Asia-Pac PE deals hit record high of US$81b in 2014: Bain

Singapore

PRIVATE equity (PE) deals inked in the Asia-Pacific region hit an all-time high of US$81 billion last year, topping the previous mark of US$77 billion in 2007, according to Bain & Company.

The number of deals grew 14 per cent to 742, and average deal size expanded to US$110 million, from US$77 million in 2013.

Singapore investment company Temasek Holdings claimed the region's biggest deal with its US$5.7 billion investment for a near 25 per cent stake in Hong Kong's health and beauty retailer AS Watson Group.

In its Asia-Pacific report released on Tuesday, Bain estimated that in the region, there are some US$132 billion of available dry powder - capital raised but not yet invested - that may translate to 2.3 years of future investments. "There is still a lot of money chasing a limited number of deals," Bain noted. But it flagged that keeping the exit momentum will be one major challenge this year, as it hinges heavily on the health of the volatile IPO (initial public offering) markets.

After three years of steep declines, exit value in Asia-Pacific surged by 118 per cent to a new high of US$111 billion, as general partners (GPs) divested older holdings in their portfolios. Greater China, Asia-Pacific's largest market, saw a revival in 2014 after a hiatus in 2013 caused by a 13-month IPO moratorium that lasted till December 2013. Deal value hit US$41 billion, a 33 per cent jump from the market's previous peak in 2011.

Six mega-deals in Greater China larger than US$1 billion in size accounted for most of the growth. The number of transactions rose to 350, 30 per cent higher than the market's five-year average. Exit value in Greater China, bolstered by Alibaba's US$25 billion IPO, surged to US$61 billion, more than triple 2013's value.

PE deals involving Singapore companies, including two mega-deals worth US$2.3 billion, helped lift South-east Asia's overall investment value to US$5.9 billion, 6 per cent higher than 2013, but still 7 per cent below the five-year average.

The two Singapore mega deals refer to the buyout of agri-business Olam International by a Temasek-led consortium and KKR's US$1.1 billion acquisition of Singapore-listed Goodpack.

Muted deal-making in South-east Asia was due largely to varying market conditions. Last year, Indonesian deal-making was stalled ahead of mid-year elections and daunting steep multiples. In Malaysia, political concerns and fears of an economic slowdown discouraged PE activity; while Thailand's coup worried the market and put deals on the back-burner. Overcrowding of buyers in the Philippines also deterred investors.

GPs in South-east Asia also worked hard to produce exits for their investments, but they were often not comfortable with the price they could get, Bain observed. The equity markets were flat in Singapore and Malaysia last year, crimping two traditionally strong channels for IPO exits.

While GPs closed as many exit transactions as in the past, almost half of them were valued at less than US$50 million, and total value slid to US$4.4 billion, the worst showing since 2006.

"Despite all this, investors still view South-east Asia as an Asia-Pacific gem. GPs in our survey expect the sub-region to top China as the most attractive market for new deals in 2015," Bain added. "Few expect any relief on competition or asset prices. But many see a breakthrough in how company owners view PE."

Many funds are still getting established in South-east Asia and are building local networks to scour for targets in these growing economies.