Slow start to 2016 for private equity in Southeast Asia amid economic uncertainties

Singapore, 21 July 2016

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  • Overall value of private equity deals completed in 1Q16 is 20% lower year-on-year
  • Conducive environment for exit

Private equity (PE) firms in Southeast Asia (SEA) are taking their time to close deals, given the overall volatility in the region over the last few months, according to the EY Private equity briefing: Southeast Asia (June 2016) report.

The overall value of PE deals completed in 1Q16, at US$852m, was 20% lower than 1Q15. More notable is the 43% fall in the total number of deals completed over the same period, principally due to the decrease in early-stage technology deals.

The quarterly briefing offers a roundup of the PE deals and capital activities across major sectors in the quarter, and showed the technology and consumer sectors being the most active. The report also revealed a robust deal pipeline in the region, with competition for opportunities across the region due to the long-term growth story of SEA and the significant quantum of PE dry powder. Particularly, there is increased competition for PE from Chinese capital inflow, more aggression by Japanese investors, the desire of Western multinationals to continue to build their businesses in SEA, and the expansion and regionalization of local conglomerates.

With dry powder at high levels, and a number of new players such as pension funds and family businesses entering the market, PE firms need to innovate and differentiate to invest.

Mr. Luke Pais, EY Asean Leader, M&A and Private Equity, says:
“There is more focus on sector specialists as PEs position to add value to business. We are seeing PEs taking more innovative approaches such as investing roll-ups, deploying funds into tech companies, partnering family conglomerates to help them unlock capital and being more creative in deal structuring. PEs have also become more flexible in their ticket sizes with a recognition that regional deal sizes are very mid-market.”

The tight credit conditions across SEA mean that businesses increasingly need to turn to alternative forms of capital.

Pais says: “This will present excellent investment opportunities for PEs through the rest of 2016, and likely into 2017. In order to capture these opportunities, PEs need to focus their offering to suit the needs of each situation.”

Conducive environment for exit

With high competition and strategic investors showing real appetite in SEA, the report indicated that 2016 should be an attractive time for shareholders seeking an exit. In SEA, it is believed that there will be an increase in the number of PE-backed assets coming to market over the next 12 months due to a growing portfolio of assets that are coming to the end of their investment life cycle.

Mr. Purandar Rao, Head of Transactions at Ernst & Young Solutions LLP expects secondary transactions, where one PE firm acquires from another, to emerge in SEA over time. These transactions are commonly seen in the US and European markets but are limited in SEA presently.

Rao concludes: “Despite the slowing transaction activities observed in the past two quarters, the fundamentals for PE deal activity remains strong. There are large amounts of dry power ready for investments, and there continues to be new PE houses opening for business in the region. As 2016 progresses, PE deal activity will likely increase.”


Notes to Editors

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