Private equity (PE) activity in Southeast Asia showed strong momentum in the first quarter of 2024, with a 31% increase in deal value and an 89% rise in deal volume year-over-year. In Q1 2024, there were a total of 17 deals deploying US$586 million, compared with nine deals worth US$447 million in Q1 2023.
Real estate deals accounted for a third (33%) of PE investments by value, followed by healthcare (28%) and financial services (23%).
This is according to the EY Quarterly Private Equity Update: ASEAN (Q1 2024), which provides a quarterly roundup of PE deals and capital activities across major sectors in Southeast Asia.
Luke Pais, EY Asia-Pacific Private Equity Leader, remarked, “Deal activity in Southeast Asia started to pick up in Q1 2024. We see a number of new deal starts, with activity in certain sectors such as healthcare, real estate, and infrastructure.
“Given Southeast Asia’s estimated gross domestic product (GDP) growth rate of 4.6% in 2024, lowering unemployment rates, and strong contribution from tourism, consumer sentiment is also improving and we expect to see more consumer transactions over the course of the year. The realignment of the global supply chain, which is expected to impact the region favorably, continues to remain an important theme.”
Preman Menon, Malaysia Strategy and Transactions Leader, Ernst & Young PLT, added, “In Malaysia, we are seeing similar trends in Southeast Asia where exits have been difficult and subdued in Q1 2024 due to a continued valuation gap between buyers and sellers, coupled with a softer ringgit weighing returns down especially on US dollar-denominated funds.
“Trade buyers who are generally the preferred buyers for PE assets are taking a more cautious approach and watching the space closely. Despite softening exits, dry powder still remains high with money still chasing niche assets that are able to demonstrate the capability to compete and operate beyond Malaysian borders.”
Sluggish Fundraising and Exit Activity
For exits, Q1 2024 saw slower activity. PE-backed exits in Southeast Asia fell by about 57% in terms of exit value compared with Q1 2023. Southeast Asia’s IPO market also witnessed muted activity in the quarter. The lack of exits, coupled with the high amounts invested in the region over the past few years, has manifested in a growing secondary market.
Fundraising also remained sluggish during the quarter. Only two Southeast Asia-based funds were closed, raising a cumulative sum of US$574 million. While private credit is still nascent in Southeast Asia, it has tremendous growth potential and opportunity for investors amid subdued deal and fundraising activity.
Pais concluded, “For the rest of 2024, the emphasis on bespoke transactions and unique deal structures, such as secondary deals, minority purchases, convertibles or structured investments, platform acquisitions, are expected to intensify. PE funds are prepared to hold for longer and will continue to drive value creation in their portfolio through operational improvements and bolt-on investments.
“Opportunities across the private credit space will grow, especially in the mid-market where bespoke financing solutions are more attractive.”
