Southeast Asia’s (SEA) private equity (PE) market deal value fell 52 percent in 2022 compared to the previous year, with deal count also declining 15 percent year-on-year, Bain & Company (Bain) said Thursday.

Activity in the region was strong through the first half 2022 (matching 2021 activity levels), before falling in the second half of the year, according to Bain’s Southeast Asia Private Equity Report 2023.

The report showed growth deals continued to account for majority of activity in the region in 2022, with the largest relative declines occurring in the buyout sector.

Although the region saw a slowdown in deal activity in 2022, Bain opined that the region’s long-term macro fundamentals remain strong.

According to the report, Singapore and Indonesia continued to attract the bulk of investment capital in SEA in 2022, accounting for over 80 percent of the region’s deal value and deal count.

However, it said activity across all regions declined during the year.

As a point of reference, according to Bain’s Asia Pacific Private Equity Report 2023 released last month, Greater China saw the greatest fall in deal value in the region at 53 percent.

Deal value in Australia-New Zealand, Korea, Japan and India dropped 48 percent, 39 percent, 28 percent and 25 percent, respectively.

“What we are seeing is a natural reaction to the global macro climate. Increasing interest rates, a softening economic environment and general uncertainty over the future have all made it more challenging to get deals done,” said Usman Akhtar, head of Bain’s SEA PE practice, based in Singapore.

It is noted that exit value in SEA also fell 46 percent year-on-year as investors struggled with the re-rating of public market valuations, deteriorating portfolio performance and fewer avenues for exits given the decline in initial public offerings (IPOs).

Meanwhile, internet and tech continued to lead as the primary investor sector in each country in SEA, with healthcare and financial services positioned as the second and third largest sectors across geographies.

The internet and tech sector saw fewer large ticket investments and lower overall activity levels in 2022 versus 2021 but still accounted for the bulk of deals done in the region, accounting for 55 percent of total deal volume in the region in 2022.

Beyond the internet and tech sector, several other areas continued to attract capital.

One to highlight is healthcare, which has seen sustained investor interest on the back of clear secular trends (e.g., aging populations and rising affluence) and innovation across the value chain (e.g., emerging models outside of the hospital and new digital health tools).

Bain also sees opportunities in the broader energy transition space.

For SEA countries to meet their long-term carbon reduction goals, it said there needs to be investment across sub-sectors such as energy production, agriculture, and waste management.

Despite near-term uncertainty, Bain said the long-term outlook for private capital investment in SEA remains positive.

Bain’s analysis showed that macroeconomic conditions in SEA have been more resilient than the rest of Asia Pacific.

It said real gross domestic product (GDP) growth in SEA continued to be strong while inflation related indices remained moderate.

In addition, it said ongoing geopolitical tensions between the United States and China will continue to create opportunities for SEA businesses.

As always, it said the challenge for investors will be on doing the basics well – sourcing good deals and driving value in their portfolio companies.

According to Bain’s survey with SEA general partners, investors are increasingly shifting their value creation emphasis to cost-focused efforts.

“SEA remains an attractive place to deploy capital in the long term. The market fundamentals are there, and investors will be able to find attractive opportunities,

“However, competition will be intense for these assets and multiple expansion will no longer be a sustainable return driver. That puts more pressure on investors to create value during their ownership period,” said Suvir Varma, senior advisor of Bain’s global PE practice, based in Singapore.

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