Southeast Asia’s private equity investment slows in 2019, outlook gloomy

Private equity investment in Southeast Asia declined to US$12 billion last year after reaching a record high of $14 billion in 2017, with COVID-19 posing a risk to investment this year, a global consulting firm says.

According to “Southeast Asia Private Equity Report” published by Bain & Company, last year’s private equity investment in Southeast Asia was driven by the internet and technology sector, which represented over 60 percent of all deals, especially in Indonesia.

However, the COVID-19 pandemic and the global recession in 2020 will challenge private equity investment this year as investors look for ways to protect their investments and reemerge stronger after the crisis, the report said.

“In preparation for this period, general partners are looking at the global financial crisis as an indicator of what to expect moving forward,” said Bain & Company partner Usman Akhtar.

“During the global financial crisis, the number of funds raised in Asia Pacific countries flat-lined and were significantly smaller,” Akhtar said. “While investors are likely to remain committed to private equity during this crisis, fundraising will slow.”

The report said that before COVID-19, investors regarded Southeast Asia as a challenging environment for private equity with high multiples and a lack of deal opportunities in Thailand and the Philippines.

“With the current pandemic, we expect a sustained impact on the PE industry throughout the year with more companies looking for financing given the cash flow situation.”

Investment recovery will depend on how long it takes to “reopen the economy” as well as what social-distancing measures are still in force, Bain said.

Bain expects deal making to slow in the near term. However, the record amount of dry powder in the market will continue to serve as the driving force for ongoing investment.

“Returns for private equity will likely decline sharply in short term, but new deals could have potentially good returns,” the report said. “With public markets volatile and corporates holding onto cash, private equity is well positioned to be the buyer of any asset that comes up for sale.”

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