Secondary buyouts in Asia have been increasing since 2011 and account for over 20 percent of aggregate deal value from 2010-2015.
The upward trend in secondary buyout activity is fueled by the large amount of committed private equity capital, as private equity firms in Asia continue to sit on almost $150 billion of capital. Another factor is pressure on private equity firms to return capital back to their investors, according to Grant Thornton’s latest Asia Private Equity Review 2015/16.
Secondary buyouts (SBOs) in Asia have, however, typically accounted for a lower proportion of transactions than in North America and Europe. General partners who took part in the Grant Thorton survey expect the number of SBOs to increase this year due to turbulent public equity markets, leaving trade sales and secondary transactions as the primary exit options for PE sellers.
According to the report, Asian private equity firms are ‘cautiously optimistic’ about investing across the region in 2016 due to high market evaluations and global events such as China’s slowdown, geopolitical instability in the Middle East and the Eurozone crisis.
Barry Tong, advisory partner at Grant Thornton Hong Kong said: “Some underperforming PE firms have become even more cautious about investment and prefer to acquire equity interests in companies from the secondary markets because other sizeable PE funds have already conducted due diligence of such companies, which enables them to minimise risks.”
He added that the PE environment in Asia continues to mature and grow despite the apparent slowdown of investments in 2015. As of December 2015, there were more than 600 active PE firms based in Asia, accounting for about 10 percent firms globally, with majority of the firms located in Hong Kong, mainland China and Japan.
The report also found that some PE firms are switching strategy to invest venture capital mainly in start-ups spurred by the success of Tencent and Alibaba. PE firms are focusing more on technology, media and telecommunications (TMT) an e-commerce investments in China.
Stepping into 2016, it is expected that TMT, pharmaceuticals, medical and biotechnology (PMB) and environmental protection sectors will become dominant for mergers & acquisitions across Asia.
Some recent developments in Asia will also fuel increased buyouts in 2016 such as the introduction of central government policies encouraging angel investments and the development of start-ups in China and the rise of a budding entrepreneur system in South Korea.