Industrials, healthcare and consumer and retail have seen maximum activity in terms of private equity buyouts in ASEAN, said Ee Fai Kam, a manager at Preqin (in Singapore), in an interaction.
Preqin tracks data and provides information on the private equity, real estate, hedge funds, infrastructure and private debt asset classes. Regarding buyouts, Singapore has been the top investment destination in ASEAN for the past five years, and last year saw a five-year record high of $7.2 billion in terms of aggregate size of Singaporean deals, he added.
What do you see as the major growth areas and opportunities for private equity firms?
In terms of buyout, the top three sectors that have garnered most investments are Industrials ($6.4bn), Healthcare ($3.7bn) and Consumer & Retail ($3.7bn) over the past five years. The top sector for venture capital investments in ASEAN in the past 5 years is Internet, buoyed by a number of deals in online shopping sites such as Lazada and Zalora.
When discussing M&A, what should investors look out for?
With reference to a Q&A with Ravi Thakran of L Capital Asia, which is available in our collaborative report with the Singapore Venture Capital & Private Equity Association (SVCA), Ravi explained that L Capital Asia specifically focuses on “…lifestyle consumption as a broad theme, with a strong underlying driver in the multi-fold growth in the middle class population across Asia, a phenomenon that will play out over the next few decades and create huge growth opportunities for aspirational consumption as people move up from shopping for basic necessities.”
Ravi illustrated that the changing demographics and increasing affluence of the growing middle classes across China, India and Southeast Asia will create significant demand for new goods and services, such as lifestyle brands with global marketing potential. Coupled with the high growth rates, many businesses would see the generation of higher gross margins and returns on capital.
Investors will naturally be able to capitalise upon this very favourable growth environment across multiple industry verticals and sectors, whether for mergers with companies to benefit and complement their existing portfolio, or making acquisitions to enter new markets or leverage upon excellent customer relationships that a business or brand has built.
Venture capital investments in ASEAN are a major factor driving the startup sector. Where do you see this highly competitive field evolving in the next few years? And which city do you see emerging as the centre for VC investments in the future?
In terms of buyout activity by specific countries, Singapore has been the top investment destination in ASEAN for the past 5 years. In fact, 2014 saw a 5-year record high of US$7.2 billion in terms of aggregate size of Singaporean deals. Indonesia looks interesting, especially as the new regime is instituting a series of economic reforms.
Aggregate deal value in Indonesia has already hit $183 million so far this year, which is more than that recorded in the whole of 2013. In the venture capital domain, it’s a similar story; Singapore is top again, with Indonesia and Malaysia making up the rest of the top investments for 2014.
What is the major difference between venture capital investments and private equity investments?
Preqin sees it more as a difference between venture capital and buyouts (BOs), thought bear in mind that Preqin uses ‘private equity’ as an umbrella term for both. VC tends to be more of minority stake, early-stage investment made in a small and entrepreneurial companies.
However, buyout refers more to controlling stakes in mature portfolio firms. VC investments are also likely to be smaller in size than BOs. Also, BOs are traditionally leveraged, while VC deals are typically equity-only.