Private equity activity in the APAC region has been healthy for the past few years, with a record-setting year in 2017, and future prospects look equally bright in 2018.
Private equity activity in the APAC region has been healthy for the past few years, with a record-setting year in 2017, and future prospects look equally bright in 2018. In line with past trends, Greater China PE deals accounted for the lion's share of total deal activity in the APAC PE market in 2017. However, Japan and Southeast Asia are gaining ground and accounted for the biggest gains in overall PE investments in the region last year. This all points to the increasing maturation of the APAC PE market and what looks to be the start of a new phase of growth and opportunity for the PE industry in the region. Let the good times roll.
Active APAC – Full steam ahead
The APAC PE market is alive and kicking and saw its strongest year ever in 2017 across all matrixes. The numbers speak for themselves: according to Bain & Company's "Asia-Pacific Private Equity Report 2018", last year 1,015 individual PE transactions were announced in the APAC region with a value of more than US$10 million, achieving an all-time high aggregate deal value of US$159 billion.
While Greater China continued to account for almost half of the region’s PE deal activity in 2017 (with a total value of US$73 billion), investments were more balanced geographically in the region. Japan and Southeast Asia each represented more than 10% of the total deal value and each gained the most significant market shares: investment deal value in Japan rose to US$25 billion (up 137% over 2016) and Southeast Asia deal value hit US$20 billion (up 136% over 2016). Japan also saw the region’s largest ever PE deal in 2017 – the US$15 billion buyout of Toshiba Memory Corp. by a group of investors led by Bain Capital. While not as large in terms of value, deals such as CIC and CPPIB's US$5 billion investment in Singapore's Equis Energy, and Macquarie Infrastructure and GIC's US$1.3 billion acquisition of a significant minority stake in Philippine's Energy Development Corporation (Hogan Lovells represented Macquarie Infrastructure and GIC), are testament to the increasing number of consortium-led mega-deals that are starting to become a fixture on the Southeast Asian PE landscape.
All of this investment is not without good reason: PE exit activity and values also hit an all-time record at US$115 billion in 2017, with particularly strong activity in Southeast Asia – most notably GIC’s US$10.4 billion secondary sale of Global Logistic Properties in Singapore to a consortium led by Hopu Investment, Hillhouse Capital and others.
Successful exits have spurred continued interest in APAC as a place to deploy funds, with a corresponding increase in fundraising activity in the region. APAC fundraising activity last year raised an additional US$66 billion of dry powder, resulting in a total of US$225 billion in the region at the end of 2017. This activity included the closing of KKR’s massive US$9.3 billion regional buyout fund, Affinity's US$6 billion buyout fund and the US$5 billion APAC funds raised by each of Blackstone and Carlyle last year. There is clearly a huge amount of money available for spending by PE investors in the region.
The above statistics inexorably point towards continued growth in PE deal activity in the region over the coming years, with the epicentre of that activity sitting very firmly across Greater China, Japan and Southeast Asia.
Where the growth is at
According to the Bain & Company report, Japan's US$25 billion of deal value in 2017 represented a 269% increase over the average from 2012 to 2016 and a 137% increase from 2016. In addition to the Bain-led consortium's acquisition of Toshiba Corp's memory chip business, other large deals in Japan last year included Bain's US$1.2 billion buyout of Japan's third largest advertising agency, Asatsu-DK, and KKR's US$4.5 billion buyout of Calsonic Kansei Corporation, its US$2.2 billion acquisition of a significant minority stake in Hitachi Kokusai Electric and its US$1.3 billion acquisition of Hitachi Koki.
A similar story played out in Southeast Asia where that region's US$20 billion of total PE deal value in 2017 represented a 182% increase over the average from 2012 to 2016 and a 136% increase from 2016. According to a recent report by Ernst & Young, Singapore, Philippines, Vietnam and Indonesia were the most active countries in the region for PE investments last year. This trend has continued into 2018 but largely due to the completion of the US$12 billion Global Logistic Properties deal in Singapore at the start of the year.
These statistics suggest that Japan and Southeast Asia have been heavily contributing to the growth of the APAC PE market, with Japan in particular having higher valued top-end deals.
APAC PE – A coming of age
APAC PE is on a roll, and given that mega-funds with the related pressure to invest their huge reserves of dry powder (are now a fixture in the region), coupled with a favorable investment climate, the trend is likely to continue. In line with the growing middle-class in the APAC region and technology's continued infiltration into many aspects of life there and around the world, the technology sector will continue to be a strong driver for deal activity in the region, as will the consumer, healthcare, life sciences and real estate sectors.
Company owners in the region are warming up to PE investors, seeing in them partners with a potentially valuable source of operational expertise and the ability to help investee companies access new markets or open doors to new customer bases through their large relationship of networks. This greater acceptance of PE funding has consequently seen increased activity in APAC from both global and regional PE investors last year on big-ticket deals that have often involved the ceding of control (or minority deals that have included a path to control). This is a major transformational shift and paves the way for the future growth of the PE industry in APAC.
A new landscape is emerging for PE activity in the APAC region, one that is characterised by a broader geographical spread of deals across the region, higher value deals (driven by the growth in consortium transactions), and a gradual shift towards more control deals (indicating company owners' growing acceptance of PE). These are all signs of a maturing market that is entering a new phase of growth and opportunity for increased PE deal activity across the region.
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