Private equity briefing: Southeast Asia – September 2018

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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PE and VC investment activity in Southeast Asia has been at a record high this year, having witnessed the completion of its largest deal ever at the beginning of the year. It continues to remain active during 2Q18.

The overall value of PE deals completed in 2Q18 was c.US$1.3b, across the 36 deals closed. Singapore garnered maximum interest from PE and VC investors as it contributed 56% to the aggregated deal value in 2Q18, followed by Malaysia contributing 26% and Indonesia contributing 14%. Excluding large-cap deals, the aggregate investment in small- and mid-cap deals in 2Q18 took a quantum leap by 87%, reaching US$1.3b from US$709m during the same period last year (2Q17) as investors continue to bet on higher economic growth, rising investment in technology and growing middle class.

Consumer products and retail (30%) and technology (25%) emerged as the key sectors attracting the majority of the PE and VC investments in 2Q18 by deal value. In terms of deal volume, technology continued to drive momentum as it witnessed 19 out of 36 deals, which were completed in 2Q18. As expected, technology will remain a high priority sector in the region.

Two of the largest investments in 2Q18 were CVC Capital Partners' investments in Munchy’s Group, the snack food manufacturer, in Malaysia for US$250m; and PT Garudafood Putra Putri Jaya, the snack maker, in Indonesia for US$150m. In addition, the Singapore-based crane supplier Tat Hong Holdings Limited was privatized by the family of CEO, Mr. Roland Ng San Tiong and Standard Chartered Private Equity.

PE exits experienced a decline in 2Q18 with four deals valued at US$443m, down 28% from a year ago (2Q17). The previous quarter (1Q18) saw a significant increase in exit value due to the completion of two large buyouts that were secondary transactions. With the growing number of PE assets coming to the end of their investment life, we do expect exit activity to remain healthy over the next 12 months.

We expect the momentum in deal activity to continue for the rest of the year. PE fundraising remained robust despite being lower than the record levels in previous years. There were six Asia-Pacific domiciled PE and VC funds with a focus on Southeast Asia that reached their final close, raising an aggregate US$942m compared with 11 funds closed in 2Q17 raising an aggregate US$1.4b. VC fundraising saw a significant upswing of more than 70% from 1H17 to 1H18 (US$701m), driven by three funds that raised more than US$100m each.

Embrace the dramatically increasing role of digital
The advent and implementation of digital technologies is dramatically impacting the ways that PE firms organize and execute — not only at the firm level, but in the way they drive value across their portfolios. Helping investees fully embrace a digital mindset that permeates all aspects of their business is increasingly one of the most significant value drivers for PE firms, regardless of their sector specialization, geography, strategy or size.

Investee companies are continually entering the PE ecosystem with varying levels of sophistication. For PE firms, the first step is a full assessment to understand where companies fall within the spectrum and what resources they’ll need to collect, harness and utilize their data. Involving operating resources and advisors well versed in digital during the diligence phase is increasingly essential.

Some of the ways that PE firms are helping companies navigate today’s rapidly changing landscape include:

  • Defining and articulating a digital strategy
  • Developing an enhanced customer experience
  • Revamping and digitally enabling supply chains
  • Integrating their front-office systems with back-office information technology (IT) framework
  • Putting into place robust cybersecurity measures
  • Digitally enabling the finance function
  • Acquiring and implementing new technologies

While data analytics is at the center of this, it’s important to note that it’s just one component, with robotic process automation (RPA), artificial intelligence (AI), the internet of things (IoT) and other emergent technologies all making their way into the PE ecosystem.

Topics to be discussed in this issue
Food technology (commonly referred to as foodtech) companies have been gaining popularity in Southeast Asia in recent years and numerous companies are vying for consumers’ attention and wallet share. In this issue, EY will share thoughts on the emerging trends in this sector.

EY will also share perspective on Thailand as an investment market for PE. We consider the key economic trends as well as the growth opportunities, which contribute to the country’s attractiveness as a place to invest. The country’s gross domestic product (GDP) is projected to continue growing solidly in 2018 by 4.2-4.7%, primarily due to an increase in government consumption and public investment, recovery of private investment, and improved household income.