2016 Second best year in record for APAC’s PE, Internet fever remains strong: Bain

Investment momentum in Asia Pacific (APAC)’s private equity (PE) market eased in 2016, after a historic soaring high in 2015, a report by Bain & Company shows. Despite the slump, 2016 is still the second best year on record.

“We anticipated last year would be a much tougher deal-making environment – one that would make it more difficult for PE funds to generate market-beating returns. Despite persistent challenges, PE firms rose to the occasion and delivered impressive results, the second best on record. They now face the task of sustaining this positive momentum amid another year of uncertainty ahead,” said Suvir Varma, head of Bain’s Asia-Pacific PE Practice.

Deal value, fund-raising, exits in numbers

Deal value in the APAC region decreased from $124 billion to $92 billion, while deal count dropped to 892, after peaking at more than 1,000. In 2016, fund-raising of $43 billion slightly trailed the five-year average. But this is unsurprising, the report says, given the amount of money poured into these markets over the last several years.


Meanwhile, exits tailed off in 2016, partly due to a weak equity market in China that hobbled IPOs. Exit value in the region fell from an all-time high of $115 billion in 2014 to a historically normal level of $74 billion.


India, on the other hand, was “fertile ground” for exits last year, as was South Korea and Southeast Asia.

The market continued to benefit from investor interest in internet-focused opportunities, mostly China and India, which comprised more than one-third of deals.

Government and institutional investors remained an important part of the PE landscape, driving 57 per cent of deals worth $1 billion or more, as opposed to 19 per cent for global buyouts.

“Yet, APAC funds are still sitting on an ample supply of dry powder, which has remained largely flat,” Bain team said in the report.


New source of value

Deal multiples in APAC reached 17x, outpacing levels in the US of 10x. This, together with tightening interest rates squeezed profit sources, causing PE firms to rely far less on traditional leverage and to look to new sources of value.


Of 120 investors surveyed by Bain, about fifth (22 per cent) said they considered cost and capital gains to be the most important source of returns for deals exited five years ago. About six percent cited M&A.


“Looking ahead five years, these factors are expected to increase dramatically in significance, with 37 per cent of general partners (GPs) pointing to margin efficiency and more than 20 per cent to M&A. On the other hand, most respondents anticipated multiple expansion and leverage to both to go down. Revenue growth, while still the most significant factor, is expected to plateau in the next five years,” the report says.

About 80 per cent of GPs felt that current level of competition has increased. They are most worried about pressure from other regional and local PE funds, as well as strategic corporate buyers looking for opportunities to expand their footprint in the region.

But what is their strategy for success? More than half of GPs believed it is is a plan for creative value creation. Yet, they realized that they need to execute more consistently. Nearly two-thirds of respondents had developed a value creation plan for more than 80 per cent of their portfolio companies, but only 19 per cent said those plans were implemented successfully and yielded the intended results.

Deal sourcing and due diligence

Bain’s report also cited a differentiated view on companies and sectors (46 per cent) through more thesis-based due diligence, which produces insights that enable them to win deals and realize a profit. 36 per cent said exclusive access to targets via smarter sourcing is essential to ensuring deal success. However, less than one-third believe they are operating at full potential on sourcing.

Internet remains most sought-after

Investors showed their continued appetite for high-growth technology companies. Internet, technology, media and telecommunications attracted $42 billion, or 45 per cent of total investment value last year. Internet deals alone accounted for more than a third of the total, continuing a five year trend. In April, China Investment Corp (CIC) along with other investors invested a whopping $4.5 billion in online payments platform Ant Financial Services, who is also a part of the Alibaba Group.



“This focus on innovation provided a strong foundation for investment activity,” said Bain team.

Internet fever also helped early-stage deals surge. As GPs seek out growth and the region becomes increasingly comfortable with the PE value proposition, the number of small-company deals has risen steadily in recent years.

The value of early-stage deals rose to $16 billion, or 18 per cent of the total market, with particularly strong activity in Greater China. In this region, early-stage deal value rose 24 per cent from 2015 and was three times higher than the five years’ average. Notable examples are the $600 million financing of electric car company Singulato Motors by Lancapital Holdings and CGV’s $60 million round for Zuoyebang, an online education company spun off from Baidu Inc.

By the countries




Investments in China reached $49 billion in 2016, down compared to last year but still 30 per cent above its five-year average. It remains the primary market in the region for PE, however, investors need to be cautious of slowing growth, corporate debt, and steep valuations.




Deal value was down slightly from $19 billion to $15 billion, but up versus its historical average. Exit momentum remained active, with value increased 114 per cent from its five-year average. There was an increased interest in PE across the country, but disappointing returns, high valuations and mounting competition have tamped down investments.


Southeast Asia

Deal value reached $6.8 billion, up 14 per cent from its five-year average. However, the region is still hampered by high pricing and heavy competition, coupled with local macro challenges.




Japan had the largest ever PE deal, with $10 billion in investment value. If non-core carve-outs keep fueling deal flow, the limited number of large transactions and increase competition could pose a challenge for the market.


South Korea

Deal value plunged to $6 billion in 2016, 29 per cent below its historical average. Although PE in South Korea has benefitted from robust deal flow, cash-outs and non-core divestments, it continues to battle steep pricing and intense competition for deals. The dearth of mega-deals also hurt performance.



Deal value was cut in half, from $10 billion in 2015 to $5 billion last year. It was also 36 per cent below its five-year average. The availability of large quality targets is dwindling, contributing to a subdued market. The country is also fending off China-led competition and high prices.



Also Read:

PE dry powder hits record in 2016 amid heightened competition: Bain & Company

M&A interest may grow as buyers get more confident: Barclays India MD

West-to-East value shift: APAC-Japan beats other regions in tech M&A in 2016

APAC M&A activity to see 6% increase in H1 2017: Intralinks

Indonesia 2016: Riding on inbound deals, M&A activity sees big recovery