Private equity in
Southeast Asia
Global private equity investors
just 23 during the recent downturn, 2009 was still
are stepping up their presence
the fourth-best year for transactions in the past decade
(see Figure 1). The value of those deals, meanwhile,
and increasing their capital
soared six-fold, to $12.3 billion in 2007. Deal value
commitments to the region
dropped by nearly half, in 2009, to $6.3 billion; but
even at that depressed level, the total value of PE
Private equity’s expanding global scope and influence—
particularly in the big emerging markets of China
and India—has been one of the leading financial
stories of the past decade. Less visible, although no
less significant, has been private equity’s increasing
role in speeding the growth of companies across the
transactions last year was nearly eight times higher
than in 2001, when the region began to pull out of
the last recession. From 2006 through the end of
last year, buyouts comprised less than one-third of
all deals, but they accounted for between one-half
and three-fourths of total deal value.
dynamic economies of Southeast Asia—from Singapore, Malaysia and the Philippines to Indonesia,
Thailand and Vietnam.
With the return of strong GDP growth across the
region since the second half of 2009, PE in Southeast
Asia looks poised to resume its ascent (see Figure 2).
The PE industry has sunk deep roots in the region.
From peak to peak across the business cycle, the
number of deals financed by PE investors rose from
40 in 2000 to 60 in 2007, a 50 percent increase.
Even though the deal count in the region dropped to
Deal flow has continued to increase into 2010, along
with average deal size. A wide array of large-cap, midcap, sovereign wealth funds and Asia-focused funds
wielding sizable amounts of “dry powder”—capital
targeted for investment but not yet allocated—are
Figure 1: Following years of strong growth, PE dealmaking in Southeast Asia slumped in 2009 but is
now rebounding
Deal value by type of investment
Number of deals by type of investment
Southeast Asia
Southeast Asia
$15B
75
12.3
60
60
51
10
45
8.3
6.8
5
40
30
27
4.1
0.8 1.0
00
15
2.4
2.0
0
6.3
43
01
02
11
1.5
03
04
Buyouts
05
06
07
0
08 09
Mezzanine/pre
IPO/expansion
PIPE
00
01
Startup/early
stage/concept
15
17
02
03
23
21
04
05
06
07
08
09
Turnaround/
restructuring
Notes: Investments with announced deal value only; excludes deals of value <$10M; does not include bridge loans, franchise funding and seed/R&D deals; excludes
infrastructure project finance deals, real estate, real estate investment trust and hotels & lodging property deals; Southeast Asia includes Indonesia, Malaysia, Philippines,
Thailand, Vietnam and Singapore
Sources: AVCJ; Bain analysis
Figure 2: Many factors point to growth of PE as an asset class in Southeast Asia
Number of funds will most likely
increase or remain the same
Percentage of survey respondents who
expect the number of PE funds focusing
on Southeast Asia to...
100%
80
Decrease
New funds will mostly
be regionally focused
Percentage of potential new PE funds are
expected to be...
100%
Remain
the same
80
60
60
40
40
20
0
Increase
Expectation
Single country funds
Sector
focused funds
Generalist
funds
Percentage of PE funds who believe,
with regards to allocation to PE/VC
as an asset class, LPs will...
100%
Regional
funds
Increase
allocation
40
20
New fund type
Decrease
allocation
80
60
20
0
LP asset allocation to PE/VC
will remain stable or increase
0
Remain
the same
Asset allocation
Sources: Bain Southeast Asia PE Survey; Bain analysis
scouting the region for opportunities. Credit markets
expertise to the region. Nearly two-thirds of the re-
have stabilized, laying a foundation for a cautious
spondents expect that new funds will be regional
return of both buyouts and growth capital.
specialists, and another 13 percent will specialize by
industry sector. Overwhelmingly, PE general partners
This constellation of favorable conditions makes now
expect limited partners’ interest in investing in the
a good time to take stock of how the industry will
region to remain high, with nearly nine out of 10
evolve over the balance of 2010 and beyond. To find
looking for them to maintain or increase their asset
out, Bain & Company, with the cooperation of the
allocations to PE and venture capital.
Singapore Venture Capital & Private Equity Association (SVCA), surveyed general partners at many of
PE firms are increasing their physical and
the leading PE and venture capital funds in the region.
financial commitment
The picture that emerges is of a dynamic young industry ready to move into a phase that will require
Among funds already active in Southeast Asia, just
PE firms active in the region to acquire new skills.
20 percent are local specialists, and nearly half of
Let’s look at the specifics:
those concentrate on Singapore. The remainder are
about evenly split between funds that invest broadly
PE is now a major asset class in
across Asia and global funds that have established
Southeast Asia
a local presence. Continuing to target mainly small
and mid-cap companies, the survey respondents
Many factors point to a deepening of PE investor
anticipate that 50 percent of funds’ annual invest-
commitment to the region. Half of all respondents
ments in the region over the coming two to three years
look for the number of funds active in Southeast
will be more than $100 million (see Figure 3). They
Asia to increase over the next two to three years. The
expect that only about one-quarter will invest more
funds will also be bringing a new focus and deeper
than $200 million a year.
Figure 3: Half of PE funds will deploy less
than US$100 million annually to deals in
Southeast Asia
Figure 4: In spite of increasing competition, about
40% of all deals were solely sourced
In Southeast Asia, most deals are proprietary
or involve limited competition
Percentage of PE funds that will invest
on an annual basis for the next 2–3years
Deals in Southeast Asia in the
last 2–3 years that...
100%
100%
> US$200M
80
80
US$150–200M
60
US$100–150M
60
40
US$50–100M
40
20
20
< US$50M
0
Had three or
more other
competitive bidders
Had 1–2
competitive bidders
Had no other
competitive bidders
0
Annual investment
Competition
Sources: Bain Southeast Asia PE Survey; Bain analysis
Sources: Bain Southeast Asia PE Survey; Bain analysis
Competition will heat up
New skills required
The influx of new funds wielding large amounts of
As competition to identify attractive deals and to win
dry powder to invest will bring a new intensity to the
the best ones ramps up, PE firms will need to sharpen
competition for deals across Southeast Asia. But
their capabilities along each phase of the investment
survey respondents report that incumbent funds that
life cycle, from deal sourcing to exit (see Figure 5).
have an established presence in the region’s fragmented markets have distinct deal-sourcing advan-
•
In deal sourcing, for example, the leading firms
tages. About half of all deals completed over the past
are strengthening their skills as geographic and
two to three years were sourced, in about equal pro-
industry sector specialists, enabling them to
portion, through networks of industry relationships
differentiate themselves from their peers as the
and advisers or by direct approaches to the target
preferred partner to owners of the companies
companies themselves. Brokers and other interme-
they target. Greater specialization will be an
diaries were the sources for the balance of deal in-
increasing source of competitive advantage for
troductions. Those early leads have kept a lid on
sustaining a strong deal flow.
competition. Nearly 40 percent of deals completed
across the region since 2007 and 2008 were pro-
•
Leading firms are honing their due-diligence
prietary (see Figure 4). In another 30 percent, win-
disciplines, skills that are especially important
ning bidders faced just one or two bidding rivals.
in Southeast Asia, where a high proportion of
potential target companies are small, private and
lacking in transparency.
Figure 5: Differentiated investment capabilities will be critical
Sector
specialization
Sourcing
Due
diligence
Ownership
Exit
Efficient markets
Ability to drive differentiated returns
—
—
Necessary to be
Significant share of
Enhanced due
More critical
threshold competitive
deals are proprietary,
diligence and
in future
in mature markets;
especially in less
investment
benefits all value
mature markets
committee process
chain steps
•
PE firms increasingly recognize that they need
Strong regional growth, dynamic entrepreneurs and
to work actively with owners to identify high-
increasingly knowledgeable and seasoned investors
priority initiatives that create value. They moni-
add up to a promising period ahead for private equity
tor performance by tracking a few key metrics
investment in Southeast Asia.
that provide an early warning system to alert
management to take fast corrective action if the
program begins to drift off course.
•
Finally, PE leaders begin weighing how they will
exit from each investment well before the time
comes to sell by continuously evaluating market
conditions for initial public offerings (IPOs) and
identifying potential strategic acquirers.
Key contacts in Bain’s Private Equity practice in Southeast Asia:
Singapore:
Suvir Varma (suvir.varma@bain.com)
Sharad Apte (sharad.apte@bain.com)
Till Vestring (till.vestring@bain.com)
For additional information, please visit www.bain.com