The Southeast Asia private equity market had one of the most impressive turnarounds in its history, with deal value reaching an all-time record high of $25 billion, which more than doubled the 2020 figures, said Bain recently.
The previous year had seen a significant slowdown, with the market recording the largest fall across all Asia Pacific markets due to travel restrictions hampering deal-making and diligence processes, but the progressive “opening-up” of countries in the second half of 2021 helped drive a rebound in deal value, the firm noted.
“While PE investors continue to believe they can get strong returns in the region over the next three to five years, we also see them putting more emphasis on topline growth and operational improvements as expectations of multiple expansion become relatively muted,” said Usman Akhtar, Partner and Head of Bain & Company’s Southeast Asia Private Equity Practice.
Highlights from Bain & Company’s 2022 annual Southeast Asia Private Equity Report
- Asia Pacific now makes up more than a quarter of the global PE market and in 2021, surging investor confidence in Southeast Asia resulted in the largest growth in deal volume of any country in APAC and was only behind Japan in deal value growth, Bain pointed out.
- Five megadeals accounted for 33% of total deal value, which grew 143% compared with 2020.
- The influx of capital from e-commerce, logistics and technology deals meant that Singapore, Indonesia and Vietnam saw a strong jump in their share of deal value and count, with further potential to climb moving forward, given the presence of sought-after tech companies and vibrant start-up economy in these markets.
- Growth and early-stage investments deals grew significantly in 2021; growth deals remained the dominant deal type and made up 77% of Southeast Asia’s deal value.
- Overall deal multiples in the region dipped slightly in 2021 compared to 2020 but were in line with levels seen in from 2018-2020.
- Exit value in Southeast Asia more than doubled what it was in 2020, though it still is not at full potential it remains below the average from 2016-2020.
- Much of the growth was driven by Singapore, particularly as maturing tech companies such as Grab debuted in the public markets.
- While fundraising picked up slightly compared to 2020, Southeast Asia-specific fundraising remained muted, amid a shift to broader pan-APAC funds.
- As in years past, the Internet and technology sectors accounted for the lion’s share of deal volume and value across the larger Asia Pacific PE landscape.
- Within Southeast Asia, the digital economy continues to roar ahead as tech-centric investment remains to be dominant in Indonesia (~60% of deal count) and leads growth in both Singapore (~50% of deal count) and Vietnam (~55 of deal count%). Hot sectors like healthcare and financial services are beginning to take noticeable share as investing targets, representing 18% and 9% of deal count respectively.
Three key Southeast Asia private equity themes in 2022
According to Bain, there are three key themes around Southeast Asia private equity this year as follows.
Robust secular fundamentals. Southeast Asia continues to offer investment appeal by virtue of its young, large, and rapidly digitising population.
In addition, 60% of general partners remain favourable on regional markets and on future driven expectations especially as the region looks primed for even further post-Covid-19 recovery and can expect to capitalize on a 40 million working population by 2030.
The great “re-rating”. The year 2021 saw some high-profile first-generation unicorns firm up their plans to go public.
However, several of Southeast Asia’s tech giants have been affected by the global hit to high-growth tech stocks.
In the short term, there could well be caution exercised by investors, who will aim to ensure they calibrate valuation expectations on private market tech investments to reflect the current environment.
ESG is here to stay. ESG has shifted from a niche consideration to a top priority. The overwhelming majority of PE funds (more than 90%) surveyed expects to increase efforts and focus on sustainability and ESG in the coming 3-5 years, with more than half of the assets they diligence including an ESG component.
Across the spectrum of sustainability topics, the top three ESG investment themes are clean energy, safe, fair & inclusive communities and sustainable food & health according to survey results.
The firm added that other trends in the region which are seeing increased and strong investment interest are in digital assets — such as crypto and NFTs — and consumer products due to a post-Covid-19 consumption rebound.
Digital healthcare is also poised for significant growth with ample headroom for opportunities, Bain noted.