Dealmaking to pick up | The star
DESPITE the lingering effects of the Covid-19 pandemic, most private equity firms remain optimistic about the economic outlook for this year.
This is mainly due to the mass vaccination programs that have been put in place in many countries in recent months.
Such optimism could signify a potential resumption of trading, particularly in Asia-Pacific, which global private equity funds continue to view as a dynamic and attractive region.
âAsia Pacific has been an exciting and dynamic region for any global private equity fund,â said Andrea Campagnoli, Private Equity partner of Bain & Company based in Singapore.
âImproving macroeconomic conditions, coupled with many exciting investment opportunities, especially in advanced digital sectors, will continue to generate strong investor interest,â he added.
According to Bain’s 2021 Asia-Pacific Private Equity Survey of 162 senior market specialists, nearly 80% of General Partners (GPs) expect the macroeconomic climate to be more favorable this year , despite their concern about the lingering effects of Covid-19, thanks to the availability of vaccines to fight the virus.
The survey notes that the region will experience an acceleration in digital business models and that the top three segments of greatest interest to GPs in Asia-Pacific are e-learning, e-commerce and digital health.
âAmid the many disruptions and challenges that industries faced in 2020, growth has advanced almost uninterruptedly in one sector: digital businesses,â the report says.
âSectors experiencing a digital acceleration offer private equity investors strong growth opportunities.
âThey include e-commerce, online learning, digital healthcare, online reservation services, online entertainment, digital payments and financial services,â he adds.
As for e-commerce, the report notes, penetration in the Asia-Pacific region has skyrocketed as Covid-19 lockdowns have increased the number of new customers and increased the activity of existing buyers.
Likewise, for e-learning, the sector was already on a strong growth path in Asia-Pacific countries before the pandemic hit, but the adoption of digital education services has increased sharply across the board. the region during the first half of 2020.
Since then, growth has continued or stabilized, strengthening the attractiveness of the sector.
Overall, Bain’s study reveals that building resilience is a key goal among major Asia-Pacific GPs to protect their investments in the face of growing risks to the economy.
Its annual survey indicates that more than 60% of those polled would be willing to invest at least 5% of a holding company’s short-term profits to improve long-term resilience.
As Asia-Pacific PE investors grappled with unprecedented uncertainty and disruption in 2020, they ended the year on a high note.
The value of transactions set a new record last year, reaching $ 185 billion (RM758 billion), thanks to a recovery in activity in China and India.
This robust trading enabled Asia-Pacific PE assets under management to rise to 28% of the global PE market.
Meanwhile, the value of the exit deal fell 24% year-over-year (year-over-year) to $ 70 billion last year, as PE managers waited for better times to sell the holding companies.
Among general practitioners surveyed, more than 70% say the exit environment was more difficult last year than in 2019, with Covid-19 being the main cause of a weak exit environment.
As GPs postponed exits, the value of companies held in PE portfolios, or unrealized value, continued to climb, increasing 33% year-on-year to $ 1.04 trillion.
Bain notes that the median holding period was 4.5 years, slightly above the five-year average.
“The propensity of GPs to wait for better exit conditions has created an exit overhang for the 2014-2016 portfolios, which will increase the pressure on fund managers to accelerate exits in the years to come,” he adds. he.
Asia-Pacific PE fundraising fell 32% year-on-year to US $ 90 billion.
Nonetheless, Bain says fundraising for the Asia-Pacific region is expected to rebound in 2021, as efforts delayed last year move forward.
Despite continued disruption and economic uncertainty, returns on private equity in the region remained strong last year, with a median net internal rate of return of 12.4%, up from 12.3% in 2019.
Asia-Pacific PE also outperformed the region’s government procurement market by at least three percentage points over five, 10 and 20 year horizons.
The survey reveals that general practitioners are optimistic that the trend will continue; over 70% believe returns will remain stable or increase over the next three to five years.