<article>Trade sales are slowly replacing IPO as a preferred exit channel for investors, according to a global management consultancy Bain &amp; Co.</article>

Trade sales are slowly replacing IPO as a preferred exit channel for investors, according to a global management consultancy Bain &amp; Co.
“Many of our clients are, during their initial phase of investment, actually ensuring that they have clarity around possible trade buyers or secondaries. So, trade or secondary sales are definitely the most attractive exit channel right now and investors are not relying on the IPO markets,” said Bain &amp; Co. partner, Suvir Varma in a media roundtable on Malaysia’s deal landscape.
The consultancy also found that the valuation for deals that happened in Malaysia is “fairly high”, with an average EBITDA (earnings before interest, taxes, depreciation and amortization) of 12.7x.
Varma attributed the high valuations to large balance sheet or cash pile held by investors; healthy growth prospects in the companies; the comfort level of investors to inject capital to improve assets acquired to justify the high valuation; and scarcity value.
“In certain sub-sectors, there are not many strong companies that one could get access to. So if investors do not acquire the business now, they might not come across such an opportunity again,” he elaborated.
<h3>The Malaysian deal landscape</h3>
Bain’s report on the Malaysian market shows that local strategic acquirers continue to account for about 70 per cent of the country’s domestic deal value of about $20 billion for 2017. Malaysia is the second most active for M&amp;A in the region after Singapore.
Commenting on 1H2018, Varma said, the PE scene in Malaysia was somehow quiet during the period due to the electoral situation. But now that a new government is in place, he expects firms to “take a hard look” at businesses in Malaysia and at the same time, urging more local companies to look beyond the country for deal flows.
“To disrupt, you’d need to go international. There’s only so far you could go domestically. You will see more Malaysian corporates start doing that,” he said.
As Malaysian institutional investors including sovereign wealth fund Khazanah Nasional Bhd are undergoing a <a href="https://www.dealstreetasia.com/stories/malaysia-pm-takes-over-as-khazanah-chairman-after-restructuring-at-state-fund-103579/">major shakeup</a> in the top management level, Varma noted that it is too early to tell if such moves will affect investors sentiment.
“Fundamentally, are there attractive companies? Malaysia has a number of good companies that are of interest to investors and could benefit from growth capital. Second is that, are these investors looking to partner local funds for these transactions? With the new board, are the investments mandate going to change or will they be looking at more domestic deals and less partnerships with PE firms? Frankly, it’s too early for us to say.”
Malaysia country head for Bain &amp; Co. Francesco Cigala noted that state-linked $69 billion strategic investment fund Permodalan Nasional Bhd (PNB) had pushed a lot of value unlocking among corporates by separating a conglomerate into various parts.
“We need to see if this is something that would stay or not. There is a lot of value in these corporates that could be unlocked,” he said.
<h3>More investment capital into alternatives</h3>
Bain also observed that many investors are allocating a bigger budget for alternative investments due to higher returns in private equity.
“Unequivocally, across the global market including Malaysia, the allocation to alternatives is increasing. Because over any medium to long-term measure, PE has out-delivered the performance of all other asset classes. It’s just a rotation from lower-yielding asset class to a higher-yielding one. The question then becomes – at these entry valuations today, can PE continue to deliver the upsized returns vis-à-vis other asset classes over the past few years? Data suggests that they can. PE firms are generating much higher returns than other asset classes,” said Varma.
Also read: 
<a style="color: #ff0000;" href="https://www.dealstreetasia.com/stories/foreign-investors-account-for-half-of-indonesias-ma-deals-bain-co-103605/">Foreign investors account for half of Indonesia’s M&amp;A deals: Bain &amp; Co</a>
<a style="color: #ff0000;" href="https://www.dealstreetasia.com/stories/malaysia-pm-takes-over-as-khazanah-chairman-after-restructuring-at-state-fund-103579/">Malaysia PM takes over as Khazanah chairman after restructuring at state fund</a>

Trade sales are slowly replacing IPO as a preferable exit channel, said global management consultancy Bain & Co.

Trade sales, secondaries to replace IPOs as exit route in Malaysia: Bain & Co

Bring stories like this into your inbox every day.

Sign up for our newsletter - The Daily Brief

Trade sales, secondaries to replace IPOs as exit route in Malaysia: Bain & Co

Start your deal-making journey now!

Bring stories like this into your inbox every day.

Sign up for our newsletter - The Daily Brief