Asia-Pacific continues to be a beacon for private equity as investors target the region in search of new opportunities
- Southeast Asia growing in prominence and promise
- While private equity investment is expected to increase across Asia-Pacific, Greater China will drive deal activity, according to 70% of respondents for the report
- 46% of respondents believe private equity activity in Southeast Asia will expand significantly in 2013
- By sector, buys in energy and retail are expected to attract the most interest, driven by energy needs across the world and growing middle classes in Asia-Pacific, according to 80% and 72% of respondents, respectively
- 79% of respondents say strategic competitors and cash-rich corporates will present the largest challenge to acquisitive private equity firms in the next year
- Local funds continue to have an advantage over their global counterparts in both raising capital and making acquisitions due to their deep market penetration and relationships in Asia-Pacific
- Striving to create value, private equity firms are increasingly using internal operating partners to help implement strategic and operational improvements in portfolio companies
Singapore, 22 January 2013 – mergermarket, the independent Mergers and Acquisitions (M&A) intelligence service, and Remark, the publishing, market research and events division of The Mergermarket Group, in conjunction with Ernst & Young, launched the report Asia-Pacific private equity outlook 2013.
While Europe and North America continue to face challenges post-financial crisis, economies in Asia-Pacific are seeing record growth, providing added incentive for private equity players to enter the arena. According to mergermarket data, 2012 saw 278 deals in the private equity space worth more than US$33b. A rising familiarity with the private equity model among governments and potential sellers across the region is also providing encouragement as private equity firms begin to establish a greater foothold in Asia-Pacific.
Based on 86% of respondents in the report, private equity in Asia-Pacific will follow an upward trajectory, led by investments into Greater China. The spotlight will also shine brighter on Southeast Asia – with 85% predicting increased deal activity – as economies across the subregion continue to post high-growth figures and provide promises of higher yields for investors. Already, global private equity firms have taken note, making a dash to set up operations and start making buys across Southeast Asia. As the gateway to the region, Singapore has seen an uptick in private equity activity as global firms are eager to establish their presence in the city-state.
“We are seeing an increasing shift in interest and investment strategy to Southeast Asia by both limited and general partners. There is Singapore with its strategic location, accessibility to the rest of the region, established financial infrastructure and attractive tax regime, and newer markets like Myanmar and Vietnam that have a great need for investment. With its many markets at different stages, Southeast Asia is very exciting for private equity investors,” says Michael Buxton, Asia-Pacific Private Equity Leader at Ernst & Young.
Luke Pais, Singapore and Asean M&A Leader at Ernst & Young says: “Apart from its strategic positioning as the regional financial center, Singapore fund structures are looking attractive to international private equity funds. Safeguards for investors and the overall ease of doing business act as additional incentives to operating in the city-state. As a result, Singapore continues to attract new funds and regional investment decision makers.”
“In terms of deal activity, Singapore, Malaysia and Indonesia have been the more active markets over the past two years. While this is likely to continue, we hope to see more activity from Thailand and the Philippines in the coming year. Vietnam continues to present a more challenging environment for private equity.”
Similar to last year’s report, making acquisitions remains atop private equity firms’ priority list, followed by raising new capital and improving the performance of portfolio companies. Buys are expected to be prominent in the energy sector, especially as demand for resources skyrockets globally.
The report also indicates that as private equity activity increases in the region, investors are also becoming more sophisticated. Sector specialization is becoming more prominent, and value creation strategies are on the rise. These are becoming increasingly important as a means of differentiation for fund sponsors who are facing more competition for capital from limited partners.
Buxton says: “There is a growing focus on exits and maximizing value at exit. To ensure this value creation is executed, we are seeing an increasing use of operating partners to drive strategic and operational improvements in portfolio companies.”
Respondents also expect valuations to continue to rise in 2013, an extension from the previous year. Concurrently, some respondents anticipate that buyers will face an impasse with sellers over valuation, while a majority believe the valuation gap will remain on par with previous years, providing enough space for deals to close. Another factor affecting deal valuation will be competition from strategic investors, specifically in subregions like Southeast Asia. Similarly, sovereign wealth funds are also expected to challenge private equity houses for assets.
“Healthy corporate balance sheets, low levels of debt and ready access to capital are positioning corporate buyers in China and Southeast Asia as significant competition to private equity investors in these subregions,” Buxton says.
Exit markets in Asia-Pacific were chilled in the past year. Historical mergermarket data shows that 2012 saw 96 exits worth US$13b compared to 2011’s 104 exits worth close to US$36b. With IPO markets effectively shut, more and more PE investors will look to trade buyers as a more viable exit route.
The full report is available for download at http://www.mergermarket.com/pdf/EY_APAC_Private_Equity_Outlook_2013.pdf
About mergermarket and Remark
mergermarket is an independent Mergers and Acquisitions (M&A) intelligence service with an unrivalled network of dedicated M&A journalists based in 62 locations across the Americas, Europe, Asia-Pacific, the Middle-East and Africa. Unlike any other service of its kind, mergermarket specializes in providing forward-looking origination and deal flow opportunities integrated with a comprehensive deals database – resulting in real revenues for clients. Visit www.mergermarket.com.
Remark, the publishing, market research and events division of The Mergermarket Group, offers a range of services that give clients the opportunity to enhance their brand profile and to develop new business opportunities. Remark publishes more than 50 thought leadership reports and holds more than 70 events across the globe each year, which enable its clients to demonstrate their expertise and underline their credentials in a given market, sector or product.
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This news release has been issued by Ernst & Young Solutions LLP, a member of the global Ernst & Young organization that also does not provide any services to clients.