PE and VC deals into South-east Asia hit record US$23.5b in 2017: report

Singapore

PRIVATE equity (PE) and venture capital (VC) investments into South-east Asia hit a record US$23.5 billion in 2017 on the back of several "mega-deals for valuable companies", a report has said.

South-east Asia PE & VC: Investment Activity, listed the top three deals as:

The report, the first by the Singapore Venture Capital & Private Equity Association (SVCA), noted that corporate venture capital (CVC) accounted for a key portion of PE and VC investments, featuring in seven of the top 10 deals by size in South-east Asia last year. For instance, Didi Chuxing invested in Grab's US$2 billion funding round; Google, Meituan-Dianping and Tencent invested in Go-Jek's US$1.5 billion round, and Alibaba invested US$1.1 billion in Indonesian e-commerce firm Tokopedia.

The report said last year marked a step-up in investments by overseas corporates looking to expand into South-east Asia, and that companies with sizeable penetration into South-east Asia are proving to be attractive targets for large corporates, many of which are from China.

But Jeffrey Chi, vice-chairman of Vickers Venture Partners and ex-chairman of SVCA, said the "South-east Asian story" is but a small part of these Chinese corporates' strategy. He told reporters on Thursday: "I see it as a maturing of Chinese corporates, which are increasingly looking overseas for growth.

"Take Alibaba. To compete against Amazon in South-east Asia, Alibaba chose to buy a competitor (Lazada) rather than set up shop here."

SVCA chairman Thomas Lanyi added that expansion by overseas corporates is akin to a "global land grab" and a "defensive strategy in some ways". He said at the media briefing: "While Chinese corporates have technologies that are generally superior to those deployed in South-east Asia, they lack local market expertise."

Terence Lee, director of global investment firm KKR, predicted that South-east Asia will continue being an attractive investment destination. "Rapid smartphone adoption by a highly social population has transformed the technology sector into a burgeoning market where companies can benefit from PE expertise and investment to achieve their growth goals. We see an increasing opportunity to partner with families, entrepreneurs and management teams to scale up their businesses to become local, regional, and even global leaders."

The SVCA report noted 2017 to have been the first year that PE and VC investments into Asia overtook such investments into Europe. North America continued to snag the lion's share of PE and VC financing (US$275.2 billion, or 48.4 per cent of global investments), investments into Asia grew a remarkable 37.6 per cent to reach US$158.4 billion; this constituted 27.8 per cent of global investments and surpassed investments into Europe.

In South-east Asia, VC financing grew 4.8 times from US$1.7 billion in 2014 to US$8 billion last year. While early-stage (seed and Series A) investments rose from US$39.5 million in 2014 to US$83.1 million in 2017, Series C investments grew from US$738 million to US$6.3 billion, accounting for 79 per cent of total VC investments in 2017, the report found.

"The growth momentum of these deals and size of these rounds have attracted strong participation from corporate venture, hedge funds and private equity blurring traditional boundaries."

The average round sizes of seed, Series A and Series B investments have also been rising, growing around 12 per cent per annum since 2014 to reach US$0.8 million for seed, US$6.4 million for Series A, and US$19.4 million for Series B. The average round size of Series C investments have stayed relatively flat at around US$34 million.

Dr Chi said: "Last year was a significant year for South-east Asian VC and PE. Not only did we see record levels of capital deployed, we also saw two 'unicorns' list on major stock exchanges (Razer on Hong Kong Stock Exchange and Sea Limited on New York Stock Exchange). We trust this will set the stage for increased confidence in these markets from international LPs (limited parners)."

Dr Lanyi, who took over from Dr Chi as SVCA chairman last year, added that 2018 will probably move "along the same trajectory", characterised by rising investment interest into South-east Asia and a continuous boom in the new technologies space.