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Home Business Insights

Private equity market in Greater China: More buyouts expected 

FutureCFO Editors by FutureCFO Editors
April 21, 2023
private equity

Image by viarami on Pixabay

The private equity market in Greater China could see transformational changes over the next five years as buyout deals are expected to outgrow other asset classes, said Bain & Company recently.

Faced with strong macroeconomic headwinds, private equity investments fell to an eight-year low, according to Bain & Company’s Greater China Private Equity Report 2023. 

Deal value in the private equity market in China Greater fell 53% to US$62 billion in 2022 compared to the previous year, the firm noted. 

Average deal size was at $82 million, the lowest since 2013, while deal count shrunk 38% year-on-year, the firm added.

In addition, Greater China and Southeast Asia saw the greatest fall in deal value in the region at 53% and 52%, respectively. 

Deal value in Australia-New Zealand, Korea and Japan dropped 48%, 39% and 28%, respectively, while India declined 25%, Bain pointed out.

While buyout deals currently represent only 9% of Greater China’s total deal value, Bain expects them to accelerate over the next five years, said Hao Zhou, head of Bain & Company’s Greater China PE practice, who is based in Hong Kong.

“This is driven by multiple factors including increasing amount of assets held by private equity funds entering the exit time window, and the increase of MNC carve-outs under the current geopolitical situation,” Zhou noted.

Report highlights 

  • Although growth deals continued to dominate and account for 74% of Greater China’s total deal value in 2022, there are several factors leading to the trend of more buyouts in the mid-term including an increase in carve-outs in China’s multinational companies due to geopolitical tensions,
  • Private equity-owned companies have risen 13 times between 2012 and 2021, creating more opportunities for secondary sales.
  • Entrepreneur/family-sourced buyouts have grown by 2.5 times between the periods 2012-2016 and 2017-2021.
  • The private equity market in Greater China has traditionally been led by domestic general partners (GPs). 
  • Amid uncertain macroeconomic conditions in 2022, domestic GPs were the most active players, especially the RMB funds.
  • Domestic general partners were responsible for 37% of total deal value in Greater China in 2022, four percentage points higher than the 2016-2021 average. 
  • Within the group, RMB funds grew six percentage points to 24% of total deal value, making them the most active players in Greater China’s PE market last year. In contrast, USD funds mostly adopted a ‘wait and watch’ approach.
  • While the internet and tech sector continued to hold the largest share of private equity capital in Greater China, the sector’s deal value fell 62% year-on-year, led by the cloud services (down 88%) and software (down 59%) subsectors. 
  • The traditional strongholds for internet and tech deals—Greater China, India, and Southeast Asia— all experienced sharp declines in 2022. However, in Greater China, semiconductors & components helped pick up some slack as the government doubled down on national security.
  • In line with the regional trend, advanced manufacturing and healthcare recorded an increase in their share of deal value in 2022. 
  • The rise of advanced manufacturing sector is mainly driven by electric vehicle value chain, riding on the continued policy tailwind to push for sustainability. 
  • Pharma and biotech continued to be the most attractive subsector within healthcare and gained more traction with private equity investors.
  • Based on Bain’s GP and limited partners survey conducted in December 2022, macroeconomic softness was the most critical concern. 
  • Going forward, China’s 2023 macro outlook will primarily depend on its domestic consumption recovery. 
  • Post Covid policy lift in early 2023, the Chinese market has observed early signs of recovery. 
  • Consumer Confidence Index (CCI) and Purchasing Manager Index (PMI) both picked up in Q1 2023, although the recovery back to pre-Covid levels remains uncertain.
Related:  Carsome’s CFO doubles up as group president
Tags: Bain & CompanyGreater Chinaprivate equity
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