Total deal value in Southeast Asia is expected to $70 billion over the next five years. The region will produce at least ten unicorns by 2024.
When it comes to investments, Southeast Asia has its foot on the gas, according to new research from Bain & Company.
Bain expects deal value over the next five years to total $70 billion – double the level of the previous five years – and the region will produce at least ten «unicorns», new companies that rapidly achieve market valuations of $1 billion or more, by 2024.
These findings are part of the report «Investing in Southeast Asia: What’s Behind the Boom». Bain points to several factors that likely contributed to higher investment activity across the region:
- A steady influx of new venture capital and private equity participants, which has soared to record levels.
- Strong investor interest in the region’s tech sector, which attracted the bulk of new capital.
- The region’s maturing bench of start-ups: more than 1,300 companies in Southeast Asia received a first round of seed, or Series A.
- Strong exit momentum and healthy returns that are contributing to a faster pace of investment by accelerating a healthy recycling of capital.
- Creating a single Southeast Asian trade bloc, which continues to increase the attractiveness of the region by reducing tariffs on goods and services and establishing a common trade zone that operates more like a unified economy than a patchwork of national economies.
- Government initiatives that have played an important role supporting venture capital and vibrant start-up centers.
Based on Bain’s experience advising investors across the region, those that succeed in adding significant value to their companies share a common approach based on four principles:
1. ASEAN Perspective
Take an ASEAN perspective when evaluating deals. Companies that diversify across Southeast Asia grow faster and reduce the risk of relying on a single economy. They also benefit from the ongoing integration of these markets.
2. Right Talent
Identify the right talent for the biggest roles. Bain’s research shows portfolio companies’ leadership is the greatest source of success or failure for value creation in Asia-Pacific investing—and talent is particularly scarce in Southeast Asia.
3. Commercial Excellence
Build commercial excellence to boost organic growth. Accelerating top-line growth lifts profitability and magnifies exit multiples, but it’s hard to get right. Only 24 percent of general partners say they have met top-line expectations in most of their portfolio companies over the last few years.
4. Digital Technologies
Make the most of digital technologies. Top global investors are helping management teams understand how new technologies are shifting their profit pools. Portfolio companies that embrace digital strategies are better positioned to manage disruption and keep pace with rapidly changing markets, particularly in Southeast Asia, which Bain expects will continue moving faster than in Western markets.
Vibrant Start-up Ecosytems Catching-up
Though Singapore remains Southeast Asia’s investment hub, vibrant start-up ecosystems are emerging across the region. The number of companies in Indonesia raising a first round of funding in 2017 rose more than 300 percent from 2012.
Together, Indonesia and Vietnam generated 20 percent of the region’s private equity deal value over the past five years, and that percentage is likely to grow.
