Private equity investment in Southeast Asia rebounds

Singapore had another strong year for private equity (PE) deals in 2021, as the rest of Southeast Asia also emerged from the Covid-19-induced lull in 2020, according to a report from global consultant Bain & Co.

However, even if fundamental growth in Singapore and the region remains intact, some slowdown in private equity activity is likely this year amid deteriorating market and macroeconomic conditions around the world, according to findings. of the Bain & Co 2022 annual report on private equity in Southeast Asia, published on May 10. The report surveyed over 100 private equity firms in the Asia-Pacific region.

In what the firm called the most impressive turnaround ever, the total value of private equity deals in Southeast Asia hit a record high of $25 billion, more than double the figure of 2020 by $9 billion. This rebound was driven by the gradual easing of Covid-19 restrictions in the second half of 2021, according to the report.

Singapore leads the region in both the number of transactions and their value. It recorded 104 deals with a total value of $12.1 billion, up from 54 and $6.2 billion a year earlier.

The city-state was also ahead on exit value — the amount investors make when they sell their private equity stakes — with the total hitting $7.1 billion last year, up from only $1.3 billion in 2020.

However, the dominance in transaction and exit values ​​came mainly from the extraordinarily large equity listing of Singaporean ride-sharing and e-commerce giant Grab in New York. Additionally, Singapore’s hub status means that many companies are headquartered in the country and therefore investments in these companies are counted here, even though they might have significant operations elsewhere.

Indonesia and Vietnam were Singapore’s closest competitors in all categories, according to the report.

Usman Akhtar, partner and head of the firm’s Southeast Asia PE practice, said: “Southeast Asia as a region has rebounded strongly from the Covid-19 impacted year 2020, the 2021 level of activity showing that investors were eager to make up for lost time.

“While private equity investors continue to believe they can achieve strong returns in the region over the next three to five years, we are also seeing them place more emphasis on top line growth and operational improvements as multiple expansion expectations become relatively subdued.”

Akhtar said soaring inflation, worries about a U.S. recession and recent capital market swings are likely to make most investors nervous about the outlook for revenue, earnings and valuations, especially for growing businesses such as those in the internet and technology sector.

The sector has accounted for the lion’s share of deal volume and value across the Asia-Pacific private equity landscape in recent years.

“In Southeast Asia, the digital economy continues to grow as technology-driven investments remain dominant in Indonesia and lead growth in Singapore and Vietnam,” Bain & Co said.

Still, according to the report, sectors like healthcare and financial services are starting to take a noticeable share as investment targets.

The report’s findings showed that despite a challenging market and economic environment, most private equity firms believe that Southeast Asia continues to offer investment appeal due to of its young, large and rapidly digitizing population.

About 60% of private equity firms that manage a private equity fund maintain their favorable outlook on regional markets and future expectations, especially as the region appears poised for another post-Covid-19 recovery, according to the report.

“However, several Southeast Asian tech giants have been hit by the global impact of high-growth tech stocks. ‘they are calibrating private market tech investment valuation expectations to reflect the current environment,’ he noted.

Bain & Co said environmental, social and governance (ESG) factors as an investment theme have moved from a niche consideration to a top priority. “The overwhelming majority of private equity funds – over 90% – surveyed expect to increase their efforts and focus on sustainability and ESG over the next three to five years.”

The report states that across sustainability topics, the top three ESG investing themes are clean energy; safe, just and inclusive communities; and sustainable food and health.

Other trends in the region that are seeing increased and strong investment interest include digital assets, such as cryptocurrencies and non-fungible tokens, and consumer products, due to a post consumer rebound. -pandemic.

Digital healthcare is also poised for significant growth with ample leeway to seize opportunities, Bain & Co said.

Tom Kidd, partner in the firm’s Southeast Asia private equity practice, said: “While private equity firms are understandably keen to capture these next waves of growth, long-term success will be achieved by those who pay more attention to their main investment themes and due diligence.”


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