of chickenpox even though a vaccine was available, because of inaction on the part of the World Health Organization. The restructuring of this institution must be considered. More resources are going to be needed for science, communication, logistics, and social impact.

Governments

Transparency and information must be guaranteed on both the country level and the governmental level to ensure that people’s rights are not violated by the very governments that are supposed protect them. China has to acknowledge that global health rules—including rules against the consumption of wild animals—are an essential requirement if international trade is to continue. They must also provide accurate data. How is it possible, in a country with more than 1.3 billion people, that only 3,000 people have died, while at the same time 20 million mobile lines have disappeared? Something is not right.

Corporations and investors

Outsourcing and corporate profits: this is another lesson learned. Developed countries, which have created wealth by producing in low-income countries and creating low-cost economies, are realizing that healthcare is a strategic sector. Therefore, production, R&D activities, and investments will need to happen on a national scale.

Also, corporations and investors—including private equity investors—will have to rethink what they want to achieve as economic players. It makes no sense that big corporations such as Boeing, which has requested more than $60 billion in lines of credit, has spent the same amount of money repaying its shareholders as investing in R&D.

Now more than ever, cash is king. Private equity investors are carefully monitoring their portfolios, delaying both exits and sales. Incomprehensive valuations of technology companies in the venture capital space will need to be reassessed. Over the next 12 months, cash will be the most important thing.

There could also be good business opportunities in the funding of real assets as the entry multiples for interesting, profitable, noncyclical SMEs with strong barriers to entry are adjusted.

As the great professor Jared Diamond pointed out in his book Upheaval: Turning Points for Nations in Crisis, the short-term measures applied by political elites are sharply in conflict with the long-term needs of society as a whole, especially when the elites need to adopt unpopular measures.

This conflict might drive us to the end of an era and the loss of rights, which is something that we will have to face and rethink as a whole.