Private equity briefing: Southeast Asia – December 2016

A roundup of private equity deals and capital activities in the quarter as well as trends that are shaping investment decisions today

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3Q16 saw a considerable increase in the amount of capital being invested led from fundraising by the region’s two ride-hailing applications.

The overall value of private equity (PE) deals completed in 3Q16 was US$1.91b, across the 32 deals closed. Although this outstrips the total value from across 1H16, it must be noted that four transactions accounted for over 85% of the total value.

Evolving regional private equity environment

PE in Southeast Asia was historically focused on Malaysia and Singapore, followed by the emergence of Indonesia. These three markets have dominated PE activity, reflected by the fact that they accounted for over 85% of all investments across the past five years.

Increasingly we are seeing PE diversify from these core markets with a significant amount of time and resources being spent investigating the opportunities in markets such as the Philippines, Thailand and Vietnam. These markets, which have been dominated by local funds such as Lombard and VinaCapital to date, are being actively targeted by regional PE houses at a level far greater than before. As these economies continue to evolve, the number of opportunities of sufficient size is increasing.

This activity is supported by the number of investments. In 2012 there were a total of 13 investments, a number that is forecast to double for the full year of 2016. Political instability remains one of the key concerns for investors, and this has again come to the fore over recent months.

Investments into regions such as Cambodia, Laos and Myanmar remain limited and focused on building infrastructure such as banking and communications. That said, a number of PE investors have publicly stated their ambition and see these markets as a long-term growth story.

Ride-hailing applications

3Q16 saw a staggering US$1.3b raised by the region’s two ride-hailing apps. Go-Jek closed a US$550m fundraising in August, led by KKR and Warburg Pincus that also saw participation from Farallon Capital, Capital Group Private and existing shareholders. The investment valued Go-Jek at over US$1b. Next, led by SoftBank Group, GrabTaxi raised US$750m in September and saw investments from undisclosed existing and new shareholders.

The two investments have a common theme, being a focus on Indonesia. While Go-Jek is entirely focused on Indonesia at present, Grab has stated that its key goal is to further penetrate the Indonesian market. This could see the two companies go head-to-head in a more aggressive manner going forward. The market in Indonesia for ride-hailing applications is estimated at US$15b by Grab, providing significant opportunity. Further, this market looks to increase as diversification into food delivery and logistics continues.

What the two investments do show is the fast evolution of the technology sector in Southeast Asia. According to CB Insights, there are now four unicorns (the others are Garena and InMobi, with Lazada having been acquired by Alibaba), three of which are in Singapore; the sixth highest number of unicorns in any country. This underlines the region’s vast potential for technology-based business models. Given that Southeast Asia is behind markets such as Japan, Korea and China in the tech maturity curve, it means that market is ripe to bring in business models that are proven elsewhere and can be rolled out in the region.