Asia private equity 2022 deals fell 44%; uncertainty ahead

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The first deal between Citizens and SVB will

According to Bain & Company, the Asia-Pacific private equity market has plummeted over the past year as investors’ risk appetite waned amid inflation and geopolitical tensions.

The total value of deals for the region fell 44% to $198 billion in 2022, the global management and advisory firm said in a report Tuesday. That compares to $354 billion in 2021, the analysts said, adding that nearly 70% of fund managers surveyed expect the negative trend to continue into 2024.

Persistent macroeconomic uncertainties alongside rising costs and deteriorating corporate performance dampened investor sentiment, Bain said in his 2023 Asia Pacific Private Equity Report.

Central Hong Kong and the IFC Tower seen from the Avenue of Stars in Tsim Sha Tsui. (Photo by Marc Fernandes/NurPhoto via Getty Images)

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“Investors, anticipating a new era of slower growth, rising inflation and greater uncertainty, took time to recalibrate their strategies and realized that what has worked well in the past may not be the right approach for 2023 and beyond is,” a group of contributors from Bain’s private equity practice, including Kiki Yang, said in the report.

“If the conditions — macroeconomic uncertainty, poor corporate performance and a slowdown in transaction activity — that have prevailed in 2022 continue, valuations could fall further as fund managers take a wait-and-see stance,” Bain wrote.

The traditional strongholds for internet and tech deals – Greater China, India and Southeast Asia – all experienced sharp declines.

Asia Pacific Private Equity Report 2023

Bain and Co.

Transaction value in Greater China fell 53% as investors grappled with the country’s zero-Covid policy, leading to declines across the region. China and India accounted for a combined $35 billion in deal value for large growth deals for the year, according to Bain.

Tech, Internet deal values ​​fell

While internet and technology remained the largest investment sector in Asia-Pacific, it also saw a decline from a year earlier, which marked its lowest level since 2017, the company said.

“For more than a decade, the internet and technology sectors have attracted the largest share of private equity capital in Asia Pacific. However, its share of transaction value fell to 33% in 2022 from 41% the previous year,” the Bain authors wrote in the report.

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“The traditional strongholds for internet and tech deals – Greater China, India and Southeast Asia –
all experienced sharp declines,” said Bain, adding that transaction value in the sector for major Chinese markets fell 62% year-on-year.

Within the technology sector, cloud services had the largest business value, with consumer technology companies like e-commerce and online services seeing business value down about 70% year over year.

ESG-related investments

While macroeconomic conditions dampened investor sentiment on private equity deals across the region, Bain saw an increase in the number of environmental, social and corporate governance (ESG) deals.

“In the energy and natural resources sector, investments in utilities and renewable energy accounted for 60% of transaction value, reflecting the increasing importance of environmental, social and corporate governance considerations as an investment priority,” Bain said.

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The number of deals for utilities and renewable energy rose 47% year over year, the report said. Corio Generation, the offshore wind company of Australia’s Macquarie Group, secured a roughly $1 billion investment from investor Ontario Teachers’ Pension Plan.

General partners interviewed by Bain say they will continue to focus on ESG-related investments in the coming years, it said.

“Half of the GPs we surveyed plan to significantly increase their efforts and focus on ESG over the next three to five years, versus 30% in three years [years] ahead,” Bain said.