Deloitte Predicts Rise in Southeast Asia Equity Activity

Southeast Asia is set to become an increasingly important destination for Private Equity  investors in the near term, finds Deloitte's annual Private Equity Confidence Survey of seven emerging market regions: China, India, Latin America (Latam), Southeast Asia, Central and Eastern Europe, Middle East and North Africa.

 

Confidence is returning to the PE industry globally, with increased competition for deals and higher entry multiples pushing international players to explore new markets.

 

“China and India are becoming increasingly saturated with PEs chasing deals,” says Heath Snyder, Deloitte’s Head of Private Equity for Singapore and Southeast Asia. “China has a fast-growing and highly competitive local PE sector now with renminbi funds. They are forcing international funds to look for opportunities elsewhere, like Southeast Asia.”

 

A number of high profile PE deals have occurred in the last 12 months which have put Southeast Asia on the investment map such as CVC’s $773m buyout of Matahari Department stores in from the Lippo group in Indonesia and KKR’s recent $150m minority investment in Masan Consumer in Vietnam.

 

The Deloitte Emerging Markets Barometer shows Southeast Asia level with Latam in terms of future prospects.

 

Latam and Southeast Asia led all regions in terms of optimism, with 90% of Latam and 100% of Southeast Asian respondents expecting increased PE activity in the coming year.

 

Ninety-four percent of Southeast Asian respondents expect a pickup in exit activity in the coming year, as funds need to start showing returns on investments.

 

Singapore remains the hub for the region where most of the PEs are based and invariably has the eco-system (banks, professional advisers) in place to service the region.

 

Indonesia Leads the Way

 

The key driver of global PE interest in Southeast Asia is Indonesia, where a number of large deals points to an opening up of the market. “We’re seeing a new acceptance in Indonesia that you can sell to private equity; the larger, more strategic family-controlled business groups are starting to divest non-core businesses this way,” explains Snyder.

 

Another driver of deal activity is second-tier Indonesian companies and smaller private family groups looking to PE for growth capital to expand regionally.

 

The main barriers to getting deals closed in Indonesia remain price expectations and regulatory intrusion.

 

Finding Deals

 

Southeast Asian respondents expected 50% of deals to be intermediated in the next year, the highest figure among all emerging markets. “More professional intermediation is now occurring in the region,” reveals Snyder. “But there is still a lot of independent broker-type activity, which points to an immaturity in the deal origination space.”

 

Respondents noted that an in-country presence is critical for sourcing deals, whether through a direct presence, a strong network or a local partner.

 

Fundraising Outlook Improving

 

The survey indicates that fundraising prospects remain relatively flat, but that the LP outlook is set to improve down the road.

 

For new funds looking to attract investors, a relevant track record and anchor investor are key.

 

“LPs are more focused, looking for specific opportunities. They are also a bit more cautious, so they’re reinvesting with people they’ve worked with before,” explains Snyder.

 

In summary, “PEs have significant dry powder to use, economic macros in most sectors remain positive and strong exit returns are helping raise awareness of the Southeast Asia opportunity,” comments Snyder.

 

 

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