Asian buyouts double in Q3

Asia’s growing private equity activity is led by the energy, mining and utilities and consumer sectors, according to a recent report.

Buyout deal value in Asia has more than doubled in the third quarter compared to the same period last year, according to data from mergermarket cited by Ernst & Young in a recent report.

Asia had 79 buyout deals worth $19 billion in third quarter compared to 68 buyouts worth $7 billion during the same period last year.

So far in 2011, the region has had a total of 239 buyout deals worth $38 billion.

However, third quarter exit activity was nearly flat amid global market volatility. Deal value was $20 billion for 30 deals compared to $19 billion and 33, respectively, during the same period in 2010.

With some IPO exits on hold, exits via sales to strategic buyers were expected to increase, particularly in China.

The report, which surveyed private equity firms operating in the region, found that energy, mining and utilities was the leading sector for private equity interest, followed by the consumer sector. Growing energy needs and a rising middle class across Asia Pacific are driving these sectors. The financial services sector was also of interest.

LPs in the region are also becoming more sophisticated: sector specialisation was becoming more prominent and value creation strategies were on the rise, the report found. Such shifts were important as a means of differentiation for fund sponsors facing more competition for LP capital, the report said.

“Respondents in our survey are observing an increased use of both internal and external value creation strategies,” said Michael Buxton, Asia Pacific private equity leader with Ernst & Young. “And whatever the method, it is important to note that as we have seen in other regions, private equity investors are doing far more than simply providing capital to their investees.”

Other survey findings included:

• Southeast Asia was expected to be a key growth market for private equity activity, namely Indonesia, despite the many challenges found in emerging economies.

• Local funds tended to have an advantage over their global counterparts in both raising capital and making acquisitions as deep market penetration and relationships are paramount to investing in Asia Pacific.

• Value enhancing strategies were evolving in Asia Pacific as investors become more sophisticated, but value creation methods often looked different from those in more developed markets.