<article>Private equity (PE) firms in Southeast Asia (SEA) are taking their time to close deals, given the overall volatility in the region over the last few months, according to the EY Private equity briefing: Southeast Asia (June 2016) <a href="http://www.ey.com/Publication/vwLUAssets/ey-private-equity-briefing-southeast-asia-june-2016/$FILE/ey-private-equity-briefing-southeast-asia-june-2016.pdf" target="_blank">report</a>.  </article>

Private equity (PE) firms in Southeast Asia (SEA) are taking their time to close deals, given the overall volatility in the region over the last few months, according to the EY Private equity briefing: Southeast Asia (June 2016) <a href="http://www.ey.com/Publication/vwLUAssets/ey-private-equity-briefing-southeast-asia-june-2016/$FILE/ey-private-equity-briefing-southeast-asia-june-2016.pdf" target="_blank">report</a>.  
The overall value of PE deals completed in Q1 2016 touched $852 million, 20 per cent lower than Q1 2015. More notable is the 43 per cent decline in the total number of deals completed over the same period, principally due to the decrease in early-stage technology deals.
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This was attributed to economic uncertainties which drove heightened investor caution and an increased focus on concluded deals on market-appropriate terms. However, deal pipelines remain quite robust and it is expected to continue through 2016, according to EY
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Technology and consumer sectors remained the most active sectors with significant competition for opportunities across the region.
EY notes, the increased competition for PE came from Chinese capital inflow, more aggressive Japanese investors, and expansion of global and regional conglomerates.
<a href="http://www.dealstreetasia.com/wp-content/uploads/2016/07/ey_PE_figures_q22016.png" rel="attachment wp-att-48505"><img loading="lazy" decoding="async" width="700" height="253" class="aligncenter size-full wp-image-48505" src="http://www.dealstreetasia.com/wp-content/uploads/2016/07/ey_PE_figures_q22016.png" alt="ey_PE_figures_q22016" srcset="https://media.dealstreetasia.com/uploads/2016/07/ey_PE_figures_q22016.png?w=700 700w, https://media.dealstreetasia.com/uploads/2016/07/ey_PE_figures_q22016.png?resize=768,277 768w" sizes="(max-width: 700px) 100vw, 700px" /></a>
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<h3 style="text-align: justify;">Increased innovation, flexibility in PEs</h3>
According to the EY report: &#8220;With dry powder at high levels and a number of new players, including pension funds and family offices entering the market, PE houses need to innovate and differentiate to invest. There is more focus on sector specialists as PEs position to add value to businesses.&#8221;
<a style="color: #000080;" href="https://sg.linkedin.com/in/luke-pais-b47a4b1" target="_blank">Luke Pais</a>, EY Asean Leader, M&amp;A and Private Equity, says: “There is more focus on sector specialists as PEs position to add value to business. We are seeing PEs taking more innovative approaches such as investing roll-ups, deploying funds into tech companies, partnering family conglomerates to help them unlock capital and being more creative in deal structuring.
&#8220;PEs have also become more flexible in their ticket sizes with a recognition that regional deal sizes are very mid-market,” Pais added.
PE fund managers are also increasingly flexible in their ticket sizes, with a growing recognition that regional deal sizes in Southeast Asia are oriented towards the <a style="color: #000080;" href="https://www.divestopedia.com/definition/877/middle-market" target="_blank">middle market</a>.
EY reports that the impact of increased competition in the PE space is that deal multiples continue to remain healthy, with data compiled by Dialogic showing that earnings before interest, taxes, depreciation and amortization (EBITDA) multiples being paid are on average around 10 times EBITDA.
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This is despite deteriorating credit conditions being experienced where PE houses are seeing less appetite from banks to help fund such deals. This means that alternative forms of debt, such as mezzanine and new loan instruments, are seeing an increase in popularity as investors look to structure deals such that performance criteria are met.
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The tight credit conditions across SEA mean that businesses increasingly need to turn to alternative forms of capital. Commenting on this, Pais said, “This will present excellent investment opportunities for PEs through the rest of 2016, and likely into 2017. In order to capture these opportunities, PEs need to focus their offering to suit the needs of each situation.”
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<h3 style="text-align: justify;">Conducive exit environment </h3>
<a href="http://www.dealstreetasia.com/wp-content/uploads/2016/07/Screenshot-2016-07-26-10.56.37.png" rel="attachment wp-att-48506"><img loading="lazy" decoding="async" width="800" height="276" class="aligncenter size-full wp-image-48506" src="http://www.dealstreetasia.com/wp-content/uploads/2016/07/Screenshot-2016-07-26-10.56.37.png" alt="Top deals q1 2016 EY" srcset="https://media.dealstreetasia.com/uploads/2016/07/Screenshot-2016-07-26-10.56.37.png?w=800 800w, https://media.dealstreetasia.com/uploads/2016/07/Screenshot-2016-07-26-10.56.37.png?resize=768,264 768w" sizes="(max-width: 800px) 100vw, 800px" /></a>
With high competition and strategic investors showing real appetite in SEA, the report indicates that 2016 should be an attractive time for shareholders seeking an exit event, whether through a corporate buyout (i.e. M&amp;A), merger or an initial public offering (IPO). 
In Southeast Asia, it is believed that there will be an increase in the number of PE-backed assets coming to market over the next 12 months due to a growing portfolio of assets that are coming to the end of their investment life cycle.
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EY highlights that there are limited disclosure around PE exits in the region, with a number of deals being unreported, while exit activity remained low, with two deals being captured in Q1 2016 &#8211; the largest being a transaction involving <a style="color: #000080;" href="http://dealstreetasia.com/tag/warburg-pincus" target="_blank">Warburg Pincus</a>, along with other existing shareholders such as <a style="color: #000080;" href="http://dealstreetasia.com/tag/gic" target="_blank">GIC</a> and <a style="color: #000080;" href="http://dealstreetasia.com/tag/bain-capital" target="_blank">Bain Capital</a>, in the <a style="color: #000080;" href="http://www.dealstreetasia.com/stories/india-four-pe-funds-in-fray-to-pick-up-stake-in-quest-global-services-16147/" target="_blank">sale of a significant minority stake</a> in <a style="color: #000080;" href="http://dealstreetasia.com/tag/quest-global-services" target="_blank">Quest Global Services</a> for $350 million.
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At the same time, the average hold period for PE investments across Southeast Asia is longer than what is seen globally. This creates additional risk for PE firms when undertaking investments, since there is an increased likelihood that these investments will incur a change in the business cycle during the holding period.
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<a style="color: #000080;" href="https://sg.linkedin.com/in/purandar-rao-72b99a9" target="_blank">Purandar Rao</a>, Head of Transactions at Ernst &amp; Young Solutions, expects a market for secondary transactions to emerge in Southeast Asia as the PE ecosystem mature over time; these transactions are commonly seen in the US and European markets but are currently limited in Southeast Asia.  
Rao concludes: “Despite the slowing transaction activities observed in the past two quarters, the fundamentals for PE deal activity remains strong. There are large amounts of dry power ready for investments, and there continues to be new PE houses opening for business in the region. As 2016 progresses, PE deal activity will likely increase.”
<a href="http://www.dealstreetasia.com/wp-content/uploads/2016/07/exit-activity-EY-Q12016.png" rel="attachment wp-att-48509"><img loading="lazy" decoding="async" width="600" height="521" class="aligncenter size-full wp-image-48509" src="http://www.dealstreetasia.com/wp-content/uploads/2016/07/exit-activity-EY-Q12016.png" alt="Exit activity in Q1 2016" srcset="https://media.dealstreetasia.com/uploads/2016/07/exit-activity-EY-Q12016.png?w=600 600w, https://media.dealstreetasia.com/uploads/2016/07/exit-activity-EY-Q12016.png?resize=768,666 768w" sizes="(max-width: 600px) 100vw, 600px" /></a>
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PE activity in Southeast Asia is operating in a competitive environment, with current conditions conducive to exit

PE firms in SE Asia taking time to close deals in 2016 despite robust pipeline

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PE firms in SE Asia taking time to close deals in 2016 despite robust pipeline

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