Already on an ongoing downward trend in 2019, private equity deal value in Greater China took another 55 percent plunge in the first quarter of 2020 due to the ongoing pandemic.

Private equity deal value totaled $150 billion in 2019 compared to 2018’s $178 billion and continued shrinking sharply in the first quarter of this year, according to a recent report by Bain & Company. Contraction is expected to persist in the second quarter and Bain forecasts an overall decline of 15-25 percent in deal value for the year. Deal count is expected to stay relatively stable with just a 1-5 percent dip for the year.

In 2019, exit values plummeted even deeper (-43 percent) attributed to broadly volatile public markets and stricter regulation on renminbi funds. 

Bright Rebound Outlook

According to Bain, the outlook for the market in the second half is expected to be optimistic when applying the rebound patterns that were exhibited from the region’s last major health crisis – the SARS epidemic. Sectors like software, healthcare equipment, and services are expected to lead the rebound.

«Despite the impact on the China market, the current trajectory suggests that an extreme decline in economic activity will be short-lived, as industries have already started to recover at varying speeds,» said Hao Zhou, a partner at Bain & Co and co-author of the report. «Investors should still remain focused on how to succeed in a post-COVID-19 world. Even though current macro-economic challenges continue to impact the market, there will be growth in the country.»

Deflating Expectations?

Amongst the top key concerns, economic softness ranked the highest (65 percent) alongside high pricing expectations (50 percent), challenging exit conditions (42 percent) and lack of deal opportunity (42 percent).

Interestingly, high pricing expectation as a top concern saw the greatest year-on-year increase coupled with the fact that the majority of respondents believe the broader APAC private equity cycle is past its peak. Greater China posted average price multiples of around 23x of EV/EBITDA – roughly the same for three consecutive years after a peak of 29x in 2016.

Still, Greater China continues to be a dominant contributor to the broader APAC private equity market. In 2019, the segment represented 42 percent of the total market – a material drop from 55 percent from 2014-2018 but still the obvious market leader.