Private equity deal value plunges by half in SE Asia

Despite the setback, the report emphasises that Southeast Asia still holds immense potential for investors, but the key lies in adopting a shrewd and calculated approach. In other words, investors must be strategic in their investments to make the most of the region's opportunities.

The report presents a grim picture of the region's PE deal market in 2022. It attributes this to an uncertain macroeconomic environment and challenging exit conditions, which resulted in a 52 per cent decrease in deal value, with only $13 billion reported in 2022 compared to the previous year.

Deal counts also fell by 15 per cent, with a total of 176 deals reported in 2022, reflecting the tapering of activity in the second half.

Singapore and Indonesia have maintained their positions as the dominant countries in investment capital, accounting for over 80 per cent of the region's deal value.

Vietnam, which represents a smaller proportion of the deal value, made a substantial contribution to the region's deal count.

Growth-stage deals remained the most prevalent activity in the region, with a sharp decline observed in the buyout sector. Exit value in Southeast Asia also suffered a significant blow, declining by 46 per cent, due to challenges faced by investors in public market valuations and a decline in initial public offerings, which negatively impacted portfolio performances and limited exit opportunities.

The internet and technology sector continued to be the most popular sector for private equity investment in each country, accounting for 55 per cent of the total deal volume, followed by healthcare and financial services.

“For more than a decade, the internet and tech sector has attracted the largest share of private equity capital in the Asia-Pacific region. However, its share of deal value dipped in 2022 to 33 per cent from 41 per cent the previous year. That decline was due primarily to fewer and smaller deals in China and India,” the report said. “Internet and tech deal value for the two large tech-focused markets fell $65 billion, compared with 2021.”

There continues to be a robust appetite for private capital investment from governments, particularly in Southeast Asia and India, aimed at advancing and modernising critical infrastructure such as utilities, telecommunications, and transport.

Despite the challenges, Southeast Asia remains an attractive market to for international investors in the long term due to its sound market fundamentals. However, the intense competition for assets and the realisation that multiple expansions are no longer a sustainable return driver put more pressure on investors to create value during their ownership period.

In 2022, the challenging market scenario compelled several investors to take a back seat. The Asia-Pacific region witnessed a 2 per cent decline in the number of active investors, which marks the first drop since 2015. The most significant decline was seen in the institutional investors' numbers, which plummeted a staggering 15 per cent.

Suvir Varma, senior adviser of Bain's global private equity practice, believes that Southeast Asia is a land of opportunity, but investors must be smart and strategic in their approach to generate meaningful returns.

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