Study: Southeast Asia poised for deal activity

The compelling growth story of Southeast Asia is increasingly attracting new market participants, but local knowledge will bring a strategic advantage, according to a BCG report.

Southeast Asia is becoming the next hot location for private equity deals, according to a recent report from the Boston Consulting Group. 

The report cites Southeast Asia’s 611 million population with a $3.1 trillion GDP growing at 8 percent annually, the rise of a consumer class, a rich endowment of natural resources and the relocation of manufacturing from China to the the region, all of which make it “the third largest emerging market bloc after China and India, besting Brazil and Russia by a wide margin”.

Global firms have taken note and they will likely be deal sourcing in Southeast Asia in a big way, aiming to invest capital from their Asia-focused megafunds. 

Kohlberg Kravis Roberts, for example, is raising a $6 billion Asia fund – the largest ever for the region, and TPG is raising a $4 billion Asia fund. 

The Carlyle Group is also warming to the region. In October, the firm made its first Southeast Asia deal, putting $100 million into Indonesian telecom tower operator Solusi Tunas Pratama, according to media reports. 

Valuations are high and will likely rise further as the global firms, pushed to invest large amounts of capital, bid on assets. 

According to the report, acquisition prices in Indonesia are already at 16.2x earnings. The Philippines average price-to-earnings ratio is at 15.2x, Malaysia is at 14.2x and Singapore, 12.9x. 

Thailand (12.1x) and Vietnam (9.8x) are lower “because of lower growth expectations and higher perceived risk”, the report said.

“Successful dealmaking calls for careful target selection, accurate pricing and skillful execution, both before and after closing,” said Dinesh Khanna, a BCG partner and co-author of the report.

In addition to high valuations, new participants should expect minority stake transactions, longer lead times for deals and wide variations in customs and practices between countries, the report said, adding that a deep understanding of local markets will bring a strategic advantage.