Asia Pacific private equity market surge signals new era, says Bain report

06 April 2018 6 min. read

The Asia-Pacific region saw a surge in private equity activity last year, with total deal value hitting a record $159 billion and exits raising $115 billion to record the second highest ever result. China remained the dominant area of buyout interest, while internet and technology firms continue to represent the greatest demand.

Private equity investment in the Asia Pacific region grew strongly in 2017, according to a new report by strategy and management consultants Bain & Company. Driven on the back of strong market fundamentals including large capital accumulations and positive market conditions, the figures represent the sector’s best all-round performance to date, and, according to the consulting firm, signal the start of a new era.

“The Asia-Pacific private equity industry had a spectacular year on many fronts,” the annual Bain report states, “Deals were larger, investment was broader and large global investors were more active than ever. All markets in the region rose to new highs… But, beyond the heady deal making, the market showed signs of maturing and entering a new phase of growth.”The Asia-Pacific private equity industryGrowth for the private equity sector in the Asia Pacific for 2017 was considerable relative to previous years, hitting an all-time high of $159 billion, up 41% from $112 billion the year prior and at 19% higher than the $133 billion recorded in 2015. In comparison, at a global level, buyouts by private equity firms hit $440 billion, flat to the year previous. The deal count in Asia Pacific, however, declined somewhat in 2017 to around 1,000, down from the more than 1,100 closes in 2015.

The private equity exit market was also robust, hitting $115 billion on a total of more than 1,100 exits – up substantially from 2016 when there were $98 billion worth of deals and the number of exits stood at around 800. The past four years have performed well above the post-financial-crisis years, with the period (2012-2016) seeing an average of around $93 billion in exits.

Fundraising, meanwhile, has held steady throughout 2012-2016 at around $60 billion, with the 2017 result slightly above the mid-term average at $66 billion. Given the strong intake of funds, as institutional investors and family offices seek better returns to their piling capital, dry powder remains a luxury challenge for Asia's private equity industry, with more available capital than strong investment contenders.Private equity assets under management in Asia PacificAltogether, the Asia Pacific is becoming an increasingly significant contributor to the global private equity sector, accounting for around 24% of global assets under management by private equity firms, up from 22% the previous year. In context, the region accounted for around just 5% a little over a decade ago in 2003, rising steadily in the years since. In another analysis on the private equity market, by McKinsey & Company, the researchers found that the total of assets under management held by the industry is approaching the $3 trillion mark.

The number of M&A deals involving private equity investors also saw a sharp increase in 2017, hitting 17%, up from the around 11% to 12%-mark of the previous three years – with the growth reflecting an increased maturing of private equity activity according to the authors of the report, along with broader macroeconomic conditions.

Commenting on the results, Suvir Varma, head of Bain & Company’s Private Equity practice in Asia-Pacific, outlined the two key forces driving the local market’s new phase of growth; “Investors grew more confident in the region as the macro climate improved and company owners increasingly accepted private equity funding. As a result, major players, including global and regional private equity firms and institutional investors, stepped up their activity in Asia-Pacific last year, accelerating the flow of large deals.”Asia Pacific private equity investment value by region

China and Japan lead the way

With respect to intraregional trends, Greater China remained the relative centre of mass for activity in the Asia Pacific, with a total private equity investment volume of $73 billion across 569 deals to register a 56% increase on the 2012-16 average deal value.

Japan also saw deal activity jump 137% from the previous year, largely due to a $14.7 billion buyout of Toshiba Memory by a Bain Capital led group of investors, while Southeast Asia recorded a remarkable 136% bump to $20 billion, and South Korea was up 32% on the 2012-16 average with $13 billion worth of deals in 2017.

As an industry break-down, the assets most often acquired in the region were internet and technology-based, followed by health, financial services and logistics. At 46% of the total, internet and technology represented almost half of all deals in 2017 – in line with the last two years but a significant rise since 2012 when the combined segments accounted for just 22% of all deals.Asia Pacific private investment value by industryThe report concludes, "The Asia-Pacific PE market crossed several key milestones in 2017: the highest deal value ever, peak exit activity, the largest Asia-Pacific-focused PE fund ever and a record share of the global buyout market. Four years of successful investment cycles and positive cash flow have given investors confidence in the strength and reliability of the market. Those changes signal a maturing market and the start of a new era—one in which private equity is of increasing importance to the region’s economy.”

However, the authors also contend that private equity funds focused on the Asia Pacific will face several upcoming challenges, including an accelerating shift in the sources of value, noting that, until now, funds investing in the region have “been content to ride the wave of strong macro growth and expanding multiples – buying high and selling higher.” Already, the firm says, these external factors have become far less important with respect to value than just five years ago.