PE firms struggle with rich valuations in Southeast Asia – survey

The survey was conducted by Bain & Company and the Singapore Venture Capital and Private Equity Association (SVCA). Citing data from AVCJ Research, it noted that deal value fell 16% year-on-year to $4.9 billion in 2012, with just over 30 transactions completed.

Respondents said the mismatch in pricing expectations between buyers and sellers, particularly in Indonesia, is a stumbling block. However, the influx of PE firms and corporates looking to invest has created a seller's market. Eight in 10 deals now have competing bidders; last year close to 40% of deals were uncontested.

This confirms Southeast Asia's status as an increasingly popular alternative to China and India. Investors are drawn in by the region's fast-growing middle class, abundance of resources and relatively stable, open economies. The combined GDP of Southeast Asia is $2.3 trillion and the region is on course to rise from the world's eighth-largest economy to fourth over the next two decades.

More than 60% of respondents expect the region to become a more important part of their investment strategy, with just under half expecting an increase in deal activity this year compared to 2012. Less than 10% anticipate a decline in activity.

Exits have been sluggish in recent years, so private equity firms not only face challenges in putting capital to work, but they are also under pressure to return money to LPs. The average age of PE portfolios in Southeast Asia has grown to 4.3 years in 2012, up from 3.6 years in 2010 as deals over five years old have nearly tripled to almost 45% of the total.

However, exit activity did jump substantially last year - reaching $15.6 billion in 2012 compared to $5.7 billion in 2011 - and the strong level of corporate interest in the region suggests that trade sales will continue apace. The IPO market is more volatile but investors were encouraged by three large offerings in Malaysia in 2012.

There has been more cheer in the first few months of 2013, with CVC Capital Partners making a strong partial exit from Matahari Department Store and Northstar Pacific Partners and TPG Capital on course for at return of at least 6x on Bank Tabungan Pensiunan Nasional (BTPN).

Asked to break down the constraints to completing deals by market, seller price expectations led the way in Indonesia - a state of affairs confirmed in recent AVCJ analysis of M&A activity in the country's financial sector. Bad corporate governance is the key issue in Vietnam, while finding attractive companies is a problem in Singapore, Malaysia and Thailand.

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• Topics
• Southeast Asia
• Investments
• Exits
• Southeast Asia
• Indonesia
• Exit
• Growth capital
• buyout
• Thailand
• Singapore
• Malaysia
• Vietnam