IPO exit outlook bleak for Asia

With the IPO window virtually shut across Asia, private equity investors are considering secondaries or trade sales, according to an Ernst & Young survey.

Private equity investors in Asia-Pacific are losing confidence in IPO exits and believe they will have to look for other exit options in 2013, according to a survey by Ernst & Young and Mergermarket that polled a total of 100 GPs, LPs and financial advisors.

Only 39 percent of respondents said that IPOs would be the most attractive exit option for India, as compared to 55 percent a year ago. The sentiment toward IPOs in Korea plunged to five percent from 28 percent, while Japan and Australia saw similar drops.

China was the one exception. About half of the respondents (51 percent) believed IPOs would be the most attractive exit option. However, that is still a drop from last year’s 67 percent.

There is good reason for the pessimism: In 2012 through Q3, exits in Asia totaled only $14.5 billion across 90 exits, as compared to the $45 billion raised across 125 exits in 2011, according to the report.

“I think the general consensus is that the markets aren’t recovering very quickly, and no one really thinks the public markets are going to open up in the first quarter of 2013,” Robert Partridge, managing partner for transaction advisory services and private equity for Greater China at Ernst & Young, said in the report.

Since private equity firms will have to hold onto their investments longer, Partridge believes that they will have to focus on maximising value perhaps by restructuring the investment.

With IPO expectations depressed, firms are looking at other exit routes. The most favoured way to divest has been trade sales, according to Luke Pais, private equity leader for the ASEAN region at Ernst & Young.

According to the survey, preference for trade sales increased by almost ten percent of respondents in almost all countries from a similar survey a year ago. In China and Australasia, it nearly doubled.

Secondary buyouts as an exit option also rose in popularity in some markets. Japan, for example, was named by 56 percent of respondents as a market where secondary buyouts are the most attractive exit option, as compared to 44 percent a year ago.

Around 60 percent of all respondents believed the secondaries market would increase this year in Asia, although 53 percent expected the change would be slight, according to the report.