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The total value of private equity deals in the Asia-Pacific region fell last year to its lowest levels since 2014, as fundraising fell to a 10-year low amid slowing growth, rising interest rates and volatile public markets, according to management consulting firm Bain & Company.
However, Japan was an outlier, with deal values jumping 183% in 2023 from the previous year, making it the largest private equity market in the Asia-Pacific region for the first time, according to Bain's Asia-Pacific Private Equity Report 2024 Monday.
Japan is an attractive investment because of its large pool of target companies with a “large pipeline to improve performance” and the pressure from corporate governance reform on Japanese companies to dispose of non-core assets, Payne said.
Overall, deal value in the Asia-Pacific region fell by more than 23% to $147 billion compared to the previous year. This is also 35% lower than the average value for 2018-2022 — a pace of decline consistent with the global slowdown — and nearly 60% lower than the peak of $359 billion in 2021, Payne said.
Exits were down 26% to $101 billion in 2023 compared to last year – of which 40% were via initial public offerings. Greater China accounted for 89% of IPO exit value in the Asia-Pacific region, with the vast majority listed in Shanghai and Shenzhen. Excluding IPOs in Greater China, the total value of exits in the Asia-Pacific region was $65 billion.
Lachlan: “The outlook for exits in 2024 remains uncertain, but successful funds are not waiting for markets to bounce back. They are paving the way for sales that meet their target returns by using strategy reviews to highlight the potential value of deals to buyers.” McMurdo, co-author of the company's annual report, said in a statement.
“This approach could reduce the inventory of legacy assets and return cash to limited partners through 2024, even if the overall exit market remains depressed,” he added.
Many leading private equity funds have turned to exploring alternative asset classes, such as medium- to high-yielding infrastructure operations including renewable energy storage, data centers and airports, Payne said.
Here are some of the highlights of the report:
Acquisitions accounted for 48% of total deal value in the Asia-Pacific region last year, exceeding the value of “growth deals” – which include companies that expand rapidly and often disrupt industries – for the first time since 2017. Despite the decline in the investor pool, Private sector and equity returns remain more attractive than public market returns over five, 10 and 20 years, Payne said.
The timing of the recovery remains unclear, although there were signs of some improvement toward the end of last year, Payne said. Payne added that when the recovery takes effect, revolutionary technologies such as generative artificial intelligence will be among the new areas that hold “huge promise.”
Japan, India and Southeast Asia are among the Asia-Pacific markets where private equity investment opportunities are viewed favorably over the next 12 months, Bain said, citing Preqin's 2023 Investor Survey.
