Private equity-backed M&A in Southeast Asia is down about 40 percent to $1.58 billion to December 20, while deal value is also down to 15 from 19 last year, according to Mergermarket data.
The figures are for private equity investments only and exclude real estate and infrastructure deals.
During the same period, total M&A in Southeast Asia (to December 20) reached $64 billion across 365 deals, the largest amount of value and volume ever, according to data from Mergermarket.
PE-backed M&A in Southeast Asia
The huge gap between overall M&A and private equity-backed M&A in the sub-region is due to several factors, said William Kirschner, partner at Linklaters in Singapore.
Many potential investment targets are in heavily-regulated sectors such as financial services and healthcare. “They are inherently more difficult for private equity than for strategics with a track record of regulatory approval in their home markets or globally.”
In addition, strategics, particularly Japanese corporations in Southeast Asia, are often rivals on deals.
“A lot of strategics are in a healthy position with cash on the balance sheet as they come out of the financial crisis and are now looking to deploy that,” Kirschner said.
“Private equity has difficulty competing with strategics on price on a lot of the opportunities, particularly the bigger control deals with significant control premium.”
He added that in Southeast Asia, particularly Indonesia, the Philippines and Thailand, valuations have been higher than in 2012, partly because a lot of new capital has come in looking for relatively few opportunities.
Global firms such as Kohlberg Kravis Roberts, which closed a record $6 billion Asia fund this year, the Carlyle Group, which held a $1.5 billion first close on a $3.5 billion Asia fund and others are bringing more capital into the region than ever before. At the same time, China and India have slowed while Southeast Asia has become the hot region for investment.
“There’s now a mismatch between the number of opportunities and the amount of money chasing deals, which leads to increased valuations,” Kirschner said.