Private equity (PE) activity in Southeast Asia (SEA) showed good momentum in 1Q2024, rising 31% in deal value and 89% in deal volume y-o-y.
During the quarter, EY noted a total of 17 deals that deployed US$586 million ($788.51 million) in SEA, compared to nine deals that deployed US$447 million in 1Q2023.
Real estate deals accounted for a third (33%) of PE investments by value, followed by healthcare (28%) and financial services (23%).
This is according to the EY Quarterly Private Equity Update: Asean, a quarterly roundup of the PE deals along with capital activities across major sectors in Southeast Asia.
See also: Southeast Asia private equity capital deployed down 41% y-o-y to US$3.9 bil in 2023: EY
Luke Pais, EY Asia-Pacific private equity leader, says deal activity in SEA started to pick up in 1Q2024.
“We see a number of new deal starts, with activity in certain sectors such as health care, real estate and infrastructure. Given SEA’s estimated gross domestic product growth rate of 4.6% in 2024, lowering unemployment rates and strong contribution from tourism, consumer sentiment is also improving and we expect to see more consumer transactions over the course of the year.”
The realignment of the global supply chain, which is expected to impact SEA favourably, continues to remain an important theme, adds Pais in a May 20 statement.
Sluggish fundraising and exit activity
For exits, however, 1Q2024 saw slower activity. PE-backed exits in SEA fell by about 57% in terms of exit value compared to the year prior.
SEA’s IPO market also witnessed muted activity in the quarter. The lack of exits, coupled with the high amounts invested in the region over the past few years, have manifested in a growing secondary market, says EY.
Fundraising also remained sluggish during the quarter. Only two SEA-based funds (Fullerton Asia Carbon Action Fund and Asia Partners II) were closed, raising a cumulative sum of US$574 million.
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While private credit is still nascent in SEA, it has tremendous growth potential and opportunity for investors amid subdued deal and fundraising activity, according to EY.
According to the EY PE Pulse Survey – Q1 2024, most PE firms globally expect interest rates to remain static, at least in the short term.
Pais says the emphasis is on bespoke transactions and unique deal structures for the remainder of the year. These include secondary deals, minority purchases, convertibles or structured investments and platform acquisitions, which are expected to intensify, he adds.
“PE funds are prepared to hold for longer and will continue to drive value creation in their portfolio through operational improvements and bolt-on investments. Opportunities across private credit space will grow, especially in mid-market where bespoke financing solutions are more attractive,” he adds.
Infographics: EY
