The private equity market in Asia-Pacific (APAC) has been growing steadily, but the ‘buy low, sell high’ era might be about to end. According to Bain & Company’s latest reporting on private equity performance in the region, the industry could be facing higher uncertainty and APAC would need to continue its resilient march to identify new sources of value to survive.
The positives from the report
According to the Asia-Pacific Private Equity Report, the Asian private equity markets delivered their second best year on record in 2016 based on deal value. While the deal value slowed from the highs of 2015, it remained solid. In 2015, there were over 1,000 deals totalling to $124 billion, while last year deal numbers slowed down to 892 with a total worth of $92 billion. The most interest was generated in the Internet-based investment opportunities in China and India. These comprised over one-third of all deals in 2016.
The number of exits slowed down. Weaker equity markets in China largely drove the slowdown. However, the exit values dropped more to a normal level at $74 billion, instead of the record-breaking levels of $115 billion in 2014. In terms of exits, India, South Korea and Southeast Asia remained fertile ground for taking a bow.
Disparity between countries
Although the industry had a generally good year in Asia-Pacific, there were major differences between individual countries. South China Morning Post reported on the findings, outlining how the total deal value in mainland China, Hong Kong, and Taiwan fell by 29%. Nonetheless, the $49 billion year-on-year deal value still totalled 30% above its five-year average.
But the paper also pointed out the growing concern that economic growth in China is slowing down. Corporate debt levels are high and the steep valuations are hindering deal activity in the country. China-led competition on the market is also dampening the PE performance in Australia. The deal value in Australia dropped from $10 billion in 2015 to $5 billion.
India, on the other hand, had another strong year. Although the deal value slipped slightly from $19 billion in 2015 to $15 billion last year, it was still up compared to historical average. As mentioned, India’s exit numbers were among the strongest in the region – private equity interest in the country remained high.
Another winner in the region was Japan. The country had its best year in terms of PE investment value since 2007. The value increased by 53% from its historical average.
Nonetheless, APAC is not facing a guaranteed growth period in the future. In almost all countries, high valuations and increasing competition are slowing down investment numbers. The Bain & Company report showed investors are worried about price mismatch in the region. Finding valuable investment opportunities is also made harder by slower economic growth and steadily rising interest rates.
Private equity in the region must maintain its resilient outlook and make the most of the deals they can find. There’s also a growing need for economic reform and policies that can balance the economic growth rates in the region.