New opportunities bring balance
to private equity
Emerging markets roundup
Slowing economic growth, closed IPO markets and regulatory uncertainty weighed heavily on buyout activity in 2013. Aggregate transaction value declined 18% from 2012.
Exits were also challenging. The lack of a functioning IPO market posed a dilemma for investors in 2013: should they wait until the IPO market reopened, or seek alternatives via strategic buyers and/or secondary PE investors? Many chose the latter.
Nevertheless, we expect 2014 to be a better year for China’s economy and PE industry. The IPO market has reopened, and exit activity looks set to resume. Also, China’s growing middle class should drive PE investment opportunities.
The country’s difficult economic and political conditions have created major challenges for India’s PE investors. The rupee fell to historic lows in 2013, eroding the value of portfolios and stalling exits.
Similar to many emerging markets, the consumer sector is poised to be the most active in 2014. However, overall expectations among GPs are muted.
While other emerging markets are temporarily slowing, Africa’s growth continues unabated. Continent-wide figures show a 136% increase in fund-raising over 2012, and Africa’s fund-raising total has now surpassed India’s.
Annual PE investment in Africa (US$m)
Source: EMPEA (2010-12 data), AVCA (2013 data). Investment totals reflect total equity amounts for transactions in which financial details have been disclosed.
We expect the strong run to continue in 2014. Although the market is dominated by regional and local firms, bigger players are showing increasing interest.
Exits were muted in 2013, possibly due to slowdowns in India and China, two of Africa’s key trading partners. However, exit routes have broadened, with corporate acquisitions declining as a percentage of overall exits.
Like other emerging markets, the environment in Latin America has become more challenging for PE investors. Transaction activity value declined more than a third from 2012. Fund-raising saw a similar percentage decline from 2012, due largely to a dearth of fund-raising by large Brazilian funds.
However, PE firms in Latin America have some tailwinds. The industry is flush with capital, and entrepreneurs and family owners are becoming increasingly familiar with the benefits of the PE model. Regulators are also growing increasingly comfortable with PE investment and the economic role it plays.