Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

With record dry powder, private equity poised for Asia M&A boom

Published 10/23/2018, 08:42 AM
Updated 10/23/2018, 08:42 AM
© Reuters. Nearby buildings are reflected on the exterior of a commercial tower at the financial Central district in Hong Kong

© Reuters. Nearby buildings are reflected on the exterior of a commercial tower at the financial Central district in Hong Kong

By Kane Wu

HONG KONG (Reuters) - Dealmaking by private equity firms in Asia has surged this year, data showed, underscoring their rising presence in the region's otherwise stolid, tycoon-dominated M&A scene, backed by an unmatched warchest.

Private equity-backed deals so far this year total $79 billion in Asia-Pacific excluding Japan, up 63 percent over the same period of last year and surpassing the $74 billion full-year record set in 2015, according to Refinitiv data.

The growth was much higher than the 12 percent year-on-year increase seen in the region's total mergers and acquisitions value of $892 billion, the data showed.

While investments in Chinese technology companies such as Ant Financial have headlined private equity's activity in Asia, a series of actions including buyouts show the industry is becoming more aggressive.

Private equity's banner year also comes as the region's companies face challenges, with trade tensions and regulatory scrutiny curbing outbound deals from China, the dominant dealmaking force for the past three years.

The result is an increased acceptance of buyout groups in a region well known for cosy behind-the-scenes dealmaking between established tycoons and companies.

"When we are on the sell-side, even if it is a strategic asset, the feedback (from potential buyers) would be more private equity than strategic. The clients themselves are very surprised," said Samson Lo, head of Asia M&A at UBS.

The sizes of deals and proposed deals are one indication of the heightened interest of private equity.

In August Hillhouse Capital Group led a consortium that bid $17.6 billion for U.S.-listed fast food chain operator Yum China (N:YUMC). The bid was later rejected.

And last month China's Anta Sports (HK:2020) teamed up with private equity firm Fountainvest Partners to offer $5.3 billion for Finnish sports company Amer Sports (HE:AMEAS).

"They are not afraid of big deals," UBS's Lo said of private equity firms.

TECH DEALS DOMINANT

In Europe and the United States, private equity firms flex their muscles primarily via large buyouts, but in Asia they have also made a splash investing in growth companies, especially in the internet and technology sector.

An industry who's who, including Carlyle Group (NASDAQ:CG), Silver Lake Partners and Warburg Pincus, in June backed Ant Financial in its $14 billion fund raising - the world's largest such deal.

"This (tech sector) is the pond with the most fish. So do you want to fish in it or not?" said Jim Tsao, chairman and head of China for UK-based firm Permira, a traditional buyout firm which raised its first global growth-focused fund this year.

KKR & Co (N:KKR) also made news earlier this year when it invested in Beijing Bytedance Technology Co., the owner of China's leading news aggregator Jinri Toutiao, via convertible bonds. Toutiao is seeking a valuation of $75 billion in its latest funding round.

"Looking forward, internet and tech are still going to be the biggest sectors largely driven by China," said Kiki Yang, a Hong Kong-based partner at consulting firm Bain & Co, adding that the sectors would be less impacted by trade tensions as they are more related to local markets.

DRY POWDER

The region's private equity dealmaking surge has been helped by the sheer volumes of funds available to finance it.

Last year the industry raised a record $138 billion in new funds for the region, according to data provider Preqin. The fundraising has continued this year too. Hillhouse Capital in September raised Asia's biggest fund at $10.6 billion.

The dry powder, or investable capital, reached $309 billion in September - its highest level ever.

Average deal size in the first half of this year hit a record $172 million, up 51 percent from its five-year average, according to a September report from Bain & Co.

China has been Asia Pacific's biggest market by value since 2014 and this year's $49 billion is already a record, Refinitiv data showed. India has also boomed with a record $10 billion in deals so far.

Private equity houses are also venturing into Southeast Asia, where recent changes in market regulations and the proliferation of new technologies have brought opportunities.

© Reuters. Nearby buildings are reflected on the exterior of a commercial tower at the financial Central district in Hong Kong

Warburg Pincus, KKR and TPG have all made sizable investments in Indonesia and Vietnam, while Morgan Stanley (NYSE:MS) Private Equity Asia just announced on Monday it has raised over $440 million for a Thailand-focused fund.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.