After Southeast Asia saw the largest fall in deal activity among Asia Pacific (APAC) markets in 2020, deal value rebounded strongly, more than doubling to an all-time high of US$25 billion ($34.77 billion) in 2021.
The previous year had seen a significant slowdown, with the market recording the largest fall across all APAC markets due to travel restrictions hampering deal-making and diligence processes, but the progressive reopening of countries in 2H2021 helped drive a rebound in deal value, reads Bain & Company’s 2022 annual Southeast Asia Private Equity Report, released on May 10.
Asia now makes up over a quarter of the global private equity market. Five megadeals accounted for 33% of total deal value, which grew 143% compared with 2020.
The influx of capital from e-commerce, logistics and technology deals meant that Singapore, Indonesia and Vietnam saw a strong jump in their share of deal value and count, with further potential to climb moving forward, given the presence of sought-after tech companies and vibrant start-up economy in these markets.
Additionally, growth and early-stage investments deals grew significantly in 2021, says Bain & Co. “Growth deals remained the dominant deal type and made up 77% of Southeast Asia’s deal value. Overall deal multiples in the region dipped slightly in 2021 compared to 2020, but were in line with levels seen from 2018-2020.”
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Exit value in Southeast Asia more than doubled what it was in 2020. “Though it still is not at full potential, it remains below the average from 2016-2020. Much of the growth was driven by Singapore, particularly as maturing tech companies, such as Grab, debuted in the public markets,” reads the report.
As in years past, the Internet and Technology sectors accounted for the lion’s share of deal volume and value across the larger APAC landscape. Within Southeast Asia, tech-centric investment remains to be dominant in Indonesia, making up approximately 60% of deals.
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The digital economy also leads growth in both Singapore (50% of deal count) and Vietnam (55%).
In addition, sectors like healthcare and financial services are beginning to take noticeable share as investing targets, representing 18% and 9% of Southeast Asia’s deal count respectively.
“Investors globally and especially in Southeast Asia are rightly concerned about finding the right opportunities to invest amid the increased competition from global and local funds,” says Suvir Varma, senior advisor to Bain & Company Global Private Equity Practice.
He adds: “Given the competitive intensity, funds would do well to have defined themes around which they wish to deploy capital, a clear investment thesis for each asset, and a prepared action plan to intervene should the macro conditions turn against them.”
Three key themes in 2022
Southeast Asia continues to offer investment appeal by virtue of its young, large and rapidly digitising population, says Bain & Co.
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60% of general partners (GPs) remain favorable on regional markets and on future driven expectations especially as the region looks primed for even further post-Covid-19 recovery and can expect to capitalise on a 40 million working population by 2030.
2021 saw some high-profile first-generation unicorns firm up their plans to go public. However, several of Southeast Asia’s tech giants have been affected by the global hit to high-growth tech stocks, says Bain & Co.
“In the short-term, there could well be caution exercised by investors, who will aim to ensure they calibrate valuation expectations on private market tech investments to reflect the current environment.”
Finally, sustainability is here to stay. “Environmental, social, and corporate governance (ESG) has shifted from a niche consideration to a top priority. The overwhelming majority of private equity funds (over 90%) surveyed expects to increase efforts and focus on sustainability and ESG in the coming three to five years, with more than half of the assets they diligence including an ESG component.”
Across the spectrum of sustainability topics, the top three ESG investment themes are clean energy; safe, fair and inclusive communities and sustainable food and health.
Other trends in the region seeing increased and strong investment interest are in digital assets and consumer products due to a post-Covid-19 consumption rebound.
Digital healthcare is also poised for significant growth with ample headroom for opportunities, says Bain & Co.
“The economic growth that could be added to Southeast Asia from a number of exciting sectors is still substantial,” says Tom Kidd, partner in Bain & Company’s Southeast Asia Private Equity Practice.
“While firms are understandably eager to capture these next waves of growth, long-term success will be achieved by those who pay more attention to their core investment themes and diligence, particularly in ESG integration as increasing pressures for businesses to take steps in climate action, diversity, equity and inclusion has caused a definite and enduring shift in the industry’s investment approach,” he adds.
