Fewer private equity deals in 1H16 as investors take a more selective approach to investments

Singapore, 28 September 2016

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  • Total number of private equity deals completed is 36% lower year-on-year
  • Muted deal volumes in Southeast Asia reflective of global market trend

Private equity (PE) firms in Southeast Asia (SEA) are taking a more selective approach when assessing investments, particularly those in the technology sector, according to the EY Private equity briefing: Southeast Asia (September 2016) report.

The reduction of investments made into the technology sector has brought down the overall value of PE deals completed in 1H16 was US$1.56b, 17% lower than the same period in 2015. The total number of deals was down by 36% year-on-year.

Mr. Joongshik Wang, EY Asean Transactions Leader for Technology, Media and Telecommunications says:

“It is clear that the technology sector is now entering into a new phase. Valuations have come off with concerns not just around the sustainability of business models, but more importantly, the exit. We are also seeing increased interest from mainstream PE investors, who are spending more time looking at and understanding the sector before they ‘dip their toes in the water’.”

The quarterly briefing offers a roundup of the PE deals and capital activities across major sectors in the quarter. The report also revealed that PE investors are turning back to fundamental themes and industries that they are familiar with. The consumer products, health care and business services sectors remain active, and the short-term volatility is creating opportunities for investors.

Mr. Luke Pais, EY Asean M&A and Private Equity Leader, says:

“Liquidity from banks is increasingly scarce for companies, which means they must exit or seek alternative forms of capital in order to strengthen the balance sheet and position for growth.”

Muted volumes in the global marketplace

According to the report, the muted volumes in transactions across SEA reflect what is seen globally. Worldwide, the total value of investments has fallen by 14% y-o-y. This is in part due to PEs adjusting to a tighter financing market and shows the industry’s continued patience toward investing. As a result, the buy-out dry powder is up 11% from a year ago, to US$526.6b.

Pais says: “Globally 2015 was a big year for divestments. As such, M&A exit value fell 25% in 1H15 to just over US$120b, as PE firms have a reduced imperative to realize investments and shift their focus from realizations toward deployment.”

Pais notes that the political environment is also impacting the way that PE firms are looking at investments. In particular, the impending Brexit means that PE firms are working to understand the implications.

He concludes: “Brexit could present new opportunity for firms that can successfully navigate the new landscape, particularly for US and Asia-based firms that could put dry powder to work if potential target businesses remain uneasy about the ripple effects from the complexity and timing of Brexit.”

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