APAC PE investors favour North America

Capital allocation in North America has more than tripled since 2007 while investments into Europe have stagnated, a report from S&P Global Market Intelligence revealed.

Private equity investors in the Asia-Pacific (APAC) region largely favour the North American market over Europe for its stronger economic fundamentals, according to the S&P Global Market Intelligence EMEA Private Equity Market Snapshot.

The report, which analyses private equity-backed transactions globally from January 2007 to December 2016, showed that total investment in North America more than tripled, from €6.1 billion in 2007 to €21 billion in 2016. On the other hand, total investment in Europe remained flat at €5.2 billion last year, compared with €5.37 million in 2007.

Taking a closer look at the sectors, the report found that information technology received the most investments from APAC private equity investors globally, totalling €35.3 billion, financials came in second at €14.8 billion, while consumer discretionary got €12.9 billion of deals.

Among notable deals in 2016 include the $3.6 billion takeover of US printer company Lexmark International by a PAG Asia Capital-led consortium, the $2.8 billion purchase of Dutch chipmaker NXP Semiconductors’ standard products unit by Beijing Jianguang Asset Management and Wise Road Capital Ltd, and the $150 million investment in Sorrento Therapeutics, a US-based biopharmaceutical company, by Hong Kong-based investment firm Ally Bridge Group.

The research also draws attention to the types of deals favoured by APAC investors. “Overall, our data seems to support the view that North American and domestic venture capital investment opportunities are far more widespread and attractive to APAC investors. This is especially true in the IT sector and also recently in the healthcare sector where, in recent years, deals, albeit smaller in value, represented more than 30 percent of Chinese investments by deal count.”

Although the number was not specified, the report also found that club deals formed the lion’s share of APAC investments into Europe and North America. This highlights the trend that more and more private equity firms are teaming up with experienced strategics who know the local market or are willing to share the risk to close deals. Meanwhile in terms of single-buyer deals, China is the largest investor with €3.5 billion deals into Europe and €3.9 billion deals into North America.

According to the report, Chinese private equity firms have been ramping up investments in North America and Europe as they continue to focus on diversifying their portfolio and buying advanced technologies abroad amid a slowing domestic economy.

For its outlook for 2017, S&P Global predicts that higher costs and volatile foreign exchange as well as US president Donald Trump’s trade policies pose increased risks for private equity investors in the region.