Southeast Asian private equity as an asset class is widely expected to outperform the rest of Asia Pacific in 2014 and 2015 according to a recent 2014 Bain & Company survey of Asia Pacific private equity firms. The survey revealed that respondents are optimistic returns will remain attractive and well over half the respondents expect deal activity to increase over the period by at least 10%.
The drivers of these robust return expectations? Southeast Asia’s continuance of a multi-year transition with strong growth fundamentals, ample capital ready to invest and hungry investors pushing into the region as other Asian private equity markets falter and regroup.
Bain reports early trends for 2014 support these conclusions: strong deal flow in first quarter of 2014, worth half of the total deal value from 2013, makes a compelling case that Southeast Asia will stand out amongst the broader Asia Pacific region. Another recent survey of private equity investors by the Emerging Markets Private Equity Association identified Southeast Asia the second-most attractive emerging market, with nearly 70% of respondents expecting to achieve outstanding returns. Moreover, 60% fund managers polled b Bain in the region expect Southeast Asia to be among the top two most attractive private equity markets including China.
Some further highlight’s from Bain’s survey:
- There was a divergence between Southeast Asia deal value and deal quantities in 2013. Deal value declined by 19% year-over-year while deal quantity increased 15% year-over-year due to a spike in smaller transactions, particular in the internet space.
- Southeast Asia has strong growing consumer fundamentals including robust GDP growth forecasts which are expected to filter through to consumers and fuel the rising middle classes.
- Competition in the region for private equity and venture market deal flow is expected to become increasingly competitive. Bain counts approximately 130 active investment players who will compete with an uncounted number of corporate investors for a limited supply of high quality investment targets.
“In the past year, we have seen a marked increase in the competitiveness for deals in Thailand and
Vietnam and along with this, price inflation resulting from the associated bidding environment,” says Tom Kim, Co-Founder at Inspire Ventures. He adds “higher valuations puts more pressure on the entire ecosystem; more pressure on the companies to deliver and more pressure on investors to produce profitable exits.”