Private equity investment is shrinking globally as “longer-high” interest rates and uncertain global growth dampen investor risk appetite.
Southeast Asia, which was also regarded as an emerging hot spot for the digital economy a few years ago, is no exception. A new report from Bain & Company shows that private equity deals in the region are declining despite positive growth prospects and the fact that the region may benefit from a global trend of business reshoring.
Compared with the average transaction value from 2018 to 2022, the transaction value in Southeast Asia fell by 39% in 2023, reaching US$9 billion. Transaction values in the region are back to 2020 levels.
Nonetheless, Southeast Asia performed broadly in line with other Asia-Pacific markets. Transaction volumes in Greater China and India fell by 58% and 41% respectively during the same period.
A market that is doing well? The value of transactions in Japan increased by 183% compared to the 2018 to 2022 average.
Singapore and Indonesia account for the majority of transactions in Southeast Asia, both in terms of value and volume. “Singapore usually ranks No. 1,” said Usman Akhtar, senior partner and head of Bain & Company’s Southeast Asia private equity practice. “Singapore’s location attracts a lot of companies with regional ambitions. That doesn’t necessarily mean that it all flows into Singapore’s economic activity, but that’s where the companies are based.
Bain said Indonesia typically ranks second in attracting private equity investment. The country has the largest economy in the region and a rapidly growing middle class.
The average value of private equity investments in Southeast Asia ranged from US$10 billion to US$11 billion between 2018 and 2020, but as the COVID-19 pandemic fueled an investment boom in the Internet industry, this number soared to US$27 billion in 2021.
The online and technology industries continue to receive the most private equity investment, accounting for more than half of all deals since 2018. The company also predicts that rising incomes in the region will make the consumer goods industry a hot spot for investment.
If 2023 is tough, 2024 is unlikely to be much easier. A Bain & Company survey found that investors expect returns to decline over the next three to five years and are concerned about challenges to the exit terms of their investments.
Dealmaking in Southeast Asia has been slow so far this year. Only $1.4 billion in private equity deals have been completed in Southeast Asia in the first quarter of 2024 so far, or $5.6 billion on an annualized basis, down from $9 billion last year.
