Study: GP confidence runs high in Asia

Optimistic sentiment about Asia deals prevails despite a down year in 2013.

The private equity industry in Asia Pacific is overwhelmingly optimistic that 2014 will be a year of vigorous deal activity, according to a survey report from Ernst & Young. 

Seventy-six percent of survey respondents had high expectations that private equity deal activity would increase in 2014.

The positive sentiment comes after deal value and volume in 2013 fell substantially in Asia. Private equity investments in Asia Pacific, excluding real estate and infrastructure deals, fell to $12.3 billion in 2013 compared to $22.2 billion a year earlier, according to figures from Thomson Reuters. Deal volume was down as well, dropping to 979 compared to 1,578 a year earlier.

The survey also found that the most significant challenge for private equity in Asia this year will be overvalued targets, according to 62 percent of respondents. 

“Companies across Asia Pacific believe they are in greater demand by private and corporate, foreign and local investors,” the report said.

In E&Y’s previous Asia Pacific survey (2012), an overwhelming number of respondents (79 percent) noted that the biggest challenge was competition from corporate buyers. That concern has since eased, with only 40 percent citing it as significant in 2014.

The report suggests that corporates are now viewed more as acquirers of private equity assets, as GPs seek more trade sale exits. Trade sales nearly doubled in 2013 to $31.5 billion and volume was up about 40 percent to 166 (to end of October), according to E&Y figures.

“Investors in Asia are unwilling or unable to wait for IPO opportunities to return,” Ringo Choi, Asia Pacific IPO leader at E&Y said in the report. “Because of this, what we’re seeing is GPs turning away from IPOs and following the US or European PE model of doing deals with corporates.