China slowdown hampers emerging markets fundraising, investment
Fundraising by private equity firms focused on emerging markets reached $17.2 billion in the first six months of 2012, or nearly half of the $38.5 billion raised in 2011 as a whole, with a spike in emerging Europe counterbalancing a slowdown in China. However, investment activity cooled slightly, as an uptick in transactions in the Middle East, Africa, Russia and Brazil was unable to offset a weaker environment in China and India, according to the Emerging Markets Private Equity Association (EMPEA).
Although there was an uptick in transactions in the Middle East, Africa, Russia and Brazil, total invested capital fell 34% year-on-year and average investment sizes dropped 22% due to a one-third decrease in the number of $100 million-plus deals. EMPEA recorded 411 private equity investments totalling $9.8 billion in disclosed value, compared with $14.9 billion across 460 deals in the first half of 2011.
Sarah Alexander, founding president and CEO of EMPEA, noted that the expectation that emerging markets will continue to drive global growth is counterbalanced by numerous uncertainties. "Private equity firms grappling with legal and regulatory uncertainty and anticipated currency depreciation are slowing the pace of investments or alternatively looking to listed markets, which may offer readier opportunities for exit," she said.
Five of the 15 largest emerging markets PE transactions during the first half of 2012 were PIPE deals. Such investments accounted for only three of the top 15 transactions in the whole of 2011.
The findings are in line with AVCJ Research's assessment of private equity activity in Asia alone. The amount raised by China-focused funds came to $17.7 billion, down 9.9% and 22.6% respectively on the first and second halves of 2011. This contributed to a decline in Asia Pacific fundraising as a whole, which reached $22.3 billion, its lowest level since 2009.
Although China continues to dominate the investment landscape, deal value came to $10.3 billion in the first half of the year, down 28.5% and 26.8% respectively on the first and second halves of 2011. As with fundraising, Asia Pacific investment was at a three-year low, reaching $26.2 billion.
There has been a noticeable uptick in China PIPE deals and, to a certain extent, take-private transactions for Chinese companies listed overseas.
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