As investors take a more selective approach to investments, fewer private equity deals have been done in the first half of 2016. The muted deal volumes in Southeast Asia reflect a global market trend.
With liquidity from banks increasingly scarce for companies, many have been exiting or seeking alternative forms of capital in order to strengthen the balance sheet and position for growth.
According to the EY Private equity briefing: Southeast Asia (September 2016) report, Private Equity firms in Southeast Asia are taking a more selective approach when assessing investments, particularly those in the technology sector.
The quarterly briefing offers a roundup of the PE deals and capital activities across major sectors in the quarter. The report also revealed that PE investors are turning back to fundamental themes and industries that they are familiar with. The consumer products, health care and business services sectors remain active, and the short-term volatility is creating opportunities for investors.
Technology Sector Maturing
The reduction of investments made into the technology sector has brought down the overall value of PE deals completed through the first half of 2016 which was US$1.56b, a 17 percent drop on the same period in 2015. The total number of deals was down by 36% year-on-year.
Valuations across the Technology sector have eased with concerns not just around the sustainability of business models, but more importantly, the exit.
Muted Global Marketplace
According to the report, the muted volumes in transactions across SEA reflect what is seen globally. Worldwide, the total value of investments has fallen by 14 percent year on year. This is in part due to PEs adjusting to a tighter financing market and shows the industry’s continued patience toward investing. As a result, the buy-out dry powder is up 11 percent from a year ago, to US$526.6b.
Brexit could present new opportunities for firms that can successfully navigate the new landscape, particularly for Asia-based firms that could put dry powder to work if potential target businesses remain uneasy about the ripple effects from the complexity and timing of Brexit.
