KUALA LUMPUR (April 21): A rebound in the Malaysian private equity (PE) market in 2016 contributed to an improvement in overall PE deal value in Southeast Asia, said Bain & Company.
 
The PE deal value in Southeast Asia bounced back to S$6.8 billion last year, up from just S$4.8 billion in 2015, and 14% higher than the 2011-2015 historical average, said the global consulting firm.
 
The deal market in the region continues to be driven by Singapore, Indonesia and Malaysia, which together comprise 80% of the region’s deal value from 2012 to 2016, it added in its annual Southeast Asia Private Equity Report released today.
 
“PE markets in Southeast Asia are steadily improving due to a larger pool of targets and more robust general partner networks,” said Sebastien Lamy, leader of Bain’s private equity practice in Southeast Asia. 
 
“This healthier momentum has boosted limited partners’ expectations for the region, putting PE firms in a tough spot as they look for new ways to rally against the effects of high prices and heavy competition, coupled with local macro challenges,” said Lamy.
 
Limited partners, according to the report, are highly active in Southeast Asia and were involved in 40% of PE deal value in the region from 2012 to 2016, versus 29% for Asia-Pacific.
 
Sovereign Wealth Funds were especially active in the region, participating in 35% of Southeast Asia PE deal value from 2012-16, it said.
 
The report said while Southeast Asia continues to offer ample opportunity to earn high returns, delivering outsized profits has become more difficult as sources of value shift. 
 
“With the days of ‘buy low, sell high’ coming to an end, wringing greater value from PE investments has become much more of a priority than it has been in the past.  It is also more complicated.

In response, PE firms looking for new sources of value and relying far less on traditional levers, “ it said.

Bain’s said it surveyed about 120 general partners (GPs) and direct investors from across the Asia-Pacific region, including Southeast Asia, and found that 22% said they considered cost and capital gains to be the most important source of returns for deals exited five years ago, while 6% cited M&A. 
 
“Looking ahead five years, these factors are expected to increase dramatically in significance, with 37% of GPs pointing to margin efficiency and more than 20% to M&A,” it added.

On the other hand, the report noted most respondents anticipate multiple expansion and leverage to both go down in importance, adding that revenue growth, while still the most significant factor, is expected to plateau in the next five years.