
Asia GPs see reversion to norm on deal flow, valuations

Asia-focused buyout managers pointed to a return to a version of normality – with an anticipated upturn in investment and exits – in 2023 at the Hong Kong Venture Capital & Private Equity Association’s (HKVCA) Asia forum.
“The last five, six, seven years were characterised by high asset values and low interest rates. There was no cost for risk, no premium for risk. People were taking a huge amount of risk and being rewarded for it,” said Chin Chou, CEO of Morgan Stanley Private Equity Asia (MSPEA). “It’s nice to see risk premiums are back on the table.”
Brian Hong, a managing partner at CVC Capital Partners, referenced a “pivot back to pre-COVID, or somewhere in between the new normal and the old normal,” with private equity investors focused on issues such as inflation and supply chains that had engrossed them prior to 2022. He also highlighted a return to 2019 valuations, even for businesses that have demonstrated growth in the interim.
Hong also hopes to see more exits on the back of greater stability and outperformance by companies in growth markets like Southeast Asia. “Corporates coming to Southeast Asia think they can do it by themselves but it’s hard to grow organically. The best option is to buy a market leader,” he said.
CVC saw evidence of this appetite in 2022, exiting Malaysia-based snack foods producer Munchy Food Industries and Indonesia’s GarudaFood to Universal Robina Corporation and Hormel Foods Corporation, respectively. Hong said the buyers paid substantial strategic premiums.
Other investors echoed the point about moderating valuations and suggested there would be more buyout deal flow in Asia. K.Y. Tang, founding chairman and managing partner of Affinity Equity Partners, expects more corporate carve-outs as conglomerates pare their operations and more take-privates in response to declining public market valuations.
“Companies with market capitalisations of USD 3bn-USD 4bn have seen their prices fall 60%. Two years ago, it was hard to do take-privates because stocks were overvalued, and you still had to pay a premium – shareholders were the only ones who made money. Now the market is down 30% and you don’t need to pay a 30% premium to cost,” Tang said.
Leon Meng, founding managing partner and chairman of China-focused Ascendent Capital Partners, noted that he is seeing valuations of 6x to 8x EBITDA for growing companies, something that was “unheard of in the last 5-10 years.” Opportunities are also gradually shifting from growth to buyout.
MSPEA’s Chou made the same observation. “The nature of how you approach that market has changed. For us, there is a strong emphasis on buyouts in China and a move away from minority growth deals,” he said, while cautioning that such a transition must be complemented by an evolution of skillsets within private equity firms.
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