Asia private equity set for modest uptick after slow 2022 | Alternatives

Private equity dealmaking in Asia could see a modest uptick after a disappointing 12 months. 

While the macroeconomic, geopolitical and regional issues that caused activity in Asia to slow down in 2022 are likely to persist this year, there are signs of renewed optimism regional private equity dealmaking this year, according to Steven Tran, partner at law firm Morrison Foerster.

Institutional investors tend to be significant players in the private equity market. Entities such as single family office Regal Ford Asia and Singapore’s EDBI, the investment arm of the city’s state Economic Development Board, have previously told AsianInvestor they remain keen to invest in private market opportunities.

HOPE AHEAD

Still, private equity and venture capital investments in Asia-Pacific excluding Japan slumped in 2022 compared to the previous year.

Deals totaled $5.39 billion across 42 announced and completed transactions in the fourth quarter of 2022, compared to $20.07 billion across 79 transactions during the same period in 2021, according to data from S&P Global Market Intelligence.

Steven Tran,

Morrison Foerster

Tran, who focuses on private equity investments and buyout as well as mergers and acquisitions,  said China’s recent reopening after three years of strict zero-Covid policies, should result in a noticeable resurgence of China-related PE deals from the second half of this year.

Also read: How investor’s can tap China’s reopening

“We are already seeing activity pick up as our PE clients believe there will be a significant improvement in the Chinese economy by Q2.  We anticipate that North America and Europe headquartered funds may allocate additional funds to  invest in China as economic growth outstrips growth in North America and Europe in 2023,” Tran said.

“There is also still a huge amount of dry powder earmarked for investments across Asia that financial sponsors need to deploy, and strategic investors in Asia and elsewhere continue to look for growth beyond their home markets,” the Singapore-based partner told AsianInvestor.

Morrison Foerster anticipates an uptick in overall PE deal activity across the region this year, as the investment thesis for investing in Asia remain intact.

Coupled with potentially more reasonable sell-side valuations of targets that have been hammered over the past few years by the combined effects of Covid and other macroeconomic and geopolitical dampeners of business activity, could see a rebound in Asia PE deals this year.

Source: S&P Global Market Intelligence. Data compiled 16 January 2023.

SECTORS TO WATCH

Data centres in China have seen a lot of deal-making throughout the pandemic and should continue to grow, according to Morrison Foerster.

Industrials, renewable energy projects and life sciences should also be key sectors to watch in China this year. 

Likewise, Southeast Asia’s large and rapidly digitalising population, its growing middle class and increasing wealth, its domestic-oriented economy, and stable governments out to cater foreign capital to help build both tangible and intangible infrastructure.

Also read: Southeast Asia to attract more private equity investments

“We expect that Singapore, Indonesia and Vietnam will again be the preferred investment destinations for financial sponsors this year as they deploy capital across the region,” Tran said.

TOUGH 2022 

Aggregate transaction value and actual number of deals in 2022 fell to their lowest levels in the last five years at $35.43 billion and 208 transactions, respectively. Activity peaked in 2021 when private equity transacted 347 deals valued at $74.08 billion.

It’s not difficult to see why 2022 was a challenging year overall for dealmaking in Asia and elsewhere compared to previous years, Tran said when pointing to the factors that have led to the gradual decline in total deal volume and deal value as 2022 unfolded.

Sweden-based EQT’s S$7.45 billion buyout of Hong Kong-based firm Baring Private Equity Asia was the biggest transaction with private equity involvement in 2022.

S&P Global Market Intelligence did not respond to AsianInvestor queries.

Source: S&P Global Market Intelligence. Data compiled January 16 2023.