South-east Asian PE firms turn cautious despite buying opportunity: report

DESPITE being loaded with dry powder, the South-east Asian private equity (PE) industry has slowed down deal-making amid the uncertainties wrought by the Covid-19 outbreak, said a report by business data platform Mergermarket.

There were only five private equity buyouts in the region in the first quarter of 2020; they were worth a total of US$58 million, which  Mergermarket noted was the lowest quarterly buyout value since Q2 2009.

And there was only one private equity exit deal in Q1 2020, worth US$59 million. This represents the lowest quarterly value and deal count since Q1 2016. 

This is even though the economic slowdown could present good buying opportunities for PE firms, as competition with strategic acquirers for deals is likely to wane for the rest of the year, and possibly even early next year.

Citing a Singapore-based financial advisor, Mergermarket noted that many strategic acquirers in South-east Asia "are small or mid-cap buyers that have prioritised cash preservation, and thus, have switched off their M&A radars". 

However, "some PE owners are not well positioned to go shopping for new assets now, as they will just have to pivot more efforts to stabilise their portfolios", the report noted, citing industry sources.  

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Danny Lizares, managing partner at Philippines-focused Sierra Madre Private Equity, added in the report: "In addition, deal-making is at a stand-still due to logistical problems caused by the lockdowns, such as delays in conducting due diligence and securing regulatory approvals."  

However, there are some bright spots, with increasing PE activity in the pharmaceuticals, medical and biotech sectors arising from gaps between healthcare supply and demand, Mergermarket said.

For instance, Quadria Capital, a healthcare-focused PE firm in South-east Asia and South Asia, is targeting up to 10 deals with its newly-closed fund. Meanwhile, a Philippines-based mobile healthcare platform, AIDE, is considering raising fresh capital. 

However, PE investors also report that it will be important to pick sub-segments carefully. "Within healthcare, for example, telemedicine is a huge beneficiary, but dental chains have taken a hit, and hospitals and medical specialist clinics are also affected due to the postponement of elective surgeries that come with higher profit margins," the Mergermarket report noted.