Southeast Asia private equity market’s long-term macro fundamentals remain strong despite an overall slowdown in deal activity last year, according to Bain & Co’s Southeast Asia Private Equity Report 2023.
According to the report, deal value in Southeast Asia fell 52% y-o-y in 2022 to US$13 billion, while deal count declined 15% y-o-y to 176. Activity in the region was strong in the first half of the year — matching 2021 activity levels — before falling in the second half.
As a comparison, within the larger Asia Pacific, Greater China saw the greatest fall in deal value at 53% while Australia-New Zealand, South Korea, Japan and India saw their deal values dropping by 48%, 39%, 28% and 25% respectively in 2022.
“What we are seeing is a natural reaction to the global macro climate. Increasing interest rates, a softening economic environment and general uncertainty over the future have all made it more challenging to get deals done,” says Usman Akhtar, head of Bain’s Southeast Asia private equity practice.
Exit value in Southeast Asia also fell 46% y-o-y to US$6.6 billion as investors struggled with the rerating of public market valuations, deteriorating portfolio performance and fewer avenues for exits given the decline in IPOs.
Despite near-term uncertainty, the long-term outlook for private capital investment in Southeast Asia remains positive — Bain’s analysis showed that macroeconomic conditions in the region have been more resilient than the rest of Asia Pacific.
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Real GDP growth in Southeast Asia continued to be strong while inflation related indices remained moderate. Additionally, ongoing geopolitical tensions between the US and China will continue to create opportunities for the region’s businesses, Bain finds.
“Southeast Asia remains an attractive place to deploy capital in the long term. The market fundamentals are there and investors will be able to find attractive opportunities.
“However, competition will be intense for these assets and multiple expansion will no longer be a sustainable return driver. That puts more pressure on investors to create value during their ownership period, ” says Bain’s global private equity senior advisor Suvir Varma.
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Singapore and Indonesia continued to attract the bulk of investment capital in the region, together accounting for over 80% of the region’s deal value and deal count.
Internet and tech continued to lead as the primary investor sector in each country accounting for 55% of the total deal volume in the region, although it saw fewer large ticket investments and lower activity levels in 2022 versus the preceding year.
Meanwhile, healthcare continues to attract capital, having seen continued investor interest on the back of clear secular trends and innovation across the value chain.
Bain also sees opportunities in the broader energy transition space. For Southeast Asian countries to meet their long-term carbon reduction goals, there needs to be investment across sub-sectors such as energy production, agriculture and waste management, the firm says.
