Robust private equity and venture capital activity across Southeast Asia in 2Q18

Singapore, 30 October 2018

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  • 2Q18 saw a completion of 36 deals valued at c.US$1.3b with strong investor interest in Singapore, followed by Malaysia and Indonesia
  • Consumer products and technology attracted the majority of investments
  • Fundraising remained robust despite being lower than record levels in previous years

Private equity (PE) and venture capital (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. In 2Q18, investment activity continued to remain robust.

This is according to the EY Private equity briefing: Southeast Asia (September 2018) report, which offers a roundup of the PE deals and capital activities across major sectors in the region.

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

Mr. Luke Pais, EY Asean M&A and Private Equity Leader says:
“Increased geopolitical tension in recent times has created some nervousness among businesses and entrepreneurs. This is a great time for entrepreneurs to partner with PE as having financial firepower and being in a position of strength can bring forth great opportunities. The long-term success story for Southeast Asia and broader Asia remains intact and that is the big prize.”

Consumer products and retail (30%) and technology (25%) emerged as the key sectors that are 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.

In 2Q18, PE exits experienced a decline 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.

PE fundraising, however, 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 US$701m in 1H18, driven by three funds that raised more than US$100m each.

Luke explains:
“With the growing number of PE assets coming to the end of their investment life, we expect exit activity to remain healthy over the next 12 months.”

The increasing role of digital in PE

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.

Mr. Joongshik Wang, EY Asean Digital Transaction Advisory Services Leader says:
“Digital transformation is not an option for PE firms anymore. Digital not only significantly enhances productivity to improve profit, but it also disrupts the business model to help PE firms to create value in the new economy.”

Some of the ways that PE firms are helping companies to 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 IT framework
  • Putting into place robust cybersecurity measures
  • Digitally enabling the finance function
  • Acquiring and implementing new technologies

Joongshik concludes:
“It’s important for PE firms to note that while data analytics is at the core of this digital wave, it is but one component among other emerging technologies such as robotic process automation (RPA), artificial intelligence (AI) and the internet of things (IoT) that are all making their way into the PE ecosystem.”

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