
PE investors guardedly optimistic on Indonesia - AVCJ Forum
Private equity investors are guardedly optimistic about Indonesia, with positive sentiment about government reforms and rising deal flow tempered by concerns about the difficult investment environment.
"In the last quarter we saw more deal flow in the country, which is exciting for those looking to deploy capital, but the challenges are very real," Jennivine Yuwono, a partner at Southeast Asia-focused Southern Capital Group, told the AVCJ Indonesia Forum.
She cited regulatory certainty - "having confidence that halfway through an investment the regulations aren't going to change" - and currency volatility as particular concerns. This view was echoed by Jean-Christophe Marti, senior partner at Navis Capital Partners, another pan-regional player. "We try to avoid regulated industries as much as possible but every industry is somewhat regulated. It can be difficult to take on this kind of business risk," he said.
For almost all GPs, the most compelling investment opportunities are in industries that leverage Indonesia's growing consumer base. Education, healthcare and food are frequently mentioned, often in the context of how foreign capital can help address human capital shortages. Private equity firms are also looking for openings that might come as a result of a recent government proposal to scale back the "negative list" of industries in which foreign participation is restricted.
David East, an Indonesia-based partner with KPMG, noted that his firm had advised on the sale of an international school that was being chased by seven or eight PE investors. However, none of them were able to get the deal past their investment committees. Similarly, food-related deals can run into problems on the upstream side, with complex carve-outs often required to secure distribution assets. While the negative list revisions might present more opportunities, East is not confident.
In addition to industry-specific issues, most private equity targets are relatively small, family-owned businesses with limited transparency. "This is not insurmountable but you have to plan this into your transaction timetable and make sure the due diligence timetable is not too compressed," East added.
Despite these execution challenges, investors remain committed to finding deals. For Southeast Asia-focused managers, Indonesia must feature in their strategy in some form, simply by virtue of its relative size. Industries such as education and healthcare will also continue to attract interest because they are often beacons of stability when macroeconomic conditions become uncertain.
"Education is not only fast-growing but very predictable in recessions - people still have to send their kids to school," Southern Capital's Yuwono said. "Healthcare services is underinvested and we see phenomenal growth, but at the same time it is fundamentally defensible and stable. In a downturn you don't see much variation in revenue."
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