Valuation stalemates stall SE Asia exits – M&A Forum

Avnish Mehra, co-head of private equity at Everstone Group, described the environment in terms of fizzled sales processes, where aggressive individual deal-makers were being reined in by their more cautious parent organisations.

He recalled a recent process for a private equity firm – “one of the top three globally” – that wanted to sell a large technology asset in Southeast Asia. It received eight bids in the first round but only two in the second. By that time, the valuation had declined 25%.

“People will get out of bed for a great asset because there’s enough liquidity, but if you’ve got even an average asset, which last year would have got decent bids, there is no buyer. That’s the single biggest thing,” Mehra said.

“The rest is really liquidity at this point, which is impacting valuations, which is impacting the delta of the excitement of a deal team vis-a-vis the investment company. There’s a big gap.”

Thomas Lanyi, head of Southeast Asia at CDH Investments, traced the current difficulties around valuation expectations to a perceived willingness to buy companies at rich multiples a few years ago.

He observed that many assets now approaching the end of their holding period were acquired at 15x EBITDA. But despite admitting to slowing growth, budget difficulties, and uncertain outlooks, the controlling managers continue to demand valuations up to 20x

“We’re still probably somewhere halfway through the denial phase of grief. With some luck in six months’ time, we’ll see more deals happening,” Lanyi said.

“The problem is we’re all humans, we’re all individuals. If I bought a business at 20x five years ago, I’ll do my very best to try not to sell it for 15x – even if that’s the right thing to do from a market perspective.”

The case was made, however, that minority ownership situations may benefit from a greater willingness to be flexible on price. Alvin Lim, a senior managing director at CVC Capital Partners, said this approach has helped his firm realise three exits in Southeast Asia in the past three years.

Those divestments came from the domestic IPO of Thai microfinance provider NTL in May 2021 and two Indonesian trade sales. Diaper maker Softex Indonesia was acquired by Kimberly-Clark in September 2020, while snack company Garudafood was sold to Hormel in December 2022.

“Internally, we’ve been joking that it's best not to be greedy. If there’s a bid on the table that’s attractive enough, just take it,” Lim said, adding that the three minority exits each generated a more than 3x return. CVC also exited a control position in snack maker Munchy's Group to URC of the Philippines in late 2021 for a 2.5x return.

The panellists otherwise noted that negotiations on price were still possible in specific situations, perhaps especially in Asia versus other geographies, and that deal flow was likely to pick up as private markets fell in line with public comparables.

Secondaries, including sponsor-to-sponsor transactions, were also flagged as a significant means of releasing pressure in the recent term. Mehra said Everstone had realised eight exits in the past three years, two to strategics and six to PE sponsors.

“There are always enough pockets of people who need to sell because you need to show DPI [distributions to paid-in] and you have old funds which need to exit assets,” Mehra said. “As long as you focus on your thematic, you’ll always find enough to do. We’re not sitting on our hands.”

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• Topics
• Southeast Asia
• GPs
• Exits
• Trade sale
• Secondaries
• Singapore
• Everstone Capital
• CDH Investments Management
• CVC Capital Partners
• AVCJ Events