Buyouts best bet in Asia, despite crisis

Investors in Asian private equity should overweight buyouts and large growth financings, according to the 2009 report on private equity in Asia Pacific by Swiss alternative asset consultant Strategic Capital Management (SCM).

“In SCM’s view, Asian buyouts and larger growth financings are the most interesting private equity segments for the foreseeable future as deal volumes will probably increase further,” concluded the report, which was shown exclusively to PEI Media.

“Even during a cyclical downturn the Asian buyout industry might continue
to consolidate its position as the European buyout industry did during the years
2002-04.”

However, the SCM report did note “the biggest bottleneck for investors” remained the “relatively scarce supply of seasoned teams” in the region on a par with top-tier private equity firms in Europe and the US.

Findings supporting SCM’s argument in favour of buyouts included;
• Asian M&A declined only 18 percent in 2008, compared to 25 percent each in North America and Europe, illustrating a “certain resilience”;

• Asian M&A activity is still a small percentage of GDP (6.7 percent in 2007) compared to the US and Europe so there is ample room for growth;

• M&A activity in Asia Pacific is still under-penetrated by private equity, although this is changing: 2008 saw a movement against the global trend, with the private equity share in M&A activities increasing to 7 percent of total M&A volume;

• Growth capital investments accounted for 55% of all private equity investments in 2008. Buyouts had a 41% share. The absolute volume of growth capital investments increased only marginally compared to 2007, while the volume of buyout investments increased by 19%, thereby driving the overall increase of Asian private equity investment volume in 2008;

• New money raised for buyouts in 2007-08 was 2.6x the money invested during that period. New money raised for venture capital funds in 2007-08 was more than 12x the reported investment amount during that period, indicating a “continued massive capital overhang in VC, particularly in China
and India”;

• Divestitures in the buyout stage accounted for more than 70 percent of realised capital in 2008.