Asia-Pacific’s low cost and ease of doing business and North America’s low oil price, incentivizes a lively and relatively risk-free market, positioning them to dominate PE plans in the coming years, with Africa also on the rise.
Our survey reveals that private capital is increasingly responding to the rising energy demand of emerging economies.
All respondents expect to see more PE involvement in Asia-Pacific, which has a large and growing energy market. By comparison, our 2013 report Financing the future energy landscape showed that just 79% expected PE interest in oil and gas to rise in the region, while 21% expected it to either remain the same or decrease. In addition, while the survey shows that only 13% are currently active in the region, 41% are looking to invest in the region in the next 12 to 24 months.
Despite the fact that only 1% of respondents are currently active in Africa, there is an anticipation that deal-making will grow in the region, with 80% believing activity will increase, compared with 68% in 2013.
Investors are being drawn by the promise of new infrastructure initiatives across the continent, opening up new trade routes and enhancing regional integration, such as rail and port developments in Mozambique and Angola, as well as stronger regulatory systems and increasing transparency in many countries such as Kenya and Ethiopia.
Latin American — smaller nations rise
Meanwhile, Latin America is looking for growth capital and infrastructure investments, especially midstream segments, and has plenty of discovery potential for upstream companies. Interestingly, despite the current economic downturn in the region, not a single respondent sees PE interest decreasing with 65% expecting an increase.
Yet respondents are more reserved than they were in 2013, when 82% expected PE interest in Latin American to rise. In addition, those looking to invest in Latin America is a mere 26% of respondents.
Middle East slowdown
Only 31% of respondents believe PE’s interest in the Middle East will increase, compared with 64% three years ago. This is not surprising given the geopolitical dynamics in parts of the region and also much in line with the already existing scarcity of opportunities in a sector largely dominated by governments and family-owned businesses.
However, small to medium-sized businesses in the oilfield services or associated services segments in some Middle Eastern geographies may become more open to PE financing as distressed situations arise.
North America remains attractive
Nearly all respondents (99%) believe PE interest in North America will grow, as pressure from the low price of oil incentivizes an already lively and relatively risk-free market. This is a notable uptick from the 77% in 2013 who expected interest to jump. Many medium-sized companies will be looking to service debt, merge or sell assets, providing ample opportunity for firms looking to bolster their existing portfolios.
Europe on the rise
With regard to Europe, 69% of respondents believe that PE interest will rise, especially as corporates resort to divestments to rebalance their finances leading to attractively priced opportunities for PE. “The European market will see a rise in PE interest, due to the presence of larger distressed assets that will offer bigger investment options,” says the partner at a Canadian PE firm. In addition, 48% are looking to invest in Europe in the next 12 to 24 months.